Stoking fear about Thailand’s debt
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Stoking fear about Thailand’s debt

The Nation in their analysis today:

The government may have some money to spend for two years, as debt has not yet reached an alarming level. But after that, many economists doubt it will have money to spend. Currently, public debt is about 41 per cent of GDP. It would be dangerous if it shot up to 50 per cent of GDP.

The government presented a false premise to voters – low taxes but generous welfare. The US is now facing severe debt trouble due to its huge budget deficits. Many economists warn that the US runs the risk of defaulting on its debt. Greece has already been forced to implement an austerity programme in exchange for a bailout from its public debt crisis. Many countries in the eurozone are on the brink of crisis because the governments have accumulated high debts.

BP: There is nothing wrong with being concerned that new spending will increase Thailand’s debt, but one needs to provide a more accurate picture than has been provided above. BP senses we are just days away from the revival of the pandering “to the unprincipled wants and needs of the populace” of the masses temple that was a The Nation favourite back in 2006 – see here and here – and that Thaksin ruined Thailand by the implementation of populist policies – debt to GDP actually dropped from 58% at the end of 2000 to 41.2% in September 2006.*

According to the Public Debt Management Office of the Ministry of Finance, the level of public debt to GDP at the end of April 2011 is 41.03%* although  one should not discount the larger fiscal deficit. As The Nation wrote in June 2011:

Thailand’s fiscal deficit in the first six months of the current budget year stood at Bt372 billion, up more than 44 per cent from the same period last year, according to the Fiscal Policy Office.

Naris Chaiyasoot, director-general of the agency, said government revenue from October to March totalled Bt1.27 trillion or 11.7 per cent of gross domestic product. It increased 17.4 per cent or Bt187.985 billion from the same period last year. However, expenditures totalled Bt1.64 trillion, up 22.7 per cent or Bt303.4 billion over last year’s level.

BP: This is spending by the Abhisit government though. The increase in revenue is still not able at the level of the increase in expenditure. Nevertheless, public debt to GDP at 41.03% should not lead one to make Greece comparisons even if debt may increases in the next few years because debt in Greece is at a completely different level to Thailand. DPA a few months back:

The European Commission said Friday Greece’s debt burden is set to rise to a staggering 166.1 per cent of gross domestic product (GDP) next year, amid strong market speculation that the country will be forced to restructure its debt repayments.

The forecast, from the European Union’s Spring Economic Forecast, represented a nearly 20 percentage point rise from 2010, when the public-debt-to-GDP ratio in Greece stood at 142.8 per cent.

BP: One should note that it is actually difficult for Thai governments to spend all their money as the bureaucracy is not always easy to deal with. The Abhisit government has faced this problem and despite Korn arguing in 2007 that the government should spend to push debt up to 55-60% by 2012 this has not happened. With GDP forecast to rise 3.5%-4.5% in 2011, it will actually be difficult to spend that much money to significantly push up the debt this year – also given legal measures in place about the amount of money that can be borrowed – although we will find out when the new government is in place exactly what spending they will prioritize for this year and which spending for future years. The Nation was stoking fear back in 2006 that taxpayers “will have to start paying for Thaksin’s populist excess and the mountain of debt he incurred” when at the same time public debt as % of GDP was falling so BP is little skeptical that we should start to panic…

*From the Public Debt Management Office of the Ministry of Finance, you have this zip file and then click on Public Debt Outstanding as of April 2011.xls for debt as of the end of April 2011 OR Debt Public Debt Outstanding in The Past.xls for public debt for 2006. At the end of August 2006 it was 41.24 and at the end of September 2006 was 41.19 – the coup was September 19, 2006 so choose either from end of August or end of September.

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