The new government will have room to spend at least 2 trillion baht to fulfil its populist campaign pledges, according to a Finance Ministry source who requested anonymity.
It is estimated that more than 500 billion baht may be required to finance the 10,000-baht handouts via digital wallet promised to people aged 16 and older by Pheu Thai Party, which is a leading contender to form a new government.
LIMITATIONS
If the new government wants to borrow money to fund populist policies, it can do so by launching an emergency decree. But the decree issuance has to follow terms and conditions, such being necessary and urgent, with the government unable to secure other sources of funding other than borrowing, said the source.
The current government launched two emergency loan decrees in 2020 and 2021 to allow it to borrow a combined 1.5 trillion baht to mitigate the impact of the pandemic on the country.
Any new loans requested by the government are limited by the state debt ceiling set by the Financial and Fiscal Policy Committee of 70% of GDP.
Thailand's public debt outstanding as of March was 10.8 trillion baht, accounting for 61.2% of GDP.
By the end of fiscal 2023, which is the end of September, the Public Debt Management Office forecasts government debt will rise to 61.7% of GDP, leaving room to borrow 8-9% of GDP, worth around 1.5 trillion baht.
REVENUE OPTION
In addition, the new government can use revenue collection to fund campaign proposals in fiscal 2023, as collection is predicted to exceed the state target this year.
In the first six months of fiscal 2023, the government's revenue collection exceeded the target by almost 100 billion baht.
The source said the same result is highly likely in the second half of the year, generating 200 billion baht above the state target for the fiscal year. This revenue could be used to fund new government schemes.
An additional 160 billion baht was allocated by the existing government as expenditure for new projects in the fiscal 2024 budget.
Moreover, Section 28 of the State Financial and Fiscal Discipline Act of 2018 allows a new government to order state-owned financial institutions such as the Government Savings Bank or the Bank for Agriculture and Agricultural Cooperatives to fund its projects in advance, with the government reimbursing them later.
The Financial and Fiscal Policy Committee set the ceiling rate for these state banks to fund state projects under Section 28 at 35% of the government's annual total expenditure. This means the banks can fund state projects in fiscal 2023 worth 150 billion baht.
However, the government needs to take into account the stability of its financial institutions if it chooses to pursue this funding channel, the source said.
In fiscal 2022, the government had outstanding debt under Section 28 of 1.04 trillion baht, representing 33.6% of the fiscal budget.
In fiscal 2023, the government set a debt repayment budget under Section 28 worth 1.04 billion baht, representing 3.28% of the expenditure budget.
EXPENDITURES
Government expenditure, particularly the welfare budget for health insurance, social security and pensions, continues to increase. In fiscal 2023, the government allocated 754 billion baht for these items, representing 23.7% of the expenditure budget.
In the past five years, the growth rate of the welfare budget grew 4% per year on average.
Increased government expenditure poses a huge burden on debt repayment, said the source. The medium-term fiscal plan indicates the government's debt repayment budget continues to increase.
In fiscal 2023 and 2024, this budget accounts for 9.63% and 11.5% respectively of the expenditure budget, and is expected to reach 16.2% in fiscal 2028.
In addition, the principal and interest payment budget also increases proportionally with the government's debt. The principal payment budget is 3.14% of annual expenditure in fiscal 2023, then is forecast to remain at 4% through fiscal 2028.
The source said in terms of principal payment, the government may be able to manage using various tools such as rollovers or refinance.
However, the interest payment is required to be paid in full each year.
The interest payment budget also increases annually, comprising 6.49% of the expenditure budget in fiscal 2023, 7.99% in fiscal 2024, then surging to 12.2% in fiscal 2028.
The source said the increasing public debt might not affect government credit as long as budget spending contributes to economic growth.
