Thanong warns against rising public debt

Thanong warns against rising public debt

The government's plan to seek loans to finance 2 trillion baht in infrastructure projects may raise public debt to more than 70% of gross domestic product, a level that threatens the country's credit rating, warns former finance minister Thanong Bidaya.

Window cleaners work on a building at the Bangkok Art and Culture Centre yesterday. Growth has been strong since the floods, but economists warn of the dangers of debt gaining steam. PATIPAT JANTHONG

Thailand's public debt stands at 45% of GDP, while its threshold is set at 60%.

Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong recently soothed jitters by saying public debt will not exceed 50% of GDP after borrowing to fund the seven-year infrastructure projects takes place.

The cabinet approved a draft bill last month to authorise government borrowing to fund the 2 trillion baht needed for massive infrastructure projects.

"If public debt hits 70%, the country will be exposed to risks," said Mr Thanong.

He said the government should include the loans in the annual budgets rather than issuing an act to allow the government to prioritise which projects will receive priority investment.

A logistics system and dual-track rail projects should be on the front burner, he said.

The bulk of the infrastructure projects will be in rail and are expected to propel these segments of the Thai stock market, said Mr Thanong.

The government's policy of cutting the corporate income tax to 23% last year and 20% this year from 30% in past years was a major contribution to a skyrocketing stock market and robust earnings from listed companies, said Mr Thanong, adding that the local bourse could reach 1,600 points this year.

"If the government cuts the tax by another 10 percentage points, it's likely the SET index could reach 1,800 points," he said.

However, capital inflows could dwindle if the US Federal Reserve stops its easing policy, which is a major concern for the SET.

"The SET may still boom the next two years, but we don't know what will happen in the third year," said Mr Thanong.

The SET index has risen by 13% this year to close at 1,576.88 yesterday with brisk trading of 86.3 billion baht.

Meanwhile, Narongchai Akrasanee, a member of the Bank of Thailand's Monetary Policy Committee, said the current interest rate is aiding the country's economic growth, but high volatility in foreign exchange markets is a concern.

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