The government's revenue collection remains below the pre-Covid period and lower than that of emerging economies, according to the Fiscal Policy Office (FPO).
In its fiscal risk assessment for fiscal 2024 released last month, the FPO also noted a decline in the government's debt repayment capacity compared with the period before the pandemic.
A source from the Finance Ministry who requested anonymity said the fiscal risk in fiscal 2024 and for the medium-term outlook remains high compared with the pre-Covid period, which means several risk factors should be monitored.
The government should seriously begin the process of fiscal consolidation to reduce the persistently high deficit, helping to restore fiscal space to address the ageing population, structural transformations and potential future crises, said the source.
In fiscal 2024, government revenue collection accounted for 15.1% of GDP, lower than pre-Covid levels.
From a risk perspective, the source said significant pressure is anticipated from structural changes in the automotive market and sluggish economic growth, adding the government's revenue collection capacity relative to GDP remains low in the medium term, both compared with pre-crisis levels and to the average of emerging economies.
Expenditure-related risks remain under pressure from rising debt service, ongoing obligations and rising welfare spending, particularly repayments to the treasury, interest payments, healthcare costs and pension-related expenses, according to the source.
As a result, "hard to reduce" expenditures increased by 11.4% of GDP from fiscal 2023.
According to the Finance Ministry, government expenditure on items that are difficult to cut has been rising steadily. In fiscal 2023, expenditures deemed hard to reduce totalled 2.13 trillion baht, accounting for 67.2% of the government's budget, up from 65.8% in fiscal 2022.
The increase was attributed to spending on debt repayment and commitments, as well as rising welfare expenses for public personnel and elderly citizens.
The proportion of spending on salaries, contributions and compensation for government workers decreased from 26.2% of the budget in fiscal 2022 to 25.7% in 2023.
The source also noted that debt-related risks remain elevated, driven by persistently high public debt levels and a weakened debt repayment capacity compared with the pre-pandemic period.
In fiscal 2024, interest payments rose to 9.59% of government revenue, underscoring this decline in repayment ability.
The increase is attributed to rising interest rates and a growing volume of outstanding debt.
Although the government has taken steps to lengthen debt maturities, its revenue collection capacity remains relatively limited, said the source.
In the medium term, debt-related risks are expected to become more vulnerable due to two main factors, noted the source.
First, the public debt-to-GDP ratio is projected to continue rising, reaching 69.3% by the end of fiscal 2029, driven by persistently high budget deficits. This would cause the debt-to-GDP ratio to increase by an average of 3.37% per year, outpacing the positive structural effects of economic growth.
Second, the Fiscal Early Warning Composite Index was at 3.36 at the end of the third quarter of 2024 (on a scale where 5 indicates a warning threshold), signalling the government should exercise caution in continuing its high-deficit policy.
This marks the 14th consecutive quarter of elevated fiscal risk.
According to the source, liquidity in fiscal 2025 may face additional pressure because of the risk of revenue collection falling short of estimates.
The government has a borrowing buffer in place to cover situations where expenditures exceed revenues, but it can only accommodate a shortfall of 0.17% (4.92 billion baht).
In addition, the source said budget allocations could potentially be insufficient, which may require tapping into treasury reserves at higher levels.
These risk factors could place ongoing pressure on liquidity management, requiring monitoring and management in the future.
To reduce these risks in the future, the source said the government must accelerate efforts to bring the deficit back to a normal level, not exceeding 3% of GDP, down from the projected 4.4% in fiscal 2025.
This would help restore fiscal space to address crises, including the potential impact of future natural disasters.
Key actions the government should prioritise include reforming the structure and improving the efficiency of government revenue collection, as well as reviewing tax exemptions and reductions to ensure they are limited to only what is necessary, said the source.
These actions would enable the government to maintain a sufficient annual budget for essential, hard to reduce expenditures that continue to rise without crowding out investment spending, which is critical for stimulating the economy and ensuring sustainable long-term national development, according the source.