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Bank of Thailand backs government’s use of fiscal policy to stir economy

BANGKOK, March 24 (TNA) – The Bank of Thailand (BoT) supports the government as it adapts fiscal policy and raises the state borrowing ceiling to stimulate the country s sagging economy….

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The Bank of Thailand (BoT) supports the government as it adapts fiscal policy and raises the state borrowing ceiling to stimulate the country s sagging economy….

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Earlier, Finance Minister Korn Chatikavanich said he may ask the Cabinet to consider a 3-year waiver on the fiscal sustainability framework in preparation for the Bt1.4 trillion borrowing plan.

The framework requires that the public debt be limited to 50 per cent of the gross domestic product (GDP) and the debt settlement limit to 15 per cent of the expenditures budget.

Mrs. Amara conceded that many parties take the view that the global economy will not recover this year, but feel that recovery might pick up in the next one to two years.

’It is very difficult to guess whether the Thai economy will recover along with the global economic turnaround because the situation remains uncertain,’ she said.

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Bank of Thailand backs government’s use of fiscal policy to stir economy

Demand from businesses have increased rapidly over the years in Thailand

thai-moneyEconomists and analysts forecast gloomier times, predicting Thailand’s GDP to contract by 0-3 percent while the country descends into a deflationary spiral. Moody’s Economy.com says Thailand could be the Asian economy that suffers the most from the global financial crisis. Plus the spectre of further political unrest remains on the horizon. However, there are some signs that Thailand can ride out the economic firestorm. Government debt-to-GDP remains below average regionally speaking, the financial sector learnt from the 1997 meltdown and remains relatively well capitalised and liquid, and Board of Investment privileges are some of the best in Southeast Asia.
Infrastructure services, if quickly improved, could promote a better investment climate in Thailand. Logistic costs, for example, are reported by firms to be higher for them in 2007 compared to 2004. This is particularly true for industries that are located in regions other than Bangkok and vicinity or the East where the major markets and ports are located. They include the food processing and furniture industries. A partial explanation for the higher logistic cost was the sharp rise in diesel prices from 2004 to 2007. However, another important explanation is the increased congestion of roads and ports which added to the transport time and costs. The quality of public utility services (electricity, water, and telephone) have also declined from 2004 to 2007 as the period of service interruptions have risen. This is a reflection of the inadequacy of infrastructure services as demand from businesses have increased rapidly over the years. These service interruptions are costly for firms and will hurt Thailand’s competitiveness as other countries in the region such as China and Vietnam are quickly improving them.

Implementation of Reforms in Thailand

Bank of Thailand backs government’s use of fiscal policy to stir economy

Import tariffs on machinery are waived for regional operating headquarters. The Board of Investment cancels import tariffs on machinery used in conducting research and development activities by regional operating headquarters (ROHs). This is in addition to the existing privileges such as a permission to own land and remit foreign currency abroad as well as preferential corporate and income tax rates. Looking forward, related agencies such as the Revenue Department, the Bank of Thailand, and the Department of Business Development plan to streamline other rules and regulations that help to promote ROHs in Thailand.

For the year 2008, the Thai economy decelerated from the previous year, particularly in the last quarter where global economic downturn and internal political unrest adversely affected manufacturing production and tourism. Nonetheless, farm income in Thailand still expanded well from higher major crop production and price compared to the previous year. On the demand side, private consumption and investment declined notably in the last quarter, despite falling inflation during the second half of the year in line with lower oil prices. Both export and import expanded satisfactorily during the first three quarters. However, during the last quarter, export contracted following trading partners’ economic slowdown while import decelerated markedly in line with export and domestic demand conditions.

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