BoT backs fiscal consolidation amid rising debt

BoT backs fiscal consolidation amid rising debt

Bank of Thailand governor Sethaput Suthiwartnarueput
Bank of Thailand governor Sethaput Suthiwartnarueput

The Bank of Thailand supports fiscal consolidation in line with recommendations by the International Monetary Fund (IMF) to strengthen Thailand's economic resilience in the long term amid higher global uncertainties.

The IMF recently told several countries to undertake large fiscal consolidations given their elevated fiscal deficits and the need to reduce public debt from unprecedented levels.

As a result, many countries have followed such an approach after spending increases resulting from the Covid-19 pandemic and commodity price shocks led to acute pressures on public finances.

For Thailand, the overall economy is quite stable with solid international reserves, low-level foreign debt, and a current account in surplus. However, there is concern about rising household debt and a higher public debt-to-GDP ratio, the Bank of Thailand governor Sethaput Suthiwartnarueput said on Saturday.

Thailand's public debt is 61.7% of the country's GDP, the highest level since it was 60% in 1997, while the ratio was below 40% before the pandemic.

Thailand's household debt has surged to an uncomfortably high level of 90.7% of GDP, while the suitable level should not exceed 80%, according to the Bank for International Settlements standard.

"In light of this scenario, the Bank of Thailand agrees with the IMF in fiscal consolidation building up resiliency for the Thai economy. As a result of greater global uncertainties, both fiscal and monetary policies should have enough space in preparation for unexpected situations," Mr Sethaput said.

Credit rating agencies have raised concern about Thailand's higher public debt and signalled an outlook downgrade.

As a result, the country's sovereign credit rating could possibly be cut.

The rating agencies believe Thailand's public debt burden to GDP should not be higher than 12%, from 10% at present.

At the same time, investors in money and capital markets have also reacted to the concern, which has put pressure on the baht against the dollar, as well as leading to foreign capital outflows from Thai markets.

Year-to-date, net foreign fund outflows were US$8.4 billion from both the Thai capital and bond markets, which is the highest amount for 10 years, according to the governor.

"Normally, the Thai capital and bond markets are safe havens for offshore investors, but now the Thai markets are less of a safe haven for foreigners," he said.

The baht has become more volatile, depreciating by 8% to the dollar, year-to-date, the second worst performer after the South Korean won, which has weakened by 9%.

The baht fluctuation is affected by both internal and external factors.

However, the local currency has been moving in line with the country's economic fundamentals and the central bank has been closely monitoring the movement.

In addition, Mr Sethaput said the Bank of Thailand is awaiting further details of the government's 10,000-baht digital wallet policy.

For the economic growth projection of 4.4% in 2024, the central bank has already included the 10,000 baht digital wallet scheme, under an assumption that the scheme would use an estimated budget of around 560 billion baht.

"If the budget of the scheme is being reduced, the GDP forecast for next year could be lower than 4.4%. However, the central bank needs clearer details of the scheme before considering the policy implications," Mr Sethaput said.

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