Thailand’s ruling coalition continues to juggle with the challenge of arranging funding for the digital wallet scheme that involves cash handouts totaling 500 billion baht.
The government had planned direct borrowing of the entire amount, but the risk of violating the Constitution and the state fiscal and financial disciplines act forced it to look for alternative sources. The fiscal discipline act allows borrowing by the government to distribute cash to the people only in an emergency situation. The government’s repeated attempts to label the Thai economy as “in a crisis” has not cut much ice to justify the massive spending aimed at boosting consumption.
Alternative funding sources
The government recently abandoned its legislature loan proposal. Instead, Prime Minister Srettha Thavisin is dipping into the normal annual budget for fiscal 2024 and 2025, extracting an estimated 175 billion baht and 152.7 billion baht respectively.
The government also plans to tap funds from the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) totaling around 172.3 billion baht.
The borrowing from the BAAC will be a long-term debt, and the bank will be compensated via its annual expenditure plans.
The government is confident that the use of the quasi-fiscal measure would not risk violating the Constitution and related laws. But critics have warned of the risk of violating the BAAC law, which could stymie the stimulus project or lead to it being scaled down.
Somporn Isvilanonda, an economist at the Knowledge Network Institute of Thailand, said the government’s current debt to the BAAC amounts to around 500 billion baht. A half of that amount was incurred in implementing the Yingluck administration’s rice-pledging scheme and the rest from rice subsidies provided by the subsequent government of General Prayut Chan-o-cha.
“The BAAC law mandates the bank to provide loans to farmers. It does not give the bank the authority to hand out cash to farmers. The digital wallet is a money handout scheme, so it could violate the law,” Somporn argued. The bank board would be held accountable if they approved the scheme, he added.
If it runs counter to the law, it could lead to the cancellation of the planned scheme.
Korn Chatikavanij, former finance minister and a former chairman of the BAAC, posted on this Facebook page that the government’s move would be against the law. He argued that the BAAC’s responsibility was to support the farming sector, not the government’s economic stimulus scheme.
The trade union at the BAAC has also opposed the government order, voicing concerns that the scheme would suffer the same fate as the rice-pledging crisis in the past. It intends to take up the matter with related agencies.
Srettha has pledged that the scheme will reach 50 million people in the fourth quarter of this year. Thai citizens aged 16 years and above, whose annual income does not exceed 840,000 baht, and whose combined bank deposits are not more than 500,000 baht, will receive a one-time digital handout of 10,000 baht.
Recipients could use the handout to buy necessities at grocery or small shops participating in the scheme.
Registration will start in the third quarter via a new application which is currently under development. They have to buy goods from shops in their own districts and spend the money within six months.
Benefiting big businesses?
On the business side, the government has stipulated that shop owners will not receive cash until they use that digital money to buy goods from larger retailers or wholesalers.
In the first round, groceries or small shops will not get cash. As the government wants to draw more businesses into the tax system, it has imposed a requirement that operators will get cash in the second round only after the groceries buy supplies from them. To receive cash, the businesses must register in the value-added tax system, or annual individual income tax or corporate income tax.
Opponents say this condition may benefit large retailers, while small shop owners may not want to participate.
Move Forward Party deputy leader Sirikanya Tansakul is concerned that the scheme will benefit big businesses, as the government has set conditions that do not favor small shop owners.
Other critics also say that big retail chains, such as 7-Eleven, may benefit the most from the scheme.
Debate continues on merits of scheme
The government insists on the need to bolster the economy by injecting large funds to boost consumer spending and projects, promising an extra surge in GDP growth by 1.2 to 1.8 percentage point. Somporn, who specializes in agricultural economics, and other economists strongly oppose the planned use of massive funds to boost consumption, saying it would be a waste of money. They are suggesting that the amount be used for productive investment that would increase Thailand’s competitiveness.
By Thai PBS World’s Business Desk
