Credit rating agencies are watching to see if spending on the state's rice pledging scheme will exceed the 500-billion-baht revolving budget, says a Finance Ministry source.
Should the government fail to stick to the provided budget, it could add to the government's default risk in the rating agencies' view, according to the source, who spoke on condition of anonymity.
Moody's Investors Service in early June warned that potential losses from the rice pledging scheme would make it harder for the government to reach its goal of a balanced budget by 2017 and stood as a negative factor in Thailand's credit rating.
Moody's later backtracked, saying the rice subsidy is not a threat to the country's credit rating, as several economic factors lent support to the rating.
A lower credit rating typically raises borrowing costs for both the government and the private sector.
A 137-billion-baht loss in the pledging scheme's first harvest year (begun in October 2011) has raised criticism over government budget waste.
The vote-winning policy of the ruling Pheu Thai Party has fuelled a heated debate, as the scheme's buying price is set at 40-50% higher than the global rice price.
Despite relentless criticism and rising concern over public debt, the government recently approved a 270-billion-baht budget for rice buying in the next harvest year, making minor modifications to the scheme.
The state will continue to buy white paddy rice at 15,000 baht a tonne and Hom Mali at 20,000 baht a tonne, but it capped the pledging amount at 500,000 baht per household for the 2014 main crop from Oct 1 to next Feb 28.
The price for second-crop paddy has been cut to 13,000 baht a tonne, with a top pledging amount of 300,000 baht per household. The second crop runs from March 1-Sept 30, 2014.
"Even though the Thai government has never defaulted on its obligation to pay debt over the past century, it is not a factor restoring the rating agencies' confidence, as the country almost defaulted during the financial meltdown of 1997," the source said.
Since the 2008 global financial crisis, rating agencies have grown more cautious in evaluating sovereign credit ratings, said the source.
The Finance Ministry earlier set a ceiling for public debt at 50% of gross domestic product until 2017.
The assumption takes into account the 500-billion-baht budget for the rice pledging scheme and obligations from the state's proposed infrastructure investment plan.
The source said it remains uncertain whether the 270-billion-baht budget will be a separate amount from the 500-billion-baht budget, which has been fully spent in the first two years of the rice pledging scheme.
Apart from the 500-billion-baht budget, the state-owned Bank for Agriculture and Agricultural Cooperatives has lent an additional 166 billion baht to finance the scheme.