This is part 3 of a series of posts on public debt in Thailand. The first post was on whether Thailand’s state-enterprise debt should be counted as part of public debt. The second post was comparing Thailand’s public debt to other countries.
There has been a lot of concern raised in the media about public debt in Thailand. This is not new – see here – but with the government’s planned 2 trillion baht infrastructure plan, which is planned to be spent over seven years, together with other government spending, we have seen increased concern about the level of public debt.
Below is a chart, adopted from the Public Debt Management Office, showing Thai government gross public debt as % of GDP over the last few years:
Source: PDMO, as of April 27, 2013 (the figures seems to slightly change – assume as there are slight recalculations to GDP figures).
From a Credit Suisse First Boston report from April 2013 (PDF) which has created a chart showing the Thai government forecasts of infrastructure spending per year of the high speed railway, the fiscal deficit, and public debt:
BP: Based on the government’s view, public debt will stay below 50% and start falling in a few years. However, others hold a different view. Somchai Jitsuchon, Research Director of the TDRI, from February 2013 in a piece entitled “Is Thailand heading for a public debt crisis?”:
Shown in the table of the cost structure of the government’s special projects over the next five years, it is predicted that if the economy grows by less than 6% per year the level of public debt is likely to reach and even surpass a shaky proportion of 60% of the country’s national income (GDP) _ a level assumed to be safe by many.
For an average citizen with commonsense, this should sound worrisome.
It should also worry the government. If we look at this debt trend from a “risk management” basis, it certainly is worrisome. In risk management, one would evaluate both positive and negative outcomes that might occur, and do whatever is necessary to prepare for the worst.
So even if the economy grows by at least 6% annually over the next 10-15 years, the country’s public debt-to-GDP ratio would begin to fall and stabilise (though this is certainly a big “if”), it is by no means a sure thing.
And what about the worst-case scenario?
The worst is when the economy grows by 4% or less per year while the government continues to spend according to its current plan without generating more future income to cover its enormous expenses. In that case, debt-to-GDP ratio would approach 80% quickly, and the country would surely lose its credit trustworthiness.
The Nation has Pridiyathorn something similar:
Mr. Pridiyathorn Devakula, former deputy prime minister and finance minister, said he was concerned the country’s public debt will surpass 60 per cent of GDP and may reach as high as 80 per cent by 2019.
A few months before Somchai of TDRI wrote his op-ed, TDRI’s Nipon Poapongsakorn was less pessimistic in his forecast on the level of public debt to GDP:
This is similar to the IMF’s predictions
BP: Having said that, and while can’t find estimates beyond 2013, the World Bank in their December 2012 report is more pessimistic than the IMF suggesting debt will be close to 50% this year:
Public debt is estimated to be close to 50 percent of GDP in 2013. Much of the Government’s borrowing planned for FY2013 will be used to finance the off-budget water resource management projects under the Emergency Decree on Water Resource Management and the Government’s major policy programs. The former could amount up to Bt330 billion or around 2.8 percent of GDP.
Borrowing will also be used to finance the Government’s major policy programs. These programs are estimated to cost around 2.4 percent of GDP in 2013, while costing 5.5 percent in 2012. Given these, public debt is estimated to be close to 50 percent of GDP by end-2013 from around 45 percent in end- 2012. While this rise in debt level needs to be managed prudently, it is not excessive. Moreover, the structure of Thailand’s public debt is such that over 90 percent of the debt is domestic debt and long-term. However, because many of the programs, such as the paddy pledging scheme, are also financed through the government’s specialized financial institutions (SFIs), these could weaken their balanced sheets in the future and are contingent liabilities to the Government
BP: Although, as you can see the World Bank views this rise is not excessive.
The Economist‘s global debt clock puts the debt at 48.9% in 2013 and 51.9% in 2014.
BP: Aside from differing views on the amount of government spending from non-infrastructure spending on various programs and GDP growth, there is another reason for less pessimistic views on the level of public debt in the future and that is some are skeptical the government can actually spend the money. Andrew Stotz from April 2013:
Implementation will likely fall short. But whether the Gov’t will actually be able to implement these Bt2tn infrastructure investments should be viewed with a healthy dose of skepticism, since history has shown that Thai governments often take a long time to complete their plans. Even if the Gov’t follows through, we do not believe that the impact will be as big as many may think, since it is likely that the spending will be spread over a longer time period than is planned for.
BP: A report from CSFB from April 2013 agrees pointing out that the high speed trains and the larger projects under the water management program probably face the highest risk of delay for a variety of reasons including administrative bottlenecks and risks of protest from local communities and NGOs.
Finally, from Kasikorn Research from 2002 with the headline “PUBLIC DEBT MAY EXCEED 65 PERCENT“:
The public debt has recently become an interesting issue in many quarters. The government has decided to cut its budget for the fiscal year 2003 to Bt999.9 billion, versus its estimated revenues for the same fiscal year of Bt825 billion, hence reducing the year’s budget deficit to Bt174.9 billion. The cut was as a result of the government’s decision to observe greater conservatism amidst concerns on the size of the public debt.
Given that that portion of the burden must be shouldered by the FIDF itself (thereby not increasing the burden on the government’s budget) under the government’s 2003 fiscal budget, the public debt for fiscal year 2003 should stand at 63.8 percent to the GDP — increasing from an estimated 60.3 percent of the fiscal year 2002 budget. That rise, which would be in line with the government’s 65 percent target, should be a factor reflecting that the 2003 fiscal budget can be managed to maintain fiscal discipline and the level of public debt, while also stimulating the economy.
As for the issue regarding whether or not the public debt is too high, TFRC views that the level of public debt has shown a dramatic increase since the financial crisis and might hit its highest level of 67.2 percent in the year 2005, from our perspective. This level is above the government’s 65 percent target.
BP: In the end, the forecast was way off as the below chart, from the Public Debt Management Office shows, that in 2005 that debt actually decreased to 50.62%:
BP: The purpose of this example is not to say don’t listen to forecasts or predictions. They need to be taken into account, but they are only forecasts/predictions. They are a lot of “if” this then that with the forecasts. The most important number to look at is the actual public debt numbers that come out on a month-by-month basis – there is a 1-2 month lag as it takes time for GDP figures to come out – and then to see which forecasts are proving accurate.
In the next post, BP will look at what public debt % thresholds that the government likely face political problems.