Investment 'must be priority'
Prasarn: Thailand lags behind neighbours
Thailand has to improve investment by the public and private sectors to boost annual GDP growth to 4-5%, says the Bank of Thailand governor.
"Our overall investment since the financial crisis in 1997 has been low compared with those of neighbouring countries, as the combined investment of the public and private sectors stands at 22% of GDP, of which 5% is attributed to public investment," said Prasarn Trairatvorakul.
"If we want Thailand's economy to grow by 4-5%, then investment has to be around 26% of GDP."
Mr Prasarn was speaking on the sidelines of the Thailand Competitiveness Conference 2015 hosted by the Thailand Management Association yesterday.
Investment would enhance the country's competitiveness because public investment would help develop basic infrastructure and private investment could lead to an improvement of product quality that meets global demand, he said.
Mr Prasarn said the central bank still expected GDP growth of 3% this year but admitted there were downside risks that could dent that projection because the drought's impact had not been factored in.
The Fiscal Policy Office (FPO) recently estimated that the decade-worst drought will shave 0.15 percentage point off full-year growth.
Asked whether economic growth in the second half could be below that of the first half, he said additional economic data must be seen to make a further assessment.
However, additional downside risks in the second half are not expected, while the government's budget disbursement is projected to accelerate, said Mr Prasarn.
Finance Minister Sommai Phasee recently said GDP growth in the second half was expected at 2.6% and annual 3% growth would be a challenge for the government due to negative factors such as dismal exports, the global economic slowdown, low crop prices, high household debt and tepid private investment.
The central bank still forecasts an export contraction of 1.5% this year, but exporters could reap benefits in terms of value from the weakening baht even though currencies of trading competitors have also depreciated against the dollar.
Currency value, however, is not the sole factor for export growth because some markets might emphasise product quality and Thailand has to consider developing other features in the long run, said Mr Prasarn.
The baht yesterday fell to 34.22/34.20 to the greenback compared with Wednesday's 34.08/34.10.
Despite banks' loan growth not expanding by 10% like in the past, a credit crunch where bank loans contract is not occurring in Thailand because loans are growing by 5-6%, Mr Prasarn said.
"It is normal that credit will grow by 5-6% if economic growth expands by 3%," he said.
The Asian Development Bank (ADB) has slashed its economic growth forecast for Thailand this year to 3.2% from 3.6% projected in March after disappointing growth of 3% in the first quarter and a contraction of exports in the first five months.
"Although the economy is on the path of recovery, expansion in private consumption has been gradual and merchandise exports have contracted. Tourism has been the bright spot, contributing to a 1% expansion in exports of goods and services over the same period in 2014," the Manila-based lender said.
On top of the drought, low commodity prices have hit farmers. Reduced rural income coupled with high household debt will slow recovery in private consumption this year.
However, the ADB is maintaining its forecast of Thailand's economic growth at 4.1% next year.
Prime Minister Prayut Chan-o-cha told the conference that the priority for economic development was to move ahead with special economic zones to develop regional clusters comprised of trade, manufacturing and services.
There is a need to develop an ideology based on learning and development for children's education, while revenue from the plan to increase taxation would be put towards improving education, health care and social security, he said.
The central bank is drafting the third phase of the development plan for financial institutions. It should be forwarded to the Finance Ministry by next month.
Mr Prasarn said digital banking, financial connectivity with neighbouring countries and financing for small and medium-sized enterprises (SMEs) were part of the five-year plan.
Information on credit scoring for individuals seeking bank loans will also be initiated and the move is expected to help support SMEs with good credit records.