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Headed for debt crisis?

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Big promises to spend money made by politicians in elections now, may not be what is best for the country in the future. 

Debt burdens & especially the government debt burden (government spending, government budget) are often depicted as carrying something too heavy to carry, or here in a political cartoon as Sisyphus by Honoré Daumier (1808–1879) (Source: Wikipedia)

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Economics

Headed for a debt crisis

27 Feb 2013
Somchai Jitsuchon

It is true that a certain level of public spending is necessary to perform essential government policies, but what if tax revenue is not able to cover those necessary government expenditures.

The obvious answer here is for the government to take on debt. Is this a bad thing? Absolutely not.

Public debt, if used properly and managed well, can be a fundamental tool to build an economy and a country. All the government needs to do is ensure their spending is properly targeted and that debt grows more slowly than tax revenue in the long-run.

Unfortunately, this may not be the case for Thailand.

The Thailand Development Research Institute (TDRI) has conducted a forecast on Thailand's public debt situation over the next five years, from 2013-2017. We have found that the level of public debt is most likely to rise over that time period, almost regardless of how fast the economy grows. The forecasted debt surge mostly resulted from the government's extravagant populist policies. Policies such as the rice-pledging scheme, subsidies for first-time car buyers and income tax cuts are likely to contribute to increasing public debt.

Shown in the table of the cost structure of the government's special projects over the next five years, it is predicted that if the economy grows by less than 6% per year the level of public debt is likely to reach and even surpass a shaky proportion of 60% of the country's national income (GDP) - a level assumed to be safe by many. 

For an average citizen with commonsense, this should sound worrisome.

It should also worry the government. If we look at this debt trend from a "risk management" basis, it certainly is worrisome. In risk management, one would evaluate both positive and negative outcomes that might occur, and do whatever is necessary to prepare for the worst

So even if the economy grows by at least 6% annually over the next 10-15 years, the country's public debt-to-GDP ratio would begin to fall and stabilise (though this is certainly a big "if"), it is by no means a sure thing.

And what about the worst-case scenario.

The worst is when the economy grows by 4% or less per year while the government continues to spend according to its current plan without generating more future income to cover its enormous expenses. In that case, debt-to-GDP ratio would approach 80% quickly, and the country would surely lose its credit trustworthiness.

To prepare for the worst, the TDRI proposes that the government should do their best in raising its "fiscal space" by: 1) more intelligent investments; 2) more income generation; and 3) a reduction of unnecessary expenses.

Firstly, the government should invest in public infrastructure to help the economy expand and generate automatic tax income to pay down its debt. The current plan to invest around two trillion baht in public infrastructure is a good one, but the plan should be executed transparently and effectively.

Additionally, the government should continue to invest in various policies that develop our human and capital productivity. This is absolutely essential if Thailand is to avoid the middle income-trap. Labour productivity here still mirrors the productivity of poorly structured economies.

Secondly, in order to spend more, the government needs to collect more income, and should do so with sensible tax reform that would not only raise income but make society a better and more equitable place to live.

Those who earn higher incomes should pay higher taxes. The current tax system is not built that way due to many tax loopholes

Thirdly, the government needs to cut back on some of its expensive populist policies, such as the costly rice-pledging scheme.

The TDRI estimates that curbing the loss to no more than 70,000 billion baht per year, instead of 200,000 billion currently, could easily add 5 per cent of debt/GDP to the fiscal space.

That level might prove necessary for the country to avoid a European-type public debt crisis that would drag the country down long term. 

It is up to the politicians whether they want to do what is best for the country, or do simply what they feel will win them another election. 

Somchai Jitsuchon is Research Director (Inclusive Development) at the Thailand Development Research Institute

(Source: Bangkok Post, Opinion, Headed for a debt crisis, 27 Feb 2013, Somchai Jitsuchon, link


Public Debt & Economic Development Vocabulary


middle income-trap -  an economic development situation, where a country which attains a certain income (due to given advantages) will get stuck at that level; cannot move forward and grow any richer (See Wikipedia)

debt - an amount of money that you owe หนี้
crisis - an urgent, difficult or dangerous situation วิกฤตการณ์ วิกฤต

debt crisis - public debt crisis, the problems that happen when government debt grows to very high levels compared to tax revenues, happened to Latin American countries during the 1980s and the European Union since the mid-2000s (See Wikipedia)

public debt -
government debt (See current global debt)
public debt crisis

public debt situation
Thailand's public debt situation
the level of public debt

European public debt crisis  - an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties, also called "European sovereign debt crisis" (See Wikipedia & on causes)

burden -
something that is difficult to do (or carry) but you must do เครื่องบรรทุก, ภาระ, น้ำหนักที่แบก, ทำให้ยุ่งยาก, ยากลำบาก, ยุ่งยาก, เป็นภาระ
debt burden -
a debt that is difficult to pay back
government debt burden - government debt that is difficult to pay back

Sisyphus -
a Greek king who lied continually and was punished in hell after his death by having to roll a very large and heavy rock up a hill only to have the rock roll down the hill and have to do this over and over again forever (See Wikipedia)

public debt-to-GDP ratio - "one of the indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP). A low debt-to-GDP ratio indicates an economy that produces a large number of goods and services and probably profits that are high enough to pay back debts. Governments aim for low debt-to-GDP ratios and can stand up to the risks involved by increasing debt as their economies have a higher GDP and profit margin" (See Wikipedia)

ratio - one number divided by another number (as a percentage of another number): X / Y; comparison, proportion อัตราส่วน, สัดส่วน, อัตราเปรียบเทียบ 

type -
kind (one kind of thing that has many different kinds or types)
European-type public debt crisis 

headed for - going towards a place or situation (not arrived yet)
headed for a debt crisis

public spending - government spending

essential - necessary and important ที่จำเป็น ที่สำคัญ
essential government policies

revenue
- income from taxes or business activities รายได้
tax revenue - government income from taxes

expenditure - spending, money spent by someone on something การใช้จ่าย
government expenditures

cover -
have enough money to pay for
tax revenue
is not able to cover necessary government expenditures.

It is true that a certain level of public spending is necessary to perform essential government policies, but what if tax revenue is not able to cover those necessary government expenditures.

obvious - clear; easy to see, recognise or understand ชัดเจน
the obvious answer here

take on debt - borrow more money

absolutely - completely, with great emphasis 
absolutely not  
Is this a bad thing? Absolutely not.

The obvious answer here is for the government to take on debt. Is this a bad thing? Absolutely not.

used properly - used in the right way
managed well -
do a good job in controlling and guiding some activity (managing activity)

fundamental - very important and essential, needed, cannot do without พื้นฐาน รากฐานที่สำคัญ
fundamental tool

Public debt, if used properly and managed well, can be a fundamental tool to build an economy and a country.

targeted - aimed at something (such as a goal you want to achieve) ตกเป็นเป้า ตั้งเป้า เล็ง มุ่ง
properly - to do something in the right way

properly targeted
properly targeted spending - spending on the right things in the right amounts (so not wasting money)

ensure - to make certain that something happens or is done รับรอง ให้ความมั่นใจ  ให้การยืนยัน
ensure spending is properly targeted

All the government needs to do is ensure their spending is properly targeted and that debt grows more slowly than tax revenue in the long-run.

is the case - is the situation now
isn't the case -  is not the situation now

may not be the case
Unfortunately, this may not be the case for Thailand

forecast - a statement about what will happen in the future based on information available now พยากรณ์
forecast for the next five years

The Thailand Development Research Institute (TDRI) has conducted a forecast on Thailand's public debt situation over the next five years, from 2013-2017.

the level of public debt is most likely to rise over that time period

surge - a sudden increase in something การเพิ่มขึ้นอย่างรวดเร็ว
a debt surge

populist - a politician who claims to care about the interests and opinion of ordinary people (See Wikipedia)
populist policies - policies with lots of free things (handouts) for different groups of people

extravagant - too much; costing too much money
extravagant populist policies

The forecasted debt surge mostly resulted from the government's extravagant populist policies.

scheme - a plan that is developed by a government or large organisation in order to provide a particular service for people แผนการ โครงการ
rice-pledging scheme

subsidies - when the government pays part of the costs of an activity เงินช่วยเหลือจากรัฐ
subsidies for first-time car buyers

income - money that people receive from work or some other source, used for household consumption and savings
income tax - tax paid on the money you earn from your job and other activities
income tax cuts

contribute - add too
likely to contribute to increasing public debt

Policies such as the rice-pledging scheme, subsidies for first-time car buyers and income tax cuts are likely to contribute to increasing public debt.

table - to suggest formally in a meeting เสนอเรื่องเข้าที่ประชุม
surpass - go beyond


Shown in the table of the cost structure of the government's special projects over the next five years, it is predicted that if the economy grows by less than 6% per year the level of public debt is likely to reach and even surpass a shaky proportion of 60% of the country's national income (GDP) - a level assumed to be safe by many. 

citizen - someone who has the right to live permanently in a particular country legal rights and responsibilities พลเมือง (See Wikipedia)
an average citizen

commonsense - one's natural ability to make good judgements, behaving in a practical way
an average citizen with commonsense

worrisome - worrying; causing worry or anxiety ซึ่งน่าวิตก
sound worrisome
this should sound worrisome

For an average citizen with commonsense, this should sound worrisome.

trend - a gradual change or development ทิศทาง แนวโน้ม
public debt trend - the direction that government debt is heading

risk - danger, how likely or possible it is for a bad event that causes harm and damage ความเสี่ยง
risk management - the control of risk and dangerous situations

look at the debt trend from a "risk management" basis

positive - good ที่ดี
positive
outcomes - good things that happen (as the result of some process)

negative - bad ที่เป็นด้านลบ
negative outcomes - bad things that happen (as the result of some process)

It should also worry the government. If we look at this debt trend from a "risk management" basis, it certainly is worrisome. In risk management, one would evaluate both positive and negative outcomes that might occur, and do whatever is necessary to prepare for the worst

annually - happening every year ทุกๆปีด
grows by 6% annually

grows by at least 6% annually
if the economy grows by at least 6% annually

stabilise - to reach a state where there are no longer any major changes or problems ทำให้มีเสถียรภาพ

the country's public debt-to-GDP ratio would begin to fall and stabilise

by no means ... - is not ...
a sure thing
it is by no means a sure thing.


So even if the economy grows by at least 6% annually over the next 10-15 years, the country's public debt-to-GDP ratio would begin to fall and stabilise (though this is certainly a big "if"), it is by no means a sure thing.

scenario - a possible situation in the future; the way a situation could develop in the future
worst-case scenario - what could happen if everything goes wrong, the complete failure situation

And what about the worst-case scenario?

current - of the present time ปัจจุบัน
the current plan

enormous - very large ที่ใหญ่โตมโหฬาร มหาศาล
enormous expenses

generating income - making money, getting money
cover expenses -
making enough money to pay for the things you buy
generating income to cover expenses

The worst is when the economy grows by 4% or less per year while the government continues to spend according to its current plan without generating more future income to cover its enormous expenses.

approach - coming to a certain situation or level เข้าใกล้
debt-to-GDP ratio would approach 80% quickly

trust  -
when you believe that someone will do what they say and not lie to you ความไว้วางใจ
trustworthiness - ความคู่ควรแก่การไว้วางใจ

credit - loans, borrowing of money เครดิต เงินกู้ทั้งหมด
credit trustworthiness

In that case, debt-to-GDP ratio would approach 80% quickly, and the country would surely lose its credit trustworthiness.

fiscal - related to government spending; connected with the government budget, i.e., public money เกี่ยวกับงบประมาณ
space - room or flexibility to do things or operate the way you (when debt repayments are too big choices are limited)
fiscal space - room to operate with government spending (actions not limited by huge debt payments that must be paid right now)

generate (verb) - to produce; create ก่อให้เกิด; สร้าง กระตุ้นให้เิกิด
generate automatic tax income

generation
(noun) - creating or producing something
income generation

To prepare for the worst, the TDRI proposes that the government should do their best in raising its "fiscal space" by: 1) more intelligent investments; 2) more income generation; and 3) a reduction of unnecessary expenses.

infrastructure - the high-cost facilities that everyone in the economy shares (water, roads, electricity, trains) สาธารณูปโภค
public infrastructure - high cost things the government builds for everyone to use (such as roads, ports, airports, etc)

expand - to become larger ขายตัวออกไป
help the economy expand

pay down debt - reduce debt (by paying back some of the original loan amount (principal) so that you don't have to pay interest on it anymore)

Firstly, the government should invest in public infrastructure to help the economy expand and generate automatic tax income to pay down its debt.

transparently - openly; having nothing hidden or secret อย่างโปร่งใส
effectively - working well and producing the results that they wanted

execute plan -
to do the things you planned to do (carry out the plan)

The current plan to invest around two trillion baht in public infrastructure is a good one, but the plan should be executed transparently and effectively.

productivity - producing more for the same amount of resources (labour, capital, machines) ผลิตภาพ; การเพิ่มผลผลิต

develop
productivity
policies develop productivity

human
productivity
capital productivity
labour productivity

the government should continue to invest in various policies that
develop our human and capital productivity

absolutely - completely
absolutely essential

This is absolutely essential if Thailand is to avoid the middle income-trap.

poorly structured economies


X mirrors Y -
X shows Y to be true
Labour productivity here still mirrors the productivity of poorly structured economies.

equitable - fair, just, treating people equally (helping the poor too; not just benefiting the rich and powerful) ยุติธรรม, เที่ยงธรรม, เป็นธรรม
make society a better and more equitable place to live

reform - improvement; a change that is intended to correct a situation that is wrong or unfair การแก้ไข การปฏิรูป
tax reform

sensible
- reasonable, wise,  rational, well-reasoned มีเหตุผล, มีไหวพริบ, เฉลียวฉลาด, ซึ่งมีวิจารณญาณ
sensible tax reform

Secondly, in order to spend more, the government needs to collect more income, and should do so with sensible tax reform that would not only raise income but make society a better and more equitable place to live.

loopholes - ways to get around rules, while still following the rules (a legal way to avoid or go around a law)
tax loopholes - legal ways to not pay taxes

Those who earn higher incomes should pay higher taxes. The current tax system is not built that away due to many tax loopholes

cut back on .... - reduce
cut back on expensive populist policies

Thirdly, the government needs to cut back on some of its expensive populist policies, such as the costly rice-pledging scheme.

curb - reduce or stop completely
curbing the loss

estimates - guesses of what the size, value, amount, cost, etc. of something might be การประมาณค่า

The TDRI estimates that curbing the loss to no more than 70,000 billion baht per year, instead of 200,000 billion currently, could easily add 5 per cent of debt/GDP to the fiscal space.

drag - to pull something or someone along with difficulty; slowing something down ลาก
drag down - hurt the country; slow the country down 

drag the country down
drag the country down long term

That level might prove necessary for the country to avoid a European-type public debt crisis that would drag the country down long term. 

election - the process of choosing a person or a group of person for a position, especially by voting elect (v) electoral (adj) synonym: the polls การเลือกตั้ง

do simply what they feel will win them another election
do what is best for the country

up to ... - the decision is to be made by ... (is the responsibility of)
It is up to the politicians - the politicians have to make this decision

It is up to
the politicians whether they want to do what is best for the country, or do simply what they feel will win them another election. 

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