BoT: State handouts no danger

BoT: State handouts no danger

Long-term fiscal discipline still intact

Prime Minister Prayut Chan-o-cha calls yesterday for investors to help the government solve economic problems. At the same seminar, central bank governor Veerathai Santiprabhob urged the government to maintain its long-term fiscal discipline. APICHIT JINAKUL
Prime Minister Prayut Chan-o-cha calls yesterday for investors to help the government solve economic problems. At the same seminar, central bank governor Veerathai Santiprabhob urged the government to maintain its long-term fiscal discipline. APICHIT JINAKUL

The government’s economic stimulus measures and rubber subsidy will not cause problems for Thailand’s long-term fiscal discipline due to the manageable level of public debt, says the Bank of Thailand.

"It's inevitable in the short run that the state will need to stimulate the economy during a slowdown or when recovery momentum is unclear," central bank governor Veerathai Santiprabhob said.

He was speaking on the sidelines of a forum on the capital market's role and development plan held at the Stock Exchange of Thailand's new headquarters.

"But we have to be careful about fiscal discipline, as there are several public expenditure schemes that have long-term importance, particularly for spending associated with elderly care and social welfare," Mr Veerathai said.

On Tuesday, the government agreed to buy 100,000 tonnes of all types of rubber products directly from growers at an above-market price of 45 baht a kilogramme.

Public debt rose by 84 billion baht to 5.87 trillion or 43.8% of GDP at the end of last October, the Public Debt Management Office reported. Some 94% was local debt.

Mr Veerathai insisted adherence to fiscal discipline and the budget framework were essential for the government’s long-term expenditure.

The government tried to help beleaguered groups through support measures in its first phase, while the second phase aimed at stimulating economic activities and public investment, he said.

Mr Veerathai said the third phase involved improving Thailand’s long-term competitiveness through investing in important public projects.

"If the government emphasises short-term issues too much and does not focus on long-term competitiveness, that's not really good for sustainable fiscal discipline," he said.

Mr Veerathai said headline inflation in the first quarter was expected to remain in negative territory due to the decline in oil prices, but inflation could turn positive in the second half since private consumption and investment had shown signs of recovery.

"Loan growth is expanding in the segments related to households and businesses, proving economic activities are still gaining," he said.

Mr Veerathai said the low oil prices had hurt crop prices, which are linked to oil-price movements.

Foreign holding of Thai government-related bonds is 7-8% of total outstanding bonds, low compared with other emerging markets, he said. Thailand’s current account surplus, 8% of GDP last year, and ample foreign reserves, three times higher than its short-term foreign debt, are cushions against volatility.

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