Analysts pour cold water on digital wallet
text size

Analysts pour cold water on digital wallet

Deputy Finance Minister Julapun Amornvivat, left, speaks to supporters of the digital wallet scheme at the headquarters of the Pheu Thai Party last month. (Photo: Somchai Poomlard)
Deputy Finance Minister Julapun Amornvivat, left, speaks to supporters of the digital wallet scheme at the headquarters of the Pheu Thai Party last month. (Photo: Somchai Poomlard)

Analysts have cast doubts on the ability of the digital wallet policy to kick-start the economy, noting the costly stimulus measure poses a risk to the country's fiscal stability in the medium term.

Naris Sathapholdeja, head of ttb analytics, said private consumption this year is growing well among certain groups of people who still have purchasing power.

This scheme should be focused specifically on vulnerable groups or other targeted recipients, he said.

The think tank estimates the digital wallet handout will increase economic growth next year by roughly 0.5 percentage points from the original forecast of 3.2%.

Public debt now totals 61.7% of GDP. After implementing this policy, Thailand's ratio will exceed that of many neighbouring countries, such as Indonesia at 39%, the Philippines at 61% and Malaysia at 62%, said Mr Naris.

"The government will have to borrow roughly 3-5% of GDP on a regular basis, pushing outstanding public debt to increase by 6-8% per year. Without serious structural reform, public debt risks reaching the ceiling of 70% of GDP or 14 trillion baht by 2027," he said.

"That would increase the fiscal burden, leading to the government limiting other stimulus measures in the future."


According to KKP Research, high public debt and a lack of fiscal discipline could have three effects on the economy.

First, the government's capacity to carry out fiscal policies would decrease.

"As a result, there is a risk the government will not be able to fully play its role in supporting the economy if another crisis occurs in the future," KKP noted.

The second effect is government borrowing costs may increase when the public debt level is high.

Third, the moves could trigger higher foreign capital outflows, causing currencies to depreciate and inflation to rise, especially in countries with high foreign currency borrowing or heavy reliance on imports, said the research house.

"Policies that significantly raise government spending and fiscal deficit, such as subsidies, can help stimulate the economy in the short term, but they create long-term obligations for the state and make it more difficult to reduce public debt levels in the future," said KKP.

The think tank found increasing the fiscal deficit by implementing various policies including the digital handout will cause public debt to reach the ceiling of 70% of GDP in less than 10 years.

"While income and expenditure reforms may help reduce the burden of high public debt to some extent, it does not help the country to achieve long-term fiscal sustainability," noted KKP.

"Looking ahead, the government will face more challenges in solving public debt as an ageing society will aggravate the structural fiscal deficit. Thailand's economic growth potential is likely to continue to decline, which will make the public debt problem worse."

All of these challenges reinforce the importance of government policies focusing on increasing investment to solve structural problems and enhance Thailand's economic growth in the long run, said the think tank.


Aat Pisanwanich, an economics consultant at Intelligent Research Consultant Co, said the government's borrowing plan to finance the digital wallet scheme is expected to increase public debt to 67% of GDP.

The government must ensure GDP expands by at least 3.5-4% each year, resulting in an annual increase of 700 billion baht in GDP, if it wants to reduce public debt to the current level, said Mr Aat.

This means the government must stimulate both investment and exports to increase significantly next year, he said.

"Stimulating the economy by putting money in the hands of the people in this manner still faces roadblocks, such as the country's competitiveness, including high production costs and lower Thai workforce skills compared with neighbouring countries, which have not been addressed," said Mr Aat, a former director of the Center for International Trade Studies at the University of the Thai Chamber of Commerce.

"The injection of money from the digital wallet is expected to increase GDP at the market price by 1.5-2 times. However, after deducting inflation, actual GDP expansion is likely to be less than 1% if inflation increases by 1-2%."

He said this monetary injection is only a short-term stimulus, and given the high interest rates, people may not consume much and delay their consumption.


Kobsak Pootrakul, senior executive vice-president of Bangkok Bank and former minister to the Prime Minister's Office, said he wants to see whether conditions will change for the scheme after the Loan Act is issued.

"There is still time because we need to review this scheme when it is brought to parliament for debate and decide on conditions for eligibility," said Mr Kobsak.

"It is clear the handout is not for everyone, but instead about 50 million people."

He said the digital wallet policy is expected to add an additional one percentage point to GDP, which was projected to grow by around 3% in 2023 and 3-4% in 2024.

Exports are expected to remain stable next year as the global economy remains sluggish, while there is not much investment as domestic consumption is unlikely to fully recover, said Mr Kobsak.

"It is uncertain how many rounds the money will circulate. I think money spent under the scheme is unlikely to circulate multiple times," he said.

"The policy is expected to help stimulate the economy, while increasing the public debt-to-GDP ratio by two to three percentage points, resulting in a level of around 62-63%."

Do you like the content of this article?