The global economic slowdown, as a result of the ongoing Sino-US trade tensions, has hit the Thai economy hard.
Thailand's annual GDP growth projection for this year was recently reduced to about 3% from a previous estimate of about 4%. The government has had to roll out a new 316-billion-baht stimulus package to boost the economy by allocating money from the current budget to finance several cash-handout measures and requesting state-run financial institutes to offer low-interest loans for farmers and small and medium-sized enterprises (SMEs).
The new measures may help vulnerable groups survive impact of the sluggish economy. Given that we don't know how long this crisis will last and whether it will get worse, there is a need for the government to have back-up budgets as reserves for emergency use in the future.
Fortunately, Thailand's current public debt per GDP ratio of 41.28% still leaves room for government borrowing to finance stimulus packages. From 2008 to 2018, the public debt-to-GDP ratio remained stable at around 40%.
The ratio is lower than the 59.22% in 1999 and 59.98% in 2000, in the aftermath of the 1997 Asian financial crisis -- levels which were deemed risky for the state's fiscal sustainability. Under the Finance Ministry's regulation, public debt must not exceed 60% of GDP.
After 1997, the Public Debt Management Office (PDMO) enhanced the efficiency of the country's monetary market, which has become an effective domestic lending source. This has enabled the government to seek domestic lending sources when needed.
The PDMO earlier estimated that the debt-to-GDP ratio could peak at 48.18% by 2022, if economic growth for this year stands at 4-5% and there is continuity in state investment, especially in infrastructure projects.
However, with the global economic slowdown, a recession is expected to take place in the next six to 12 months. As a result, Thailand's economic growth will be below the previous estimate. Consequently, low growth will push the debt-to-GDP ratio upward.
Additionally, once there is a sign of an impending recession, the government will usually seek loans to finance more stimulus packages which in turn, will push the public debt ratio to a higher level.
Under such circumstances, the government should not run a balanced budget. Over the past two decades, previous Thai governments opted for fiscal policy measures to deal with economic crises by implementing capital injection programmes to boost the economy.
The Prayut Chan-o-cha government is doing exactly the same thing with its new cash-handout packages.
The government will spend 14.6 billion baht this month and next month to give out additional monthly allowances of 500 baht to 14.6 million low-income welfare cardholders.
A sum of 5 billion baht will also be spent on an additional monthly allowance of 500 baht for the elderly for the same period.
The handouts also include a measure to boost domestic tourism by giving a 1,000-baht cash giveaway to anyone travelling outside their home province.
It is estimated that 10 million people will sign up for this initiative and the state will have to spend 20 billion baht to cover it.
This means the government will have to spend up to 50 billion baht just to finance these cash handouts.
Moreover, it is expected that the government will have to spend up to 40 billion baht to cover other stimulus programmes, such as price guarantees and subsidy schemes for farmers.
Gen Prayut's stimulus packages also include low-interest loans for farmers and SMEs from state-run financial institutions. However, these measures will only likely succeed in boosting the economy on a short-term basis.
In order to bring about sustainable economic growth, stimulus packages must be designed to ensure long-term increases in people's incomes.
As such, Thailand needs to accelerate domestic and foreign investment by capitalising on the strong ratings it recently received from Moody's Investors Service and Fitch Ratings which raised Thailand's outlook to "positive" from "stable". Moody's Investors Service cited the government's good financial status and investment programmes to attract foreign investors as the key reasons for its rating.
This year, the International Institute for Management Development's (IMD) World Competitiveness Centre also upgraded Thailand's ranking to 25th spot among 63 countries in all aspects -- except efficiency of the business sector. It is an increase of five spots and Thailand's best ranking on the index in 10 years.
Therefore, the government must use its strength in these areas as selling points to attract foreign investment, at a time that many other countries are also experiencing the impact of the global economic slowdown.
Such investments can help generate jobs and increase incomes across Thailand. Consequently, this would help narrow the income gap.
The use of fiscal measures is necessary to ensure that Thailand is prepared for more sluggish economic growth in the future. These measures can help stabilise the Thai economy to ensure that it has sufficient strength to kick start and maintain rapid growth once the world economy picks up speed.
However, we must not forget that there should be sufficient fiscal stocks reserved for any unpredictable circumstances in the future.
Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.