Thailand’s new government plans to cut energy prices and city-train fares and temporarily suspend debt repayment by farmers as part of a raft of measures to ease the cost of living and spur investment in Southeast Asia’s second-largest economy.
(Bloomberg) — Thailand’s new government plans to cut energy prices and city-train fares and temporarily suspend debt repayment by farmers as part of a raft of measures to ease the cost of living and spur investment in Southeast Asia’s second-largest economy.
Srettha Thavisin’s yet-to-be unveiled cabinet will order a cut in electricity and diesel prices at its first meeting, the new prime minister said this week. A plan to cap subway and sky-train fares in Bangkok at 20 baht ($0.57), down from a peak of 47 baht is being discussed with coalition partners before implementation, he said Thursday.
The planned measures are all part of the pre-election pledges by Srettha’s Pheu Thai Party, which leads an 11-member coalition that also includes many of the parties in the outgoing government headed by Prayuth Chan-Ocha. Besides the urgent relief measures, the government will press ahead a “whirlwind” $16 billion cash handout plan for about 55 million Thais aged 16 years and above, said Paopoom Rojanasakul, Pheu Thai’s deputy secretary-general.
“The people unanimously complain of high cost of living, because oil, gas, and electricity costs make food ingredients more expensive,” Srettha said Thursday after visiting a market in Bangkok. “The Pheu Thai-led government will address the energy cost issue immediately with complete measures.”
The former business tycoon, who is also widely tipped to hold the charge of finance ministry, faces the task of jump-starting an economy amid rising interest rates and slowdown in exports due to a weakening Chinese economy. Thai household debts are near record levels and farmers and small and medium enterprises are still reeling from the impact of the pandemic, factors that’s forced the government to slash its 2023 growth forecast.
Srettha, who was elected prime minister last week after a months-long political impasse, will also need to guard against stoking inflation with his populist measures and driving up the fiscal deficit. Bank of Thailand Governor Sethaput Suthiwartnarueput said last month the new government should pursue fiscal consolidation in tandem with monetary policy to avoid fueling price pressures.
The new government is committed to follow through Pheu Thai’s promise to gradually increase minimum wage and distribute 10,000 baht each to adults through a blockchain-backed digital wallet by April next year, Paopoom said. The cash handout worth 560 billion baht will drive consumption and investment as well as lay the foundation to turn Thailand into a financial technology hub, he said.
“This will be a one-time grand-scale fiscal step that will resuscitate Thai economy for real,” Paopoom, also a key member of Pheu Thai’s economic team, said in an interview. “It will be like a whirlwind to stimulate both consumption and investment nationwide. Thailand will be among the first group of nations in the world to use this kind of technology in the fiscal policy arena.”
The fund for the digital wallet will come from a mix of additional government revenue of 260 billion baht, 150 billion baht from freeing up redundant or inefficient budget allocation and the rest from additional tax collections from the project itself. The money can be spent on daily needs, or as investment in small businesses to generate income within a six-month period, he said.
While the cash handout program won’t trigger additional borrowing, HSBC Holdings Plc. and Nomura Holdings Inc see fiscal deficit widening next year. HSBC also sees the stimulus measures resulting in inflation quickening to 2.7% in the second quarter of next year from less than 1% now.
“If inflation accelerates more than we expect on the back of an expansionary fiscal policy and rising wages, there is a risk of the Bank of Thailand resuming its tightening cycle and hiking by 25 basis points to 2.50%,” HSBC’s economist Aris Dacanay said in a report.
But Paopoom said the cash handout will have minimal impact on inflation as the economy remains weak and is mainly driven by pent-up demand post-pandemic. In the medium- to longer-term, the minimum wage hike, creation of new economic zones that offer attractive terms for investment and raising retirement age from 60 years will support the economy, he said.
“The current economic conditions are not at the satisfactory level,” Paopoom said. “The growth next year will be high as a result of fiscal measures. But we are not complacent about it. Our target is average annual growth of 5% in the government’s 4 year term.”
–With assistance from Patpicha Tanakasempipat.
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