The distinguished chief economist at Kiatnakin Phatra Securities, Pipat Luengnaruemitchai, has expressed serious reservations over the government’s growing trend towards fiscal budget deficits. He has raised red flags about the potentially damaging implications of this policy direction, particularly for long-term economic stability.
In an unvarnished critique of the government’s latest populist actions, including the launch of a digital currency scheme and the reduction of oil prices, Pipat warned that such moves risk undermining fiscal discipline. More worryingly, he cautioned, such initiatives might impose extra financial strains on businesses, possibly instigating a reconsideration of the nation’s credit rating. Just last week, the Srettha Thavisin-led administration declared an uptick in the yearly budget deficit, which currently trails above 693 billion baht. On the other hand, only a minimal growth in governmental revenue is anticipated.
Departing significantly from earlier implemented practices of fiscal budget equilibrium, the government has further pushed the boundaries of the budget deficit framework for the forthcoming years. The implication of this action particularly raises questions for Pipat.
He posits whether the public will have to shoulder debts equating to 0.6% of the GDP annually for the coming four to five years due to the government’s choice to enlarge the deficit to support their digital cash handout project. Given the present course of the government, public debt could leap from 61% to 65% of GDP, precariously approaching the 70% threshold. In the view of Pipat, this governemental financial choice reduces the necessary fiscal buffer to resist forthcoming shocks, as reported by Bangkok Post.
Pipat also challenged the practicality of the Pheu Thai Party’s assertion that it can distribute money without breaching fiscal discipline or overtaxing the fiscal budget, particularly against the backdrop of the administration’s populist policy direction.
The past few weeks have seen a notable rise in long-term Thai interest rates – a development partly contributed to the ascending offshore rates. But, Pipat suggests, another contributing factor could be heightened fiscal risk due to an expanding supply of government bonds. This situation, if true, would inflate the financial costs for the government and the Thai private sector.
Moreover, Pipat has expressed anxiety that leveraging funds outside of the fiscal budget, coupled with placing initial liabilities on state-owned banks, might compel these institutions to seek extra liquidity from the financial market. This move could consequently elevate future financial costs.
Pipat further cautioned that these evolving situations could shake investor trust and provoke credit rating agencies to rethink Thailand’s rating. He points out the hazard posed by a potential fiscal deficit increase due to power tariffs and energy price subsidies, which could exacerbate the country’s current account deficit, influencing exchange rates in the process.
To conclude, the economist underscored the significance of fiscal discipline, suggesting that it is not advisable for PM Srettha Thavisin to also hold the finance minister’s portfolio due to the complex and critical responsibilities within that role such as controlling government spending and setting boundaries on budget spending.
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