The government is being advised to revise the way it hands out money to people to avoid incurring a substantial public debt, which can affect the government's budget, potentially triggering a fiscal crisis.
Tanit Sorat, vice-chairman of the Employers' Confederation of Thai Trade and Industry, said if the government follows through with its plan to spend a large sum of money all at once, he is worried it could spell disaster for Thailand.
"I'm uncertain about how the government will generate revenue to replenish its treasury," he said.
"Authorities should reconsider the way they hand out money to recipients. They should gradually distribute the money and reduce the number of eligible recipients."
According to Mr Tanit, the digital wallet scheme, which has a projected price tag of 450 billion baht, is more costly than several state infrastructure development projects.
The handout also exceeds the combined budget allocated to the Education and Public Health ministries, but it is estimated to have a minimal impact on increasing GDP.
"Why doesn't the government spend this amount of money supporting other important projects?" he said.
"I wonder how a new government will plan its budget spending, following the allocation of 450 billion baht?"
As the digital wallet handout was the central campaign pledge of the ruling Pheu Thai Party, Mr Tanit said it is highly unlikely the government will abandon the scheme.
The government intends to distribute 10,000 baht to an estimated 50 million individuals across the country.
Concerns about the burden on the state's finances were raised following the House of Representatives' majority vote on July 31, which favoured a supplementary bill, seeking a budget increase of 122 billion baht for fiscal 2024 to partially fund the digital wallet handout.
The bill passed in the House, although Veera Thirapattaranont, a member of the committee vetting the bill, called on the government to stop the handout scheme because the National Anti-Corruption Commission warned the government about a range of potential pitfalls tied to the scheme, from graft to legal risks.
Mr Veera said the scheme would bring public debt close to the threshold of 70% of GDP, and could deplete the state's treasury.
He said the handout could push Thailand into an economic crisis, considering the nation's significant public and household debt, coupled with the government's high interest expenses relative to its annual revenue, as well as an expanding budget deficit.
Mr Veera highlighted the government's fiscal obligations in the budget, including contributions to the Government Pension Fund and Social Security Fund, as well as off-budget fiscal responsibilities under Section 28 of the State Fiscal and Financial Disciplines Act, with an outstanding balance of 1 trillion baht.
Three major off-budget liabilities remain unaddressed: the Oil Fuel Fund's debt burden of 110 billion baht, the Electricity Generating Authority of Thailand's debt burden of 98 billion baht, and the General Insurance Fund's obligation to pay the claims of bankrupt insurance companies, totalling at least 80 billion baht.
"The handout policy will impose significant financial burdens on the government. If authorities fail to manage rising public debt, a fiscal crisis may emerge, eventually suppressing the economy," said Mr Veera, who is also an outspoken radio and TV show host.
In this scenario, he said the government would need to reduce budget spending, including money allocated to subsidise the prices of some necessary products, and may resort to raising taxes.
CRITICAL STAGE
Nonarit Bisonyabut, a research fellow at the Thailand Development Research Institute, said the nation's current level of public debt is comparable to that of other middle-income countries and may not be alarmingly high, but the economy hides potential fiscal risks.
For instance, he said if another economic shock occurs, public debt levels could rapidly increase, similar to the period before the pandemic when the government's public debt was only 45%, before surging to 62%.
"If another economic shock happens, we may lack the protective armour we previously had when public debt was low," said Mr Nonarit.
He said the public debt threshold also depends on GDP. If GDP growth is low, the public debt-to-GDP ratio will rise.
"Although the public debt level is not yet a crisis, household debt has reached a critical stage. Thailand's household debt is around 1.3 to 1.6 trillion baht, which affects the overall economy by slowing consumption," said Mr Nonarit.
"This slowdown is reflected in declining condo sales, car sales and a decrease in debt quality, as nanofinance, picofinance and informal loans all increased, all of which have high interest rates. Financial institutions are reluctant to lend, forcing those in need of cash to resort to high-interest loans."
Athiphat Muthitacharoen, a lecturer at Chulalongkorn University's Faculty of Economics, said whether a fiscal crisis occurs depends on the government's ability to repay its debt, which is not currently an issue.
However, he admitted concerns about a fiscal crisis have become more pronounced, especially after the government embarked on spending policies that are being questioned for their cost-effectiveness, such as the flagship digital wallet handout, which has a low marginal propensity to consume of only 0.3-0.4.
The marginal propensity to consume is defined as the proportion of an aggregate raise in pay that a consumer spends on goods and services, as opposed to saving it.
This means that for every one baht given by the government, people may not spend the entire amount, as the money is not used to increase consumption, but merely replaces normal spending, said Mr Athiphat.
He noted the government has been running budget deficits, with expenditure exceeding revenue, for more than 20 years.
The government's revenue-to-GDP ratio has been steadily declining, while expenditure, which is difficult to reduce, keeps on rising, accounting for up to 70% of the expenditure budget, said Mr Athiphat. This includes spending on public welfare, government salaries and interest payments on loans.
NO CONCERNS YET
Patchara Anuntasilpa, director-general of the Public Debt Management Office, said the current level of public debt remains below the fiscal sustainability threshold, which is set at 70% of GDP.
As of June this year, public debt was 63.5% of GDP.
However, if the internationally recognised definition of public debt used by the International Monetary Fund (IMF) is applied, Thailand's public debt would be only 58.4% of GDP, as the IMF version does not include the debt of state enterprises that are not guaranteed by the government nor the debt of the Bank of Thailand.
According to the medium-term fiscal framework for 2024 to 2029, the public debt-to-GDP ratio is expected to be 65.7% in fiscal 2024, peaking at 68.9% in 2027 and tallying 68.1% in 2029.
Mr Patchara also discussed the government's rating assessment by rating agencies, noting that from an economic perspective, this year is significant as three budgets have been prepared within a single year: the 2024 expenditure budget of 3.6 trillion baht, the additional 2024 expenditure budget of 122 billion baht, and the 2025 expenditure budget of 3.75 trillion baht.
These budget funds are slated for disbursement in the fourth quarter this year and the first quarter of next year, which is expected to drive economic growth, likely not falling below 3%, he said.
However, the rating agencies also take into account other factors, especially political risks.
S&P rates government bonds BBB+, Moody's Baa1 and Fitch BBB+, all with a stable outlook.
