Populist policies face scrutiny
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Populist policies face scrutiny

The digital wallet scheme could affect fiscal sustainability according to some analysts

Mr Srettha refers to the 10,000-baht digital wallet scheme at a second meeting held to address the scheme at Government House on Nov 10. CHANAT KATANYU
Mr Srettha refers to the 10,000-baht digital wallet scheme at a second meeting held to address the scheme at Government House on Nov 10. CHANAT KATANYU

Among the economic policies proposed by the Srettha Thavisin government, the most hotly disputed item is the 10,000-baht digital wallet handout, which has drawn much criticism regarding its possible impact on public debt.

Deputy Finance Minister Julapun Amornvivat insisted the handout is necessary because the economy requires stimulus measures, with growth averaging only 2% per year over the past decade.

This level provides insufficient income for the government to support the country's ageing population in the future, said Mr Julapun.

If GDP expands at a low rate, it also increases the government's public debt-to-GDP ratio, he said.

If GDP continues to expand at a level of less than 5%, the government's public debt will exceed 70% of GDP by 2027, which exceeds the sustainable limit of the State Fiscal and Financial Discipline Act.

Opposition parties and a number of economists have raised questions about the urgency of the project. While the Thai economy has been stagnant, it has not contracted, unlike some other countries that implemented cash stimulus in the past.


The government's medium-term fiscal plan (MTFP) may need to be revised following the administration's plan to enact a royal decree to borrow 500 billion baht to fund its digital wallet scheme, said a source at the Finance Ministry who requested anonymity.

The Srettha cabinet's MTFP from 2024-2027 projects public debt at 62.9% of GDP in 2023, 64% in 2024, 64.6% in 2025, 64.9% in 2026 and 64.8% in 2027.

The economy is projected to grow by 3.2% in 2024, 3.6% in 2025, and 3.4% in both 2026 and 2027.

However, during the drafting of the MTFP, the Srettha government had not yet considered a special 500-billion-baht loan to fund the digital wallet project, meaning the borrowing was not included in the public debt projections.

Nattaporn Triratanasirikul, deputy managing director at Kasikorn Research Center (K-Research), said the government still has room to borrow 500 billion baht from the domestic market.

Following this new round of borrowing, the public debt-to-GDP ratio is expected to rise to 66-67%, up from about 61% at present, Ms Nattaporn said.

"Whether this level of public debt to GDP is high or not depends on how much the government can increase its revenue amid unfavourable economic conditions next year, and how it can maintain fiscal discipline," she told the Bangkok Post.

Ms Nattaporn believes the Bank of Thailand will consider appropriate timing for government bond issuances to prevent a spike in public debt.

Lots of uncertainties remain until the middle of next year, when the government is expected to start distributing the handouts.

A bill to borrow 500 billion baht is subject to parliamentary approval and the Senate in order for the government to mobilise funds.

The Bank of Thailand's headquarters on Samsen Road in Bangkok. Ms Nuttapon believes the central bank will consider the most appropriate timing for government bond issuances to prevent a spike in public debt. SEKSAN ROJJANAMETAKUN


Amonthep Chawla, chief economist at CIMB Thai Bank (CIMBT), said the government's digital wallet scheme would increase the country's public debt.

The government expects public debt under the revised spending plan would total 64% of GDP by the end of 2024, which remains under the ceiling of 70% according to the fiscal discipline framework.

"As a result, it would not pose significant risk to public debt," said Mr Amonthep.

"However, Thailand's credit rating could be downgraded following concerns over the state of the country's finances and its debt burden."

Fitch Ratings forecasts the country's gross general government debt ratio will increase to 56.8% of GDP by fiscal 2025, or 21 percentage points above the pre-pandemic level and broadly aligned with the BBB peer median of 56.3%.

Fitch said Thailand's ratings reflect its robust external finances and sound macroeconomic policy framework, balanced against some weaker structural features compared with BBB category peers, including lower per person income and World Bank governance scores.

"Public finance metrics have deteriorated in the past few years and are currently aligned with those of its peers," Fitch noted.

"Uncertainty surrounding the financing of the new government's spending pledges implies a fiscal risk in the near term, while unfavourable demographics form a medium-term risk."

The country's rate of household debt remains high, which could affect local banks.

Thailand's household debt remained elevated at 90.7% of GDP as of the second quarter this year, above the level of most of its regional peers, said the ratings firm.

"The deterioration of indebted low-income households' and small and medium enterprises' ability to service debt amid growth headwinds and monetary policy normalisation could pose asset-quality challenges to banks," Fitch noted.


Mr Amonthep said CIMBT forecasts the digital wallet scheme would not stimulate economic growth of 5% per year because it would not create a fiscal multiplier effect as projected.

Large corporations would benefit from the scheme rather than small and medium-sized enterprises and small shops, said the bank.

Furthermore, the scheme would help imported goods such as iPhones rather than local goods, he said.

In fact, the scheme would not benefit the country's manufacturing, employment or economic activity as anticipated, said Mr Amonthep.

Given these conditions, CIMBT expects the digital wallet scheme to contribute just 0.5 percentage points per year to GDP growth, putting 2024 growth at 3.5-4%.

"The country's private consumption during 2025-2026 could drop significantly after the end of the cash handout scheme, and GDP growth may ease back towards its medium-term potential growth rate of 3%," he said.

"We think the scheme would not be productive enough."

Mr Amonthep said an emergency loan decree would be more suitable to fund the digital handout than the government's plan to pass a Loan Act to borrow 500 billion baht. Under the act, the borrowing would be transparent and accountable, but final decisions on the project would require legal processes and the approval of relevant committees.

Some bankers and analysts issued warnings about the effects of borrowing for populist policies on fiscal sustainability. CHANAT KATANYU


The borrowing bill also comes at a time when the government is spending huge sums to subsidise domestic energy prices.

Asked for a response on the loan plan and whether it would affect the oil and price subsidy programmes, energy firms declined to comment.

Chairit Simaroj, managing director of oil retailer Susco Plc, preferred to look on the bright side of the digital handout, believing businesses would benefit from the policy as it increases consumer purchasing power, eventually leading to a higher rate of GDP.

Earlier this month, the Oil Fuel Fund Board decided to further cut the price of gasohol 91 by 1.5 baht a litre through a subsidy from the state's Oil Fuel Fund, following a cabinet resolution on Oct 31.

Other types of gasoline and gasohol are also being subsidised to reduce prices as the government attempts to curb domestic energy prices for households and businesses.

After the board's decision to spend more from the fund, placing a greater burden on the loss-ridden entity, permanent energy secretary Prasert Sinsukprasert said the fund could support the subsidy because a new loan was granted to increase its liquidity.

The Oil Fuel Fund Office said earlier the measure to maintain the diesel price below 30 baht a litre would cause a loss of almost 100 billion baht. The calculation estimates the global diesel price would rise during the cool season when energy demand usually increases.

As of Oct 3, the fund was running a loss of 62 billion baht, an increase from 49 billion prior to the general election in May, according to the Oil Fuel Fund Office.


Maybank Securities said the country's public debt-to-GDP ratio is less than 62% at present, well below the 70% limit.

"Even if we factor in potential new borrowing of 700 billion baht for the fiscal 2024 budget deficit, we think the government will still have enough debt headroom. We think the real challenges are likely to be for fiscal 2025," said the brokerage.

"The extra eight percentage points of headroom amounts to 1.47 trillion baht, which we believe is more than enough to support the total amount of up to 600 billion baht to fund the digital wallet and e-refund schemes."

The debt ceiling is scheduled to be reviewed next year and the government may try to increase the limit to give it greater leeway going forward.

As a result, Maybank believes funding for the two stimulus policies could pose some challenges for the government, but this issue is "less problematic than legal challenges".

Opposition parties are citing Section 140 of the Constitution, which deals with issues pertaining to state funding, and Section 53 of the State Fiscal and Financial Responsibility Act, which deals with limitations on emergency funding.

Academics also cite several potential legal challenges relating to Sections 20 and 62 of the Public Debt Management Act.

Maybank's discussions with both the central bank and the National Economic and Social Development Council suggest that typically only 85% of the funds distributed in the digital wallet scheme are expected to be spent.

This means the actual burden for the government could amount to 500 billion baht in total for both schemes, said the brokerage.

A bank employee examines batches of baht notes at a branch of Kasikornbank in Bangkok. The digital wallet scheme has raised concerns among critics who claim it will increase the government's public debt-to-GDP ratio. REUTERS


BMI Research, a unit of Fitch Solutions Group, said Thailand's government debt as a share of GDP surged to 61% in fiscal 2022, compared with 41.2% prior to the pandemic.

Like many countries, Thailand ran huge budget deficits as the government increased expenditure levels considerably to mitigate the economic fallout caused by the pandemic.

A delay in the fiscal consolidation process because the government is expanding fiscal spending to fund new initiatives could see government debt remain at elevated levels of around 60% in the medium term, said the London-based research company.

The government's emphasis on populist policies to address the country's poor economic performance is reminiscent of the Thaksin Shinawatra tenure from 2001 to 2006.

While this should help support growth in the medium term, the bigger concern is fiscal sustainability, said the firm.

BMI expects Thailand's fiscal consolidation efforts will reverse in fiscal 2023-24, driven by a range of populist policies the government plans to administer over the coming years in an effort to reach its growth target of 5%.

"The country's fiscal consolidation efforts will stall over the medium term," BMI noted.

"We are forecasting the budget shortfall to widen substantially to 3.6% of GDP in fiscal 2024 before remaining stable for the next four years."

At 3.6% of GDP, the five-year average will be wider than the pre-pandemic level of 2.7% between 2015 and 2019, said the unit.

Asia Plus Securities (ASPS) believes if the government borrows an additional 500 billion baht, public debt may increase from 62.1% of GDP at present to 65%.

With the digital wallet and e-refund schemes, the government expects Thailand's 2024 GDP growth to reach its target of 5% year-on-year.

"However, the main concern revolves around the sources of funding as higher public debt may cause Thailand's credit ratings to be downgraded," ASPS noted.

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