Thailand's spending programmes may help boost consumption and ease the impacts from weak exports but the effects would not last long, warns the Asian Development Bank.
Steffensen: Poor education investment
The Thai economy was expected to grow 5.2% this year on a surge in post-flood private investment and the government's stimulus policies, said Luxmon Attapich, senior country economist.
Next year's growth is forecast at 5%, driven by public investment in water-management projects under a 350-billion-baht budget over the next several years.
The investment will help stimulate private investment and consumption.
The growth forecasts for both years have been revised down in line with the ADB's view of a gloomier world economic outlook. The euro-zone sovereign debt crisis and possible discontinuity of fiscal stimulus to the subdued US economy remain key risks.
The ADB expects exports to grow by 5% this year, a stark decline from about 20% before the euro-zone debt crisis.
"There is not much we can do to impair diminished export orders this year. But our survey found that exporters are confident their performances could improve next year as they have time to do better marketing of their goods," said Dr Luxmon.
She said the 40% minimum-wage increase in seven provinces and a hike in civil servants' salary in April raised wages by 15% overall in the first half, helping to spur consumption.
The wage hike will take effect nationwide bext Jan 1.
Its incentives for the first-time car buyer, first-home buyer and rice pledging schemes have helped increase people's incomes.
The paddy pledging measure, however, resulted in a 43% decline in rice exports as of midyear.
"The only concrete and tangible impact of such policies is higher domestic consumption. The impacts of many of these would be short-lived. Moving ahead, I'm not entirely sure they can address income inequality," said Dr Luxmon.
Craig Steffensen, the ADB's country director, said the income-disparity Gini coefficient in Thailand is higher than its neighbours due to inadequate human resource investment.
"The National Statistical Office reports Thai children read 2-5 books on average per year. By contrast, Vietnamese children read 50-70 books per year, a startling gap," said Mr Steffensen.
An analogy could be drawn between problems in Thai education with those in the State Railways of Thailand as both seriously need "modernisation". The country has long had plans to do it, but couldn't really execute them, he added.
Dr Luxmon said public debt is expected to increase to slightly below 50% of gross domestic product from 43% now over the next three years, given the Public Debt Management Office's financing plan. This excludes the government's off-the-budget spending plans of 2.2 trillion baht in massive infrastructure projects.
Infrastructure investment is expected to start in 2014 as legislation takes time, she said.
Dr Luxmon said inflation was expected at a moderate 3% this year and 3.2% next year in line with lacklustre world demand for commodities.
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- Writer: Parista Yuthamanop