May 17, 2023
BANGKOK – Thailand’s banking community is worried that the populist policies of the new coalition government, led by the Move Forward Party, may lead to a higher budget deficit.
Kasikornbank’s research centre said populist economic policies devised to win votes will require a large sum of money to implement.
It said that though these policies will have a short-term positive impact on Thailand’s GDP, they may also lead to a greater financial burden in the long term. This is because funding these policies would either require a reallocation of the budget, which may not be sufficient, or a bid to increase government revenue through taxation. It warned that raising taxes at this time may not be wise as the economy is still recovering from the Covid crisis.
The research centre added that it is unlikely the new government can avoid a larger budget deficit, which will prompt an increase in the policy interest rate. Also, it said that if the budget deficit rises, it may affect the Thai private sector when the economy is trying to recover.
The study also pointed to Thailand’s growing geopolitical divide, changing demographic structure and declining population. Demands for sustainable, eco-friendly practices from foreign countries also pose challenges for the new government, which will need vision and leadership to respond to these trials.
Siam Commercial Bank (SCB)’s Economic Intelligence Centre (EIC) said the outcome of the May 14 election is key to the direction Thailand’s economy takes.
However, EIC reckons the election and the transition government will not have a significant impact on the country at least until the end of the third quarter.
This is because the 2023 budget covers government spending until the third quarter, and during this time, government agencies can proceed as usual with policies and projects.
The centre also expects an acceleration of budget disbursements and implementation of outstanding issues before the new government goes into full swing. However, it said, negative impacts will start becoming clearer in the fourth quarter of the year.
EIC also warned that economic stimuli will slow down due to uncertainty in the approval timeline of the 2024 fiscal budget, while the new government’s urgent policies will start impacting the economy as early as next year.