18 July 2024

In its election campaign for the May general election, the Pheu Thai Party — out of power for nearly a decade — focused on economic matters, promising higher economic growth in its bid to woo the electorate.

Among its controversial policies was the digital wallet handout scheme costing 560 billion baht.

The party promised to dole out 10,000 baht to every citizen aged 16 years and above, with the aim of boosting domestic consumption. The party hoped to come back to power on the back of its populist economic platform, as in the past.

The expected landslide victory, however, did not happen. Pheu Thai finished second behind the Move Forward Party, which promised economic and political reforms. During the first stage of negotiations to form a coalition government led by Move Forward, there was little reference to Pheu Thai’s digital wallet scheme.

Senators appointed by junta leaders General Prayut Chan-o-cha and General Prawit Wongsuwan vetoed Move Forward Party’s prime minister candidate Pita Limjaroenrat, forcing the party to sit in the opposition.

Back on the agenda

With Pheu Thai forming the new coalition government, the digital wallet scheme is firmly back on the agenda.

The party has partly reneged on its initial promise of handing out  10,000 baht to everyone aged 16 and above in order to jumpstart the economy.  The government did not make clear where the funding will come from to implement the scheme, but only outlined potential sources; cutting other planned spending items, collecting more tax revenue and borrowing some money.

The proposal met with fierce opposition from the academic community due to worries about rising public debt, fiscal discipline and opportunity cost.

Nearly 100 academics sent an open letter to the government, arguing against wasting tax revenue at a time when  the government needed to save money for harder times.

Funding challenges

To clarify the source of funding for the scheme, Prime Minister Srettha Thavisin announced in November that the government would borrow 500 billion baht and would push the borrowing bill through Parliament.

The government also added new criteria for eligibility — those having more than 500,000 baht in their bank accounts and having monthly income of 70,000 baht and above would be ineligible. With the revised criteria, around 50 million people will be eligible, down from around 54 million earlier.

Uncertainty shrouds the possibility of the borrowing bill being approved  by Parliament. Even if the government is able to use its majority and pass the bill, the opposition or other people opposed to the spending plan could petition the Constitutional Court. There is the likelihood of the court ruling against the government, citing the bill would violate the Constitution which prohibits government borrowing unless it had to address a national crisis. The current economic situation would fail to qualify as a national crisis.

The government has been consulting the Council of State, the government’s legal advisory body, about the issue and the final answer is expected in January 2024.

How to spur growth?

The Pheu Thai Party insists that the government has the right to borrow more, as it needs to inject money into the slowing economy which is heading towards a crisis.

The Thai economy expanded just 1.5 per cent in the third quarter of this year, well below the market expectation, while many research houses predicted growth would be about 2.5 per cent this year and slightly over 3 per cent next year.

The Pheu Thai Party says it wants to spur economic growth to 5 per cent on average during its four years in office. It argues that the slow growth for several years had already adversely impacted low-income groups. But economists counter that the digital wallet scheme would not be a big help in boosting the economic growth rate as expected by the government. They say high-income groups would unlikely spend more when they receive 10,000 baht cash and suggest that the government focus on the poor.

High cost

Kiatipong Ariyapruchya, senior country economist of the World Bank for Thailand,  says that the scheme would boost GDP by around 0.3 to 0.5 per cent, which is small relative to the cost. The 500-billion-baht borrowing is equivalent to 2.7 per cent of gross domestic product (GDP) and will potentially increase the public debt-to-GDP ratio to 65-66 per cent from the current 62 per cent.

The contraction of goods exports this year is one of the key headwinds facing the Thai economy, as the global economy has slowed down due to high interest rates in the US and Europe.

Fiscal imbalance

Meanwhile, China’s post-COVID-19 recovery has been slower than market expectation. Thailand’s tourism arrivals reached only 75 per cent of pre-pandemic levels in September despite the ongoing recovery in global services trade, according to the World Bank.

The Thai government spending has exceeded its revenue through taxes for several years, resulting in widening budget deficits.

To make the fiscal deficit sustainable, the World Bank has urged the government to collect more taxes, such as increasing the value-added tax rate, property tax and carbon tax.

The government’s reliance on debt to finance consumption in the short-run has brought the planned digital wallet scheme under close scrutiny of the public.

By Thai PBS World’s Business Desk