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WICHIT CHANTANUSORNSIRI
Fiscal policy is set to evolve significantly over the next few years as policymakers seek to prop up economic growth and raise disposable income to ease the pain of soaring inflation.
Early planning for the fiscal 2009 budget starting in October calls for spending of 1.835 trillion baht against revenues of 1.58 trillion, resulting in a deficit of 249.5 billion or 2.5% of GDP. The current 2008 budget of 1.66 trillion baht, in contrast, calls for a deficit of around 1.8% of GDP.
Fortunately for economic planners, the country's finances are sufficiently sound to cope with added spending and debt without undermining long-term credibility. Public debt, for instance, stands at just 38% of GDP, well below the legal maximum of 50%. Fitch Ratings, a credit agency, notes that Thailand's fiscal position ranks at the top among similarly rated BBB+ countries.
Pornchai Thiraveja, the director of the budget and fiscal policy division of the Fiscal Policy Office, said a more expansionary fiscal stance was critical in a period of slowing economic growth and rising prices. Policy needed to focus on helping the public, particularly the poor, cope with the burden of higher living costs.
''GDP growth alone cannot answer the question of how to achieve sustainable economic development in the current environment,'' Dr Pornchai said.
While the fiscal 2009 budget does expand social spending for the poor, more needs to be done to facilitate income growth, employment and more equitable income distribution.
One programme currently under study by the Finance Ministry is to pass out food coupons to the poor over a six-month period to help the public cope with rising expenses. In principle, the coupons could be redeemed for basic foodstuffs and consumer goods, although authorities have yet to announce how the coupons would be distributed, redeemed or who would be eligible for participation.
According to the National Economic and Social Development Board, about six million people earn less than the poverty line of just under 1,400 baht per month.
Dr Pornchai said the food coupon concept was the right strategy to help ease the economic pain among the poor, but noted that many countries, in order to limit waste, chose to simply distribute food directly to the poor.
Another complication for fiscal planners working under a period of rising inflation is the impact on investment plans, including the 1.7-trillion-baht infrastructure megaproject programme. The mass-transit megaprojects, for instance, initially budgeted at 770 billion baht for five new routes in Greater Bangkok, now are expected to cost 15% more to help cover the rising steel, cement and labour expenses.
Estimates for the overall 2009 budget may face new revisions considering the shifts in the economic environment. The initial budget bill was designed based on 2009 growth forecasts of 5.5% and inflation of 3.5% _ analysts now expect growth to likely fall under target and inflation to come higher, considering that for the first five months of 2008, inflation rose 5.8% from last year.
Out of the 1.835 trillion baht allocated under the 2009 fiscal budget, current expenditures account for 1.332 trillion, or 72.6% of total spending and 9.7% higher than the year before. Investment expenditures are budgeted at 407 billion baht, representing 22% of the total budget and up 1.6% from the year before.
Spending through state financial institutions, meanwhile, has increased under the Samak Sundaravej government. The populist programmes initiated under Thaksin Shinawatra earlier but sidelined by Surayud Chulanont have been revived, including a debt moratorium for small farmers, added funds for the People's Bank microfinance programme and the village investment fund scheme.
The Bank for Agriculture and Agricultural Co-operatives estimates that more than 334,000 farmers with debt of less than 100,000 baht each are eligible for the programme, which started on April 1 and runs until March 2010. As of early June, more than 280,800 farmers nationwide are expected to participate, which involves a suspension in debt payments and training programmes aimed at helping improve productivity and labour skills.
The People's Bank, meanwhile, expects to lend five billion baht in small loans to 250,000 people this year to help support small-scale business ventures. Another 40 billion baht was allocated under the 2008 budget for the SML programme, where grants are offered to villages to help finance community investment.
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