The political picture is finally becoming clear with the election in parliament this week of Srettha Thavisin from the Pheu Thai Party as the country's 30th prime minister.
The shape of the new cabinet should be known within days, with Mr Srettha, a veteran property executive, expected to also take the position of finance minister to revitalise the economy. Optimism has been reflected in the SET index, which is up more than 2% from a week earlier.
But the important question now is how the Pheu Thai Party intends to make good on its campaign pledges, with a lot of attention focusing on four flagship policies:
- A digital wallet of 10,000 baht per person;
- An increase in the daily minimum wage to at least 600 baht between now and 2027;
- An increase in the starting salary of bachelor's degree holders to 25,000 baht or more by 2027;
- Debt and interest repayment suspension for three years for farmers.
Can these policies realistically be carried out, and what will the impact be on the economy and investment? This article attempts to answer these questions.
Giving 10,000 baht to every citizen age 16 and older is expected to cost 560 billion baht, according to Pheu Thai calculations. In academic terms, based on the principles of econometrics, the fiscal cost will be about 2.9% of GDP, while economic growth would increase by about 0.7% of GDP.
The impact of higher minimum wages and salaries is more difficult to calculate. This is because the positive result from workers having more money to spend will be offset to some degree by employers passing on increased wage costs to consumers. By our calculations, this will yield roughly a 0.2% to 0.3% gain in GDP.
The three-year moratorium on farmers' debt and interest repayments is also difficult to assess. This is because it is entirely up to the farmers to decide how to use the extra money in their pockets. Will they spend it to generate additional production, such as by buying farm equipment or raw materials? If we assume that farmers will spend 50% of the money on production, this will add about 0.1% of GDP to the economy.
If you combine the positive benefits of the four policies, the preliminary calculations indicate the economy will recover by one percentage point from the baseline.
PRACTICAL DETAILS
However, many practical details remain to be worked out, most notably for the 10,000-baht digital wallet. Pheu Thai has said it will use a blockchain system to ensure efficiency and transparency, which brings up five key questions:
1. Which part of the budget will be used? The party has identified four sources:
- Government tax revenues in 2024, which are expected to increase by 260 billion baht;
- Tax collection is expected to increase as a result of the policy to stimulate the economy, adding another 100 billion baht;
- Budget management (or transfers of funds from non-priority projects of other ministries) amounting to 1.1 billion baht;
- Management of the overlapping welfare budget of 90 billion baht.
2. What about the technology? A supporting platform to serve 50 million people will need to be very robust. What management system will be used? Will the system support tens of millions of authentication requests? How will it support transaction volumes in each hour?
The fastest platform at present is PayPal's Solana network, which can handle 50,000 transactions per second. That could accommodate 10% of Thais, or about 7 million, at the same time, such as if many people were buying lunch. A digital wallet could increase transaction volume by 100 times that rate at peak times and may cause the system to crash.
3. What about converting receipts into cash after transactions have been made? Once a merchant has been paid in digital currency, can it be used again, such as to pay wages to employees? Or to buy raw materials? Is there a restriction in terms of where it can be used or for how long? The initial rules call for digital wallet holders to spend the money within 4km of their residences and use up the funds within six months. If these rules hold, it could be difficult to generate velocity that will increase economic growth.
In addition, there are legal issues such as how to collect value-added tax, including whether digital money can be issued as cash or not. This is an issue for the Bank of Thailand, which currently does not allow the use of other mediums of exchange, according to the Currency Act.
There are also budget issues, such as whether the government will be able to find money to reserve, and fraud risks in which no real transactions are made, but fake receipts are issued to extract money.
4. The spending radius: Although it is good in principle that Pheu Thai wants digital money holders to use the money near their residences, in practice this could be quite difficult. What about all the people who work in Bangkok but whose registered address is hundreds of kilometres away? Will they be subject to this limitation?
5. How will vendors' usage procedures work in practice? How difficult will it be? The concept is good because it will draw small shops to register, which will increase the tax base. But in practice, there must be enough supporting tools, such as electronic data capture used in credit card transactions, especially for those who will use digital money via their ID card.
2024 OUTLOOK
These and others are practical questions the Pheu Thai Party must answer.
We wish the project success as it will help the economy in 2024 to grow faster than we originally projected. It could also help to counter negative economic factors from the global economy that will enter recession next year.
We believe if the government can be formed in September, the Thai economy will grow 2.7% this year, while next year we expect expansion of 3%. But if various economic policies, especially the digital wallet, are successful, GDP expansion next year could be as high as 4.0%.
As for stocks that will benefit from the Pheu Thai measures, we are looking at businesses in the retail industry as well as food and beverage players. These include TNP, CPALL, CPAXT, BJC, OSP and HTC.
Dr Piyasak Manason is Senior Director of the Investment Strategy Department, INVX-Research Group, at InnovestX Securities Co Ltd
