A delay in the state budget planning for fiscal 2024 will be hard to avoid if Thailand still fails to secure a new prime minister in the next parliamentary vote scheduled for July 27.
At their past two meetings on July 13 and July 19, the majority of members of parliament decided not to vote for Move Forward Party leader Pita Limjaroenrat and demanded political parties nominate other candidates.
Without a premier, the parties cannot take the next step to form a coalition government and if the process of establishing the new government drags on, plans to allocate budget to boost and restore the economy may be affected.
Government officials and business people reacted differently to the budget issue, with some being more worried about the negative impact on investment amid the lengthy process to start the nation's new political chapter.
Puea Thai Party deputy leader Phumtham Wechayachai, left, party leader Cholnan Srikaew, centre, and party secretary general Prasert Jantararuangtong arrive at a press conference on Friday before an eight-party coalition meeting to discuss plans ahead of the upcoming parliamentary vote for a new premier at Puea Thai Party's headquarters in Bangkok. AFP
THREE-MONTH DELAY
Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organizations, said the economic situation in the short term relies on the formation of a new administration. In his view, the delay in setting up the government will cause the fiscal 2024 budget to be delayed by about three months.
Nonetheless, normally there should be an outline about how the budget would be spent. Therefore, it should not affect the overall economy much, he added.
Once the new government is established, they will be able to introduce stimulus measures which are expected to be implemented in the first quarter of 2024. That would be in time to drive the economy forward.
The economy has recovered continuously with the tourism industry being the main driving force until the end of the year. During the high season, an increasing number of Chinese tourists would help compensate the decline of exports and the manufacturing sector that have been affected by the global economic slowdown.
"The key issue awaiting the new government is to encourage tourists to enter Thailand more easily, such as allowing tourists with visas to travel to neighbouring countries within Asean," said Mr Kobsak, who is also senior executive vice-president of Bangkok Bank.
"When the tourism sector helps stimulate the economy, people will have greater confidence and feel more comfortable spending, creating another positive effect in boosting domestic consumption," he said.
Krungsri Capital Securities also views that there is a high probability that the preparation of the government budget for 2024 will be delayed, meaning that no additional stimulus measures, mostly in the form of public investment, would be introduced until the second half of next year.
Another key issue to monitor is whether supporters of the Move Forward Party will stage protests. If there is a protest and it turns violent, investor confidence would be hurt adversely.
"The political situation is still risky and uncertain. Although the Pheu Thai Party can lead the government formation, stocks related to politics are still volatile and there would be plenty of speculation in relation to political developments," said the brokerage.
The possible delay of budget disbursement may affect only some ongoing projects and investment related to the Digital Economy and Society Ministry, according to Putchapong Nodthaisong, secretary-general of the National Digital Economy and Society Commission.
The impact would be on disbursement for investment but not on expenses such as officials' salaries, he added.
He expects the disbursement for investment might happen in the second quarter next year or earlier.
Move Forward Party leader Pita Limjaroenrat gestures at parliament after the Constitutional Court ordered his temporary suspension from the parliament on the day of the second vote for a new prime minister on July 19, 2023. Nutthawat Wichieanbut
REDUCED INVESTMENTS
The delay in the approval of the 2024 Budget Expenditure Act is expected to decrease government investment in the fourth quarter of this calendar year and the first quarter of next year by 140 billion baht in total, said a Finance Ministry source who requested anonymity.
However, this assessment is based on the assumption that the 2024 Budget Expenditure Act, starting on Oct 1, will be delayed by up to six months.
A ministry source added that the delay in the disbursement of the fiscal 2024 investment budget will not greatly affect the government's disbursement rate as it is expected that once the new government is formed and the 2024 Budget Expenditure Act is approved, the disbursement of state investment budget will accelerate, causing investment that has not yet been disbursed to be disbursed in the third and fourth quarters of 2024.
As a result, it is expected that the overall impact on the economy in 2023 will be only 0.05% of GDP while in 2024 it is expected to increase by 0.03% due to the accelerated disbursement in the second half of 2024.
Due to the delay of the approval of the 2024 Budget Expenditure Act, the disbursement rate of the government's investment budget dropped to 68% of the total government investment budget compared to 74% in a normal case.
Nevertheless, to help the economy continue to operate normally while the government's investment budget cannot be disbursed in fiscal 2024, the Finance Ministry will accelerate the financing of the remaining low-interest loans, roughly 75 billion baht, through schemes such as the "1 Million Houses" loan programme by the Government Housing Bank, financial assistance for entrepreneurs in the three southernmost provinces by the Bank for Agriculture and Agricultural Cooperatives and the credit guarantee project for small and medium-sized enterprises by Thai Credit Guarantee Corporation under Portfolio Guarantee Scheme 10.
Furthermore, the ministry will accelerate the disbursement of budget of state enterprises in the first quarter of fiscal 2024 for the amount of 50 billion baht, totalling 120 billion baht, to increase the liquidity of the economic system.
The delay in the approval of the 2024 Budget Expenditure Act is expected to decrease government investment in the fourth quarter of this calendar year.
PLANNING AHEAD
A delay in the formation of the government would affect the fiscal 2024 budget allocation of the Tourism Authority of Thailand (TAT) which would be delayed by 3-6 months.
TAT governor Yuthasak Supasorn said the vacuum period may extend to the high season or the fourth quarter, during which the agency hopes to utilise some reserved budget of about 50% of fiscal 2023.
Given that the fourth quarter is the high season for the long-haul market, the agency has already initiated marketing campaigns by using the 2023 budget, as long-haul travellers need months to prepare their trips, said Mr Yuthasak.
He said the agency also aims to use the reserved budget to maintain the domestic and short-haul markets, as these travellers are more flexible and can help fill up available supply in case there's an impact on the long-haul market.
Mr Yuthasak said the Chinese market would still be a significant target for Thailand from the fourth quarter this year to the first quarter of next year.
More than 1.7 million Chinese tourists have visited Thailand, while the TAT forecasts the arrival of 4-5 million Chinese tourists in 2023.
Marisa Sukosol Nunbhakdi, president of the Thai Hotels Association, said hotel operators are worried that if state-sponsored marketing programmes are delayed, Thailand will lose its competitiveness.
She suggested international trade shows and roadshows, which are typically channels for the private sector, be used to connect and reach out to new and emerging markets, such as Eastern Europe, Saudi Arabia and Vietnam.
A supporter of the Move Forward Party holds a placard with the name of the Move Forward Party during the second vote for a new prime minister on July 19, 2023. Pattarapong Chatpattarasill
RIPPLE EFFECTS
The budget issue not only causes concern among state agencies, but businesses which depend on government projects will also bear the brunt, says the Federation of Thai Industries (FTI).
Part of the budget will be spent to support infrastructure development and maintenance projects, including road construction and repair. The money, usually allocated in huge amounts, has played a key role in circulating money in many provinces as constructors hire local people, boosting their income and spending.
"If the new budget allocation faces a delay, it will affect money distribution upcountry," said Kriengkrai Thiennukul, chairman of the FTI, adding that the impact will be seen along the chain of economic activities, which was started by the state's spending.
He said he had no idea what the business sector should do if such a situation occurred.
"The manufacturing sector will have nothing much to do and can hardly adapt itself because the problem needs to be solved through a political mechanism. Only the newly established government can help," said Mr Kriengkrai.
The FTI is upbeat about the next parliamentary session scheduled to vote for the new prime minister. Mr Kriengkrai believes the voting should be concluded at Thursday's meeting, paving the way for the establishment of the new government.
"We still believe everything will follow the timeline to set up the coalition government," he said.
Deputy Prime Minister Wissanu Krea-ngam earlier said he expects the caretaker cabinet should work until Aug 11, according to media reports. If the vote for the new prime minister goes smoothly, political parties should take about a week after the voting to form a new cabinet, he said.
But if some unpleasant incidents emerge to delay the process, not only would budget planning be affected, but the GDP growth forecast may miss the target this year, said Mr Kriengkrai.
The Joint Standing Committee on Commerce, Industry and Banking announced early this month that it maintained its projection of GDP growth in the range of 3-3.5%, driven by the tourism recovery.
Supporter of the Move Forward Party protest in front of the Thai parliament during the second vote for a new prime minister on July 19, 2023. Pattarapong Chatpattarasill
GOING OVERSEAS
Though the delay in budget allocation may cause some impact on economic development, the real concern will be eroded confidence among business people to invest in Thailand, said Cherdsak Wattanavijitkul, president of SET-listed TPC Power Holding (TPCH), the renewable power generation arm of construction firm Thai Polycons Plc.
If Thailand is slow in forming a new government, investors may decide to invest in neighbouring countries and enjoy benefits from free trade agreements signed by their governments, he said.
The longer the political uncertainty persists, the more business opportunities the country will lose, though infrastructure has been developed to serve new investment.
Thailand cannot only depend on foreign tourist arrivals, especially from China, as the number of Chinese travellers is still less than those visiting Thailand before the pandemic, said Mr Cherdsak.
His company is also pushing ahead with an investment project overseas. It is preparing to start building a 100-megawatt solar power farm in Laos in September. The facility is scheduled to operate 12 months after construction.
The government earlier launched a 5.2-gigawatt renewable scheme, which drew huge interest from many power firms, but TPCH preferred to embark on the project in Laos.
"We expect to get a low return of investment under the scheme, so we decided not to participate. We want to focus on overseas investment," said Mr Cherdsak.
TPCH is also conducting feasibility studies on new solar and wind power projects, with a combined power generation capacity of 500MW, in the Indochina region.
SET-listed Energy Absolute (EA), a renewable energy and electric vehicle (EV) developer and operator, also plans to boost revenue from selling its commercial EVs abroad.
Deputy chief executive Amorn Sapthaweekul said he believes EA's businesses will not face much impact if the new government establishment is delayed.
His comment echoes a previous interview with the Bangkok Post when he was asked if he was worried about the domestic political issue.
Mr Amorn said most of EA's business deals are with other companies, although some involve government projects.
The company not only sells commercial EVs in Thailand, but its products have also attracted interest from transport operators in Malaysia and Indonesia.