Finance: Political worries hold back fiscal stimulus

Finance: Political worries hold back fiscal stimulus

Analysts urge bump to debt ceiling

People make purchases at a fresh market in Bangkok. The pandemic has pushed the public debt-to-GDP ratio to 50.5%, worth 7.9 trillion baht, as of Nov 30. (Photo by Varuth Hirunyatheb)
People make purchases at a fresh market in Bangkok. The pandemic has pushed the public debt-to-GDP ratio to 50.5%, worth 7.9 trillion baht, as of Nov 30. (Photo by Varuth Hirunyatheb)

Thailand remains conservative regarding its public debt-to-GDP ceiling because of concerns over a domestic political backlash, even as other countries have already raised their debt ceilings to counter the crisis, says a ministerial source.

Although both the World Bank and IMF state Thailand's fiscal position remains strong and there is room for fiscal policy to stimulate the economy, the administration remains hesitant concerning stimulus, said a source at the Finance Ministry who requested anonymity.

Raising the public debt ceiling is a regular talking point among opposition parties when criticising the administration, said the source.

Higher public debt means increased financial burdens shouldered by Thailand, which is a sensitive political issue, said the source.

The Fiscal Responsibility Act stipulates the public debt-to-GDP ratio must not breach the 60% ceiling.

The act, enforced from April 20, 2018, is designed to maximise budget spending and prevent politicians from repeatedly using off-budget borrowing to finance projects.

In contrast, many European countries issued policy directives to increase the public debt ceiling to manage the ongoing economic crisis, said the source.

Excess liquidity in the global financial markets due to ultra-low interest rates worldwide provides an opportunity for Thailand to seek external loans, said the source.

The country's sovereign credit rating also remains stable, helping boost its credibility to obtain external loans to diversify risks associated with funding sources, the source said.

The move would also provide Thailand with more financial remedies to help the economic recovery by using low financing costs, the source said.

The existing portion of external debts shouldered by the government is very low, registered at 86.4 billion baht or 1-2% of total outstanding public debts as of Nov 30, said the source.

The 60% public debt ceiling will have to be raised if the crisis continues, pushing the government to seek additional loans to supplement the 1-trillion-baht emergency loan decree approved in April 2020.

Thailand's public debt-to-GDP ratio stood at 50.5% with a value of 7.9 trillion baht as of Nov 30, according to the Public Debt Management Office.

The public debt level would rise to 57% of GDP upon borrowing the full amount under the loan decree.

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