Former Unctad chief makes case for debt spending
60% ratio ceiling may restrain stimulus support for recovery
Thailand should implement fiscal stimulus to overcome the Covid-19 crisis, without being concerned about the possibility of the public debt-to-GDP ratio overshooting the 60% ceiling, says former UN Conference on Trade and Development secretary-general Supachai Panitchpakdi.
Most countries around the world, both developed and developing economies, have incurred higher public debt-to-GDP ratios as a result of aggressive fiscal stimulus to mitigate the adverse effects from the pandemic crisis.
“We are in an economic survival mode, so public borrowing and higher public debt are normal. The government has more room to increase public debt to support the economy recovery,” said Mr Supachai. “If the country’s public debt-to-GDP ratio exceeds 60%, rising to 70-80%, this is okay.”
Thailand’s public debt-to-GDP ratio stood at 52% with a value of 8.2 trillion baht as of Jan 31, according to the Public Debt Management Office.
The public debt level would rise to 57% of GDP upon borrowing the full amount under the 1-trillion-baht emergency loan decree.
Although both the World Bank and IMF have stated Thailand’s fiscal position remains strong and there is room for fiscal policy to stimulate the economy, the administration remains hesitant on stimulus.
Raising the public debt ceiling is a regular talking point among opposition parties when criticising the administration. Higher public debt means increased financial burdens shouldered by Thailand, making it a sensitive political issue.
Japan, a developed economy, has seen its public debt ratio register around 200% of GDP for a long time, while the public debt-to-GDP ratio of the US has increased to around 100%, said Mr Supachai.
“We are in a war with the virus, so we need more resources, including money, to fight this unusual situation. If we fight in a normal manner, we will lose,” he said.
The government’s existing financial facilities based on the 1-trillion-baht emergency loan decree are sufficient to stimulate the economy, but the budget has to be directed at the right time and at the right people to support the economic recovery and prepare for economic growth in the aftermath, said Mr Supachai.
He said apart from government borrowing, small and medium-sized enterprises (SMEs) should be given better funding access to help them overcome the crisis.
Regulatory bodies should pay attention to SMEs’ financial access rather than solely focusing on maintaining a solid financial system because the commercial banking industry is quite strong, said Mr Supachai. It has a higher-than-required capital base compared with other firms operating in the banking industry, he said.
Thailand also needs to increase private investment to 27-30% of GDP from the existing 23% to escape the middle-income trap, said Mr Supachai. Agriculture and tourism are key sectors that need to be developed in the post-pandemic period.
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