6 June 2024

At the first Cabinet meeting presided over by Prime Minister Srettha Thavisin on September 13, the government launched a slew of economic stimulus measures, including the plan to pay civil servants twice a month.

The public sector employs about 3 million people, including civil servants, state employees, temporary employed, and state enterprises workers.

The new payment system, which is expected to start in January next year, has drawn criticism and sparked speculation that the government might run out of money.

Srettha, however, has dismissed the speculation about the government not having enough cash flow.

He said the new system would increase the cash flow of civil servants and it was an option not mandatory.  The government has assigned the Comptroller-General’s Department to survey the opinion of civil servants.

Kulaya Tantitemit, director general at the Comptroller-General’s Department, said that the department could manage the new payment system of paying half the salary on the 15th and the balance at the end of the month.

Transaction cost

She said the Finance Ministry may ask Krungthai Bank to waive fees for the bi-monthly payment. The state-owned bank has waived the fee for transaction cost of payroll service once a month.

Currently, the department processes salary payments directly to millions of state officials, she said.

The department would discuss with savings cooperatives, the student loan fund and banks on how to split the debt repayment into two instalments each month, she added. Contribution to the Government Pension Fund also would have to be adjusted accordingly, she added.

An official at the Finance Ministry, who asked not to be named, said he did not agree with the new payment system as it would disrupt their financial management.

“I have to deal with many concerned parties, such as the savings cooperatives and banks,” he said. “The government never asked us whether we want to get paid twice a month. My colleagues don’t like the idea either,” he said.

“It makes economic sense to get paid a part of your salary today rather than 30 days later, because it would improve your cash flow,” said Nada Chanson, associate professor of Economics at National Institute of Development Administration.

“Therefore, if the government pays civil servants twice a month instead of once at the end of the month, it would enhance their liquidity,” she said.

“However, the government needs to consider the transaction cost, as paying the salary in two instalments every month may increase the cost,” she said.  The government needed to take into consideration whether creditors or third parties would shoulder the cost, or they would push the cost to their customers — the civil servants, she added.

Usually, state officials are members of the savings cooperatives of their organizations and they borrow money from these cooperatives. Many also borrow money from banks and other non-bank institutions.

“Another point to consider, is that early access to a part of their salary may psychologically encourage civil servants to spend more and save less,” Nada noted.

So the government may need to undertake a study of the pros and cons of the twice-a-month salary payments.

Root cause of debt

Household debt is the issue of biggest concern, as it currently amounts to 16 trillion baht, or 90 per cent of gross domestic product (GDP). A ratio of household debt-to-GDP above 80 per cent is considered high risk.

Nada suggested that the government focus on debt restructuring for state officials and find ways to increase their income.

One issue is that state officials have good credit, so they could easily access loans. They could borrow from savings cooperatives, banks, non-bank lenders and loan sharks.

Teachers could find opportunities to increase their income if they could be freed from assignments unrelated to teaching, said Nada. Freeing them from such assignments could also give them more time to enhance their teaching performance and to get promoted in their career path, she added.

Meanwhile, Chaiwat Sathawornwichit, a party-list MP of the opposition Move Forward Party, said that nationwide  900,000 teachers had a combined debt of 1.4 trillion baht. He estimated that each of them owes about 1.5 million baht and a great number of them have less than 30 per cent of salary left after deductions towards debt repayment each month.

While increasing the salary of lower ranking officials may be an option, Srettha, however, has ruled out any plan to hike the wages of civil servants.

Debt restructuring

Nada suggested that the other way is to facilitate debt restructuring, which needed cooperation from creditors. Each group, such as teachers or police personnel, may need a different approach to resolve their outstanding debt, she said.

Currently, the central bank has put in place a debt clinic designed to help retail borrowers and creditors to restructure their debt.

Those who have not accumulated debts should also be educated on financial planning, Nada added.

By Thai PBS World’s Business Desk