State urged to rethink fiscal framework
PDMO sees vital role for state borrowing
Given the economic turbulence brought about by the pandemic, the government may need to rethink its fiscal sustainability framework, which caps public debt at 60% of GDP, says the Public Debt Management Office (PDMO).
Patricia Mongkhonvanit, PDMO's director-general, said with the current economic crisis, government borrowing is instrumental in shoring up the economy.
Last year, the government issued a royal decree to borrow 1 trillion baht to remedy and revitalise the virus-ravaged economy.
Even with the decree, Thailand's public debt-to-GDP ratio is expected to stay below the 60% ceiling -- estimated to be 57% as of the end of fiscal 2021 -- in late September this year.
Thailand has managed to keep public debt to GDP below the sustainability framework ceiling for decades by providing fiscal policy space for the government to buffer against economic shocks.
The public debt level was around 40% of GDP before the pandemic emerged in early 2020.
A review of the government's fiscal sustainability framework is conducted every three years and a check-up is due this year.
However, Ms Patricia said the 60% ceiling for the fiscal sustainability framework is based on normal economic conditions.
"This year, an evaluation of the fiscal sustainability framework is due. This is a good opportunity for us to reassess the country's economic reality," she said.
"During such a crisis, borrowing by the government plays a vital role in restoring the economy, and revising the framework will enable the government to borrow more. However, this entire process rests on the government's decision."
Ms Patricia said the government's public debt-to-GDP ratio is likely to stay within the range imposed by the current fiscal sustainability framework.
"As long as the government does not issue a new loan decree, we expect the ratio to stay under the 60% ceiling," she said.
"More importantly, there is still 240 billion baht remaining from the 1-trillion-baht loan decree."
According to the amended Public Debt Management Act of 2005, public debt refers to any debt incurred by the Finance Ministry, state agencies, or state-owned enterprises, or debts guaranteed by the Finance Ministry.
However, it does not include a debt incurred by state enterprises that undertake money lending, asset management, or a loan business that is not guaranteed by the Finance Ministry, as well as debts secured by the Bank of Thailand.
PDMO expects Thailand's public debt-to-GDP ratio, as defined by the amended act, to be 58.8% at the end of fiscal 2021.
IMF calculations, which use general government debt to GDP, forecast the rate at 55.9% at the end of the 2021 calendar year.
General government debt according to the IMF's definition covers debts owed by the central government plus off-budgetary agencies, social security funds, and debts of local administrations.
A source from the Finance Ministry who requested anonymity said the government may consider reinstating Covid-19 relief measures, or subsidies that already expired such as the co-payment subsidy programme that proved overwhelmingly popular among small-scale retailers.