Analysts are expressing concerns over Thailand's fiscal position, saying figures are likely to deteriorate in the medium term as the government pushes through populist policies such as the digital wallet scheme.
BMI, a unit of Fitch Solutions, expects Thailand's budget deficit to widen from 2.9% in fiscal 2023 to 3.6% next fiscal year as the government has announced several policies designed to drive GDP growth and unveiled a fiscal 2024 budget of 3.48 trillion baht.
"Thailand's fiscal position will come under pressure in the medium term, as we think the Pheu Thai government will implement expansionary populist spending to reach its growth target of 5.0%," said the London-based research company.
Policymakers have already announced several measures that will be detrimental to Thailand's fiscal position. The most prominent example is the 10,000-baht digital handout, which according to the original estimate would cost about 560 billion baht, or 2.8% of GDP, BMI noted.
Changes were made to the initiative to exclude "rich people".
"While it is not yet clear what the definition of rich people is, we believe it will still cost the government a substantial amount if it includes everyone from the lower-middle income bracket," BMI said in research released yesterday.
A weaker economy will also weigh on government coffers. Thailand's economic rebound has been lacklustre, with second-quarter real GDP slowing to 1.8% year-on-year.
With the economy still facing several headwinds stemming from high interest rates and weak external demand, BMI lowered its growth projection from 3.0% to 2.8% in 2023, while government revenue growth was cut to 2.4% year-on-year from 4.0% previously.
BMI expects Thailand's debt levels to remain elevated at around 60% of GDP over the medium term as the government expands fiscal spending to fund new initiatives that could affect fiscal stability.
"As a result of the pandemic, the country's fiscal deficit widened to record levels and debt levels have ballooned," noted BMI.
"Implementing expansive populist measures without concrete plans to expand the tax base will exacerbate these challenges over the longer term, with the country presiding over a larger deficit over the next four years."
Maybank Securities said the watered-down digital wallet scheme and delayed implementation would relieve the near-term strain on Thailand's fiscal balances, "at a time when credit rating agencies are voicing concerns about the country's public debt levels".
The scheme's coverage will be scaled down to 40 million recipients from the initial 56 million, and implementation will be delayed from February to September next year, according to an advisor to Prime Minister Srettha Thavisin.
"That would reduce the need for the central bank to raise the policy rate to counter inflationary pressures from an overly expansionary fiscal policy stance," said the unit of the Malaysian bank.
"As Asian central banks grapple with concerns about currency weakness, the Bank of Thailand has voiced support for fiscal consolidation, in line with recommendations from the International Monetary Fund, to shore up economic resilience."