The Thai government has unveiled a new package of measures aimed at promoting economic activity and maintaining growth at up to 5%, though opinions are mixed whether the stimulus programme will be able to meet its targets, or even whether it is warranted in the current economic climate.
On August 6, the Thai cabinet ratified a series of new measures designed to boost private consumption, investment, exports and public sector spending. The steps to foster growth include government support to promote energy efficient appliances; a fast-tracked depreciation programme for assets held by the tourism industry; and easing regulations for investors establishing food or ethanol factories or sugar mills in specified agricultural zones. Another measure will see increased access to credit and credit guarantees for small and medium-scale enterprises, to be carried out in cooperation with commercial banks and financial institutions, while exports and tourism will benefit from higher-profile state promotion.
One measure that could have an immediate impact is the government’s commitment to speed up disbursement of funds from the 2013 budget to local and provincial administrations. There has been criticism of delays and bottlenecks in state investment programmes, with some elements of the public sector’s high-profile infrastructure improvement scheme behind schedule. As of the end of July, just over 43% of total budget allocations had been spent, so a concerted push to hasten the pace of funding projects could boost growth and employment, especially in rural and regional centres.
Reviews of the stimulus programme have been mixed, with some experts saying the blend of incentives and increased spending will fuel growth, while others have questioned whether the measures will have any significant impact, or if so whether this impact will be positive for the Thai economy.
A report issued by Moody’s Analytics just after the stimulus package was approved said year-end growth would come in at 4.3%, a mid-point between the government’s target and the expectations of many analysts, who have put GDP expansion at around 4% for 2013. If the Moody’s forecast is achieved, it will represent an improvement from the Thai economy’s second-quarter performance.
“The Thai economy has hit a major speed bump,” the Moody’s report said. “Monthly household consumption, export and production data suggest the economy expanded by 4.1% year-on-year in the second quarter, down from 5.3% recorded a quarter before.”
However, about a week before the stimulus programme was approved, the BoT governor said there was no need for any further stimulus measures in the second half of 2013. According to BoT head Prasarn Trairatvorakul, the domestic economy will achieve 4% growth in 2013, and with the expected return to growth in the economies of the US, Japan and Europe, it was unnecessary for the Thai government to embark on a new round of pump priming.
The Thai Chamber of Commerce sided with Prasarn, with the organisation’s chairman saying in a statement in mid-July that stimulus measures may distort the economy and lead to new problems. Any new stimulus package could actually boost household debt by encouraging excessive private spending funded through loans, Pramon Sutivong said on July 17.
The central bank has said it expects the rate of increase in bank lending to slow in the third quarter, a result of the decline in exports and domestic demand. In the second quarter, the call for consumer loans fell due to the winding up of the government’s support programme for first-time car buyers, though this was to a degree offset by a rise in personal loans, the BoT said in a statement issued on August 9.
The BoT also warned that non-performing loans (NPLs) were on the rise, climbing by $281m to $8.3bn in the first half of the year. Releasing the latest lending figures, Anupap Kuvinichkul, the bank’s senior director for financial institutions strategy, said commercial lenders had been advised to apply more stringent measures in offering loans and be prepared for economic risk and uncertainty.
As most of the measures set out by the government target business development rather than ramping up domestic consumption, the impact on private debt and the risk of higher levels of NPLs should be limited. However, apart from the commitment to fast track the release of funds from the budget, especially those set aside for infrastructure and development projects, many of the other measures may take time to implement in full and longer still before they have an impact. As such, the effects of the government’s stimulus programme are more likely to be felt late in the year or into 2014, meaning the package may not bring the short-term boost to growth hoped for it.