Thailand: Populist budget close to legal limit

  • Little room remains in the budget for the government to spend further on populist policies through state-owned financial institutions, as populist spending is nearing the cap of 30% of the annual budget, says an informed source at the Finance Ministry.
  • Pork-barrel spending will reach 29.6% of the 2018 annual budget after the cabinet approved debt repayment extension and lower lending rates for small-scale farmers and a price stability scheme for the 2018-2019 rice harvest, the source said.
  • Before both projects won approval, the government’s spending for populist policies stood at 27-28% of the 2018 budget.
  • Based on the 30% ceiling and this 2018’s budget of THB2.9tr, up to THB870bn is available to finance populist policies through specialised financial institutions or quasi-fiscal activities.
  • Without payments from these populist policies, the government’s pork-barrel spending for fiscal year 2019 will be quite limited, as up to THB900bn can be spent for quasi-fiscal policies based on the THB3tr annual budget expenditure set for fiscal year 2019, but almost THB870bn has been spent in fiscal year 2018.
  • The populist budget restriction was imposed by a committee formed to set a framework for fiscal discipline under the Fiscal Responsibility Act, aiming to prohibit politicians from spending lavishly on populist schemes to please voters.
  • The cabinet at the end of Jul 18 approved financial assistance measures for farmers to help shore up the agricultural sector.
  • In the first of the two measures, the government will cut lending rates for small-scale farmers from 1 Aug 18 to 31 Jul 19, covering only the first THB300,000 in loans.
  • The state will subsidise 2.5% of the interest rate annually, while the Bank for Agriculture and Agricultural Cooperatives (BAAC) will shoulder 0.5% a year.
  • The subsidy programme is estimated to cost about THB16.3bn, THB2.71bn of which will be allocated from the fiscal 2018 budget for the first two months (1 Aug 18- 31Sep 18) of 2018. The remaining THB13.6bn for the last 10 months will be from the budget for fiscal year 2019.
  • In the other measure, 3.81 million BAAC borrowers will be allowed to reschedule their debt repayment for three years from 1 Aug 18 to 31 Jul 21. Farmers who want to take part in the project are required to submit applications to the BAAC by 31 Dec 18.
  • The Fiscal Responsibility Act, which came into force on 20 Apr 18, is designed to maximise budget spending and prevent politicians from repeatedly using off-budget borrowing to finance projects, particularly populist schemes.

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