Fiscal future in govt hands
As the coronavirus pandemic soars unabated, the Thai economy is expected to suffer its biggest contraction in 23 years. Last week, the Bank of Thailand drastically adjusted its economic forecast to a 5.3% contraction from earlier predictions of 2.8% growth. The latter forecast is based on the assumption the Covid-19 outbreak will be over by the end of the second quarter of this year. The contraction of 5.3%, if it happens, will be the biggest since Thailand was hit hard by the Tom Yum Kung crisis when the economy shrank drastically by 7.6% in 1998.
In fact, the economic fundamentals now and then are different. During the Tom Yum Kung crisis, the country’s financial system, the main blood vessel of the economy, collapsed.
At present, the financial system remains strong. The current crisis has stemmed from the disruption of supply chains in tourism and exports on which the Thai economy relies.
Unfortunately, the size of the Thai economy is much bigger than that of 23 years ago. Gross domestic product is currently about 17 trillion baht compared to about 9 trillion baht in 1998.
With such size, the degree of impact of an economic contraction this year may not be less than that of 1998, and could even be worse. The 5.3% contraction would reflect a large scale dwindling of economic activities and that could lead to massive unemployment.
To deal with such an unfavourable outlook, what the country needs is not only a sizeable economic stimulus but also prudent and effective budget management.
On Friday, the government announced it will enact a decree on borrowing of around 200 billion baht to arrest the economic downturn. That is a step in the right direction and the government must act fast.
Still, the 200-billion-baht sum seems insufficient to bolster the economy this year. The 5.3% contraction of GDP worth 17 trillion baht means a shrinking of more than 300 billion baht in economic value. Such contraction could grow larger if the outbreak drags on longer beyond the first half of the year.
As excessive borrowing is not a good idea, the government should consider alternative ways to mobilise capital to support the economy. One of them is the reallocation of budget management.
The 3.2-trillion-baht budget for the 2020 fiscal year was supposed to be disbursed since Oct 1, 2019. But the process has been delayed by legal hurdles and then disrupted by the Covid-19 outbreak.
If the outbreak is contained by June, state agencies would have only three months to spend the budget before the end of the fiscal year on Sept 30. It is impossible that they can efficiently utilise the allocated money in time.
The government should transfer non-urgent lines of expenditure under the 2020 budget to support the fight against the outbreak and fund the economic stimulus.
Korn Chatikavanij, leader of the Kla Party, has called for the transfer of 10% of each ministry’s budget for such purposes. He estimates this will give the government an additional 300 billion baht to play with.
But the government says such a budget transfer is unlikely. This is because it would require a new law to be enacted to revise the 2020 Budget Act and the government is not keen to take that step.
Why would it be difficult to enact such a law to deal with this crisis situation? The country is in need of more prudent and flexible solutions to handle the escalating impact of an outbreak which has already caused suffering among so many people and will likely get worse.