Enduring imbalances between fiscal revenue and expenditures should be addressed because they are a risk to long-term financial stability, says the governor of the Bank of Thailand.
Prasarn Trairatvorakul said a substantial increase in using off-budget funds for several policies, including the rice-pledging scheme, could affect fiscal sustainability.
"These are not major problems at the moment, but if they remain unaddressed then imbalances will occur," he said.
Taxation mainly contributes to fiscal revenue but this depends on the economic cycle as greater tax revenue is collected in times of good economic conditions, said Mr Prasarn.
Fiscal expenditures are expected to increase due to expansion of investments to develop the country’s competitiveness, he said, adding that the cost of providing domestic medical care would add to greater fiscal spending.
Problems regarding fiscal sustainability will intensify given that the state has been adopting the use of off-budget funds, said Mr Prasarn.
The central bank’s Monetary Policy Committee and Financial Institutions Policy Committee recently issued a statement expressing concerns over long-term financial stability stemming from imbalances between fiscal revenue and fiscal expenditure as well as increased use of off-budget funds.
Regarding the Bank for International Settlements’ report warning of the perils of keeping low interest rates for too long, Mr Prasarn said the comment was geared mainly towards major economies.
He cited the International Monetary Fund report on how certain countries including Thailand could implement a relaxed monetary policy given confidence in macroeconomic management.
Mr Prasarn said the central bank’s monetary policy has not reduced confidence in the financial market, noting that a stable foreign exchange rate and affirmed sovereign credit rating are examples.
The current foreign exchange rate is not an obstacle to international trade and investments or Thailand's exports because the rate is based on investors’ confidence and economic fundamentals, he added.
Despite being affected by internal and external factors, the baht recorded overall stability and appreciated by 1.3% in the first half, which was in line with the movement of regional currencies, the central bank's statement said.
The baht's depreciation, however, resumed in the short term after the May 22 coup before regaining stability due to clearer political developments and improved economic conditions.