Weeks of speculation on the impending Cabinet reshuffle ended with the publishing of the new list of ministers in the Royal Gazette on April 28.
Within a few hours of the new Cabinet line-up becoming known, the Thai government was jolted by the resignation of Foreign Minister Parnpree Bahiddha-Nukara over his removal as the deputy prime minister, an additional designation he had held.
His departure, and a news report that he might also resign his membership of the Pheu Thai Party, shows all is not well with the leader of the multi-party coalition government.
Prime Minister Srettha Thavisin expectedly stepped down as finance minister, handing over the responsibility to Pichai Chunhavajira, 75. Although Pichai’s appointment was along expected lines, there were mixed reactions among local prominent economists to his taking the portfolio.
Economics professor Praipol Koomsup believes Pichai is qualified to discharge the responsibility by virtue of his extensive experience in both leading large corporations in the past and being well-versed in finance matters.
“Pichai is up to the task at the Finance Ministry and a full-time minister would be much better than Srettha, who previously was both finance minister and prime minister,” he said.
Taxation challenges before new finance minister
Praipol, who specializes in the energy sector, said that one of the challenges before Pichai is how to reform the excise tax, and whether to cut the excise tax rate on oil products.
Prof Sakon Varunyuwatana, former dean of Thammasat University’s economics faculty, was cautious in his assessment, saying he had never seen any of the finance ministers in over a decade embracing tax reforms.
As public debt is on the rise and government revenue is declining, this is the biggest challenge for the new finance chief, he said.
“Governments often talk about economic growth in the short-term but the reality is that serious faults in the economic structure have resulted in slower growth,” he said.
The two economists as well as others have often called for a review of the land and building tax by increasing tax rates in order to collect more tax from the wealthy rather than relying on revenue from consumption tax and income tax.
“As Thailand is now an ageing society, consumption would be slower, leading to lower value-added tax collection,” said Sakon.
When the value-added tax was introduced in 1992, the Finance Ministry had intended to apply a 10 per cent rate, but it was subsequently cut to 7 per cent, which remains the rate until now.
The challenge is whether the government should revert to the original target of 10 per cent, said Sakon.
Successive Thai governments have run fiscal deficits for many years, leading to the current public debt at 62 per cent of gross domestic product (GDP), exceeding the safe threshold of 60 per cent.
Looking ahead, public debt will rise further as the government is under high pressure for welfare spending because of the increasing number of senior citizens while the numbers in the working age group are dwindling.
The expenditure bill for fiscal 2024 became a law only on April 26, many months late. The government plans to spend 3.48 trillion baht with a budget deficit of 693 billion baht, or 3.6 per cent of GDP.
The government plans to have a larger deficit of 713 billion baht for fiscal 2025, which starts on October 1, with total planned spending of 3.6 trillion baht, as it needs an additional fund to finance the 500-billion baht digital wallet scheme.
The one-time cash handouts to 50 million people aim to boost domestic consumption.
The legal hurdles before the digital wallet scheme will pose a challenge to the new finance minister.
It is not clear yet whether borrowing money from the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) to partially finance the digital wallet initiative would violate the BAAC’s law.
If the borrowing proves to be against the law, it could potentially cost the new finance minister his job.
Exports take a hit after 7 months
The latest economic data will be another headache for the new Srettha Cabinet.
Thailand’s exports in March dropped sharply by 10.9 per cent year on year after seven consecutive months of positive growth.
The export slump prompted the Finance Ministry’s Fiscal Policy Office (FPO) to downgrade the economic forecast to 2.4 per cent growth this year from the earlier 2.8 per cent.
The FPO cited falling exports in the first quarter, particularly of manufacturing products, for the revision. Automobiles and parts production have been slowing. The farm sector has been adversely impacted by drought as a result of the El Nino phenomenon and the delay in budget disbursement has also impacted economic growth.
To speed up budget disbursement, the Comptroller-General’s Department would allow state agencies to reduce the number of days for public procurement, department director-general Patricia Mongkhonvanit said.
State agencies in Bangkok have to disburse funds to regional agencies within five days. State agencies have to accelerate the handover procedure of completed projects in order to quickly disburse the budget. In the case of carry-over projects that run into the following years, commitment of a new investment project obligation must be made before May.
The FPO expressed worries over the headwinds facing the economy. That includes geopolitical risks, such as the conflict between Israel and Iran, which could inflate energy prices.
The trade tensions between China and the US could also hurt the global economy. The high volatility in the global financial markets caused by higher interest rates in the US and Europe longer than expected would also have a negative impact on the Thai economy. A slower recovery of China’s economy could in turn hurt Thailand’s exports to that country.
Tourism remains a glimmer of hope
There are some positive factors. For instance, major banks have agreed to cut the lending minimum retail rate by 25 basis points for six months for individuals and small and medium-sized enterprises.
It might provide some relief for those having high debt. The cut came after PM Srettha met with representatives from the Thai Bankers’ Association.
The cut would not be sustainable if the central bank does not lower the policy rate which is currently 2.5 per cent per annum.
Bank of Thailand Governor Sethaput Suthiwartnarueput recently made it clear that the government could not force the central bank to lower the rate as it was an independent entity and made its judgments based on economic data, not political pressure.
The FPO was optimistic about the outlook for tourism, expecting the number of visitors to reach 35.7 million this year, up 26.7 per cent over last year. The tourism industry is expected to be the major contributor to the projected current account surplus of US$9.3 billion, or 1.8 per cent of GDP.
Titipol Phakdeewanich, a political scientist at Ubon Ratchathani University, expressed his disapproval of the Cabinet reshuffle, saying it was political. “It is just the sharing of interests within the coalition government. They do not prioritize national interest,” he added.
By Thai PBS World’s Business Desk
