Off-budget financing of Bt2tr loan bill can’t be justified
Parliament has just completed debating the so-called 2-trillionbaht bill. It is the largest single amount of borrowing by any previous Thai government, and certainly one of the most controversial.
The government intends to use the loan proceeds to finance transport infrastructure, particularly the rail network, which has suffered from woeful under- investment for decades. The need for investment in infrastructure is not questioned. Indeed, all the plans that make up the 2-trillion-baht package were initiated by previous governments, whether the mass transit system in Bangkok, the double-track railways or even the highspeed trains. What then has all the fuss been about? There are two fundamental problems with this law. One concerns the financing aspect, the other concerns the readiness of many of the investment programmes themselves.
On the issue of financing, it is clear that it should not be necessary for the government to feel the need to debtfinance the entire plan.
Other financing options are available, especially private sector participation, as well as government to government arrangements.
Moreover, and most controversially, the government has no justification in financing the projects outside of the budget law.
Thai laws regarding national budgets provide significant leeway for governments to debt-finance long-term investment projects. The legal debt ceiling is generous but necessary to help maintain fiscal discipline, supported by strict requirements on disclosures and disbursements.
All of this has been unnecessarily circumvented by the issuance of the offbudget 2-trillion-baht bill and is thus potentially in contravention of the constitution itself.
Regarding the projects, academics agree most are not ready for initiation. Indeed, it is estimated that only 20% of all projects in value terms can be contracted within the first year. Some of the high-profile plans are barely past the pre-feasibility stage, notably the high-speed trains.
Indeed, the government has switched priorities from the route chosen by the previous government that was planned to link with Kunming in southern China via Laos, through to the Malaysian border, potentially linking with the proposed Kuala Lumpur-Singapore route.
Instead, it will focus on the BangkokChiang Mai route which provides signif- icantly lower potential all-round returns, and does not provide connectivity with neighbours. It is anticipated the route will be a significant loss-maker, and thus be a financial burden once in operation.
It is thus highly unfortunate the government has compromised needed investments by bypassing proven legal processes. Recent examples of similar attempts, particularly the much-delayed execution of the government’s borrowing law to finance water projects, should have provided clear lessons of what happens when unnecessary shortcuts are taken with taxpayers’ money.