Still room to spend after populist cap

Still room to spend after populist cap

Source says 30% limit won't hamstring funds

Farmers gathered at the Commerce Ministry in 2014 to call for rice pledging payment. PATTARAPONG CHATPATTARASILL
Farmers gathered at the Commerce Ministry in 2014 to call for rice pledging payment. PATTARAPONG CHATPATTARASILL

Some 10% of this year's budget is still available for the government to spend on populist policies after the Fiscal Policy Committee, chaired by Prime Minister Prayut Chan-o-cha, capped payment liabilities incurred from pork barrel spending at 30% of annual budget expenditure.

The cap on populist budgets at 30% of annual budget expenditure is more than the current burden from such spending, accounting for 20% of the annual budget, said a source at the Finance Ministry.

Based on the 30% ceiling and this year's budget of around 3 trillion baht, up to 900 billion could be used to finance populist policies.

The committee, which was formed to set a framework for fiscal discipline under the Fiscal Responsibility Act, is meant to prohibit politicians from spending lavishly on populist schemes to please voters.

The source said the 30% threshold was one of the top options proposed in the committee's meeting two weeks ago. Another was that the cap would be lowered from 30%, but burdens from the previous populist policies would not be taken into account.

The government's large debt liabilities stem from the Yingluck Shinawatra administration's loss-ridden rice pledging scheme, under which the government bought every single grain of rice at a pledged price of 15,000-20,000 baht per tonne of paddy -- 40-50% above the market rate.

Luck Wajananawat, former president of the Bank for Agriculture and Agricultural Cooperatives, said the government in 2016 borrowed 500 billion baht from the bank to cover that debt. He estimated it would take 16 years to pay off the debt, assuming that 10-20 billion baht from the annual budget goes to paying it down. But the government has thus far paid the debt down at a faster clip, as it now stands at 337 billion baht.

The source said the Finance Ministry is considering other solutions to manage the hefty debt burden incurred from the rice pledging scheme.

One such option includes its decision to lengthen the maturity periods on previously issued BAAC bonds, which are guaranteed by the Finance Ministry.

The BAAC bonds, issued to finance the debt burden from the rice pledging scheme, currently have maturities of three, five, 10 and 15 years. The Budget Bureau has earmarked 20-30 billion baht a year to pay the debt principal.

The Fiscal Responsibility Act, which came into force on April 20, is designed to maximise budget spending and prevent politicians from repeatedly using off-budget borrowing to finance projects, particularly populist schemes.

The committee has also required the government to keep the central budget in a range of 2-3.5% of the annual budget and allocate 2.5-3.5% of annual budget for debt principal payment.

The ratio of public debt to GDP is limited to 60%, and the government's debt liabilities are capped at 35% of estimated revenue for that fiscal year.

Foreign-denominated public debt must not exceed 10% of the overall public debt and 5% of exports and services.

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