Digital wallet scheme hits another snag
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Digital wallet scheme hits another snag


A photo dated Dec 17 last year shows supporters of Pheu Thai rallying in support of the party's digital wallet scheme, with banners that read, 'We want 10,000 baht'. (Photo: Somchai Poomlard)
A photo dated Dec 17 last year shows supporters of Pheu Thai rallying in support of the party's digital wallet scheme, with banners that read, 'We want 10,000 baht'. (Photo: Somchai Poomlard)

The new financing problem of the 10,000-baht cash handout, commonly known as the Digital Wallet Scheme (DW), has not made much noise in the media. This may be because the government wants this to be a non-issue, but in reality, it is a serious one that could wreck the entire scheme.

Those who follow the progress of the Thai government's flagship policy will know that financing the 500-billion-baht plus scheme has been problematic from day one.

During the election campaign, the Pheu Thai Party said the scheme would be funded from the fiscal budget and no borrowing would be required. Half of the funding would come from revenue increases, which included 100 billion baht from more tax collections and 120 billion baht from abolishing diesel price subsidies. The other half would come from budget cuts, which comprised 100 billion baht of across-the-board cuts and another 100 billion baht by scrapping the government's welfare card programme.

Critics, including myself, argued that such an ambitious financing plan was impossible to implement. And the critics were right. After Pheu Thai formed the government, they announced that the DW scheme would be funded entirely from borrowing. A 500-billion-baht Emergency Borrowing Act would be enacted to raise money. Critics, particularly the Bank of Thailand, opposed such large-scale borrowing. The Office of the National Anti-Corruption Commission issued a document that strongly criticised the scheme and questioned the legality of enacting the Emergency Borrowing Act.

Plan A -- internal funding -- failed. Plan B -- the Emergency Borrowing Act -- faces serious legal challenges. The smart government came up with Plan C -- internal funding again. The difference from Plan A is that the funding would not come from one fiscal budget year but two years.

Under Plan C, 175 billion baht would come from the 2024 budget, and 152.7 billion baht would come from the 2025 one. The funding shortfall of 172.3 billion baht would be filled by an advancement from the Bank of Agriculture and Agricultural Cooperatives. With the new funding plan, the government announced that the 10,000-baht disbursement would commence in the fourth quarter of this year.

Things should now be fine and great. Wrong.

I had doubts from the start as to how could 175 billion baht from the 2024 fiscal year be used in the fourth quarter of 2024, which is legally the first quarter of the 2025 fiscal year. I was told by a key person in the Ministry of Finance (MoF) that the money would be an "unused portion" of the 2024 expense budget, which, under certain conditions, could be carried forward to be used in the next budget year. Letters would be sent to all government agencies to specify amounts of "unused" budget, and the MoF hoped the total amount would be close to 175 billion baht.

As expected, that has not materialised. Government agencies responded that there would be no unused portions of 2024's expense budget. Now, we come to Plan D.

On May 27, the prime minister ordered the Budget Bureau to draft an additional mid-year budget of 122 billion baht to finance the DW scheme, of which 112 billion baht would come from borrowing, and 10 billion baht would come from extra tax revenue collection. With more borrowing, public debt will increase to 68% of GDP, which is very close to the legal 70% public debt to GDP limit. And this is the reason why the mid-year budget is 122 billion baht, not the full 175 billion baht specified in Plan C.

Here comes the legal problem. The additional 122 billion baht expense budget cannot be carried forward to the 2025 fiscal year like the unused expense budget loophole. By law, an extra budget has to be used in its entirety in the 2024 fiscal year.

To overcome this important legal obstacle, Plan D splits the disbursement of the 10,000-baht cash handout scheme into two tranches. The first would be distributed to those carrying government welfare cards, estimated to be 14.8 million cardholders, and the second would be disbursed to the remaining eligible people. Required financing for the first tranche would be 148 billion baht, which will be covered by the mid-year budget of 122 billion baht and regular budget. The first tranche is scheduled to be released in September 2024, the last month of fiscal year 2024. Case closed?

On the contrary, Plan D gas generated a big rift within the government, which casts doubt about the future of the DW scheme.

The Minister (not Ministry) of Finance's team strongly opposes Plan D and insists that there must be only one disbursement tranche in the fourth quarter of 2024. The reason given is that they expect an "economic cyclone" from the 500-billion-baht handout. If the amount is to be split into two tranches, the economic cyclone might not happen.

I think the real objections are not the lame economic cyclone excuse.

The first reason might be that the "Super App" will not be ready by the beginning of September. The DW scheme has two distinct features. First, it limits the use of the DW within a specified perimeter, such as a person's local district. Second, which is more important, the first and the second businesses accepting DW tokens are not allowed to convert them into cash. The cash conversion must be done with the third business recipient of the token. This rule is designed to delay the conversion of DW tokens to cash. More importantly, it would allow negotiations of cash conversion terms with final recipients of DW tokens. All this can only be done with the Super App.

If the first tranche is to be launched in September, the existing "Paotang" app would have to be used. Technically, the Paotang app can handle transactions with ease. People and businesses would love that, too, as the Paotang app has no perimeter control feature and no cash conversion control feature. I can guarantee that when the second tranche is about to be launched, the public will insist on the Paotang app, not the Super App.

The second reason might be the proven economic impact of the cash handout. Theoretically, the proposed scheme would have a low economic impact as it is not "new" money. The money for the scheme is borrowed from the existing pool of domestic liquidity. This fact would be proven after launching the first tranche, as the Thai economy would see little improvement after September. The whole scheme, which will cost an additional 2.8% of public debt to GDP, could be criticised for its worthiness.

This is my personal opinion. At the end of the day, the legal issue will win, and the additional 122-billion-baht budget will have to be used in fiscal year 2024. The penalty is that cabinet members approving the use of money beyond fiscal year 2024 must reimburse the state the full amount. Just imagine 122 billion baht divided by 34 cabinet members. The amount per minister is 3.6 billion baht.

Chartchai Parasuk, PhD, is a freelance economist.

Chartchai Parasuk

Freelance economist

Chartchai Parasuk, PhD, is a freelance economist.

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