PDMO proposes hike in payment towards principal

The Public Debt Management Office (PDMO) wants to raise the amount of budget paid towards principal with the aim of delivering fiscal sustainability.

The current principal payment of 3% of the government’s annual budget expenditure is too low, said director-general Prapas Kong-Ied, but the size of the increase will depend on the balance between investment and debt repayment.

According to a recent Finance Ministry study, principal payment should be 15% of annual budget expenditure, a level seen as shielding the government from the risk of a fiscal crisis.

Mr Prapas said he personally thinks 15% is too high.

A committee on monetary and fiscal discipline determines the level of principal payment in each fiscal year.

Mr Prapas said increasing efficiency in collecting tax revenue and stemming loopholes used to avoid tax payment are appropriate methods that the government should apply right now to secure more revenue to pay down debt.

For fiscal 2018, which runs through Sept 30, the government budgeted 260 billion baht for interest and principal payment. Of the total, 173 billion baht is earmarked for interest and 86.9 billion for principal.

The cabinet last month approved a 3-trillion-baht fiscal 2019 budget, up 3.4% from 2.9 trillion in the fiscal 2018 budget, with the deficit running at 450 billion.

If one takes the 100-billion-baht borrowing plan under the supplementary budget for fiscal 2017 into account, the budget deficit for the year swells to 550 billion.

Mr Prapas said a higher borrowing amount always leads to larger interest payments, so the state needs proper debt management to prevent interest payment obligations from taking a toll on budget expenditure — particularly for investment, the main engine in driving the country’s economic growth.

To cut down the government’s interest payment burden, the PDMO has used tools such as debt refinancing and converting short-term debt to long-term.

Under the public debt management plan approved by the cabinet, the debt-service ratio (DSR) of foreign-denominated debt to revenue from exports and services must not exceed 9%.

This fiscal year, the DSR of foreign debt to export and service income and the ratio of public debt to GDP have been set at 0.4% and 42.7%, respectively, while the ratio of debt to budget expenditure has been set at 9% — well below the maximum 15% allowed by law.

Public debt is estimated to peak in fiscal 2022, when the ratio of debt to budget expenditure will be 10.7%.