The Budget Allocation for 2011

Not so long ago, the prime minister announced to parliament that the annual government expenditure for 2011 would be 2.07 trillion baht with a budget deficit of 420,000 million baht or 4.1 percent of GDP. The 2011 annual budget has increased by 370,000 million baht (21.8 percent) of 2010’s annual budget. After this announcement, the opposition party debated the opinion that many facets should be investigated in the government’s allocation of the 2011 budget.

After following this debate and information on this issue, I would like to share my opinion and observations about the government’s budget for 2011, as follows,

Is setting a budget deficit in 2011 suitable for the situation right now?

Normally, when an economic recession hits, private sector consumption and investment as well as exports will be decreased and may be unable to drive the economy normally. So governments have to set budget in deficit in order to stimulate the economy.

However, in Thailand, the economy will now likely expand due to an economic growth rate (GDP) of 12 percent in the first quarter of 2010. Overall, this year the economy might have expanded by 6-7 percent if there had been no political demonstrations. In addition, Thailand’s future economic expansion in 2011 may expand generously by 3.5 to 4.5 percent as exports can still expand according to a situation of world economic recovery.

In addition, the government’s economic stimulation measures in recent months have made consumption and employment improve continuously, so although there may be a private investment problem, the economy in 2011 may be considered normal in condition.

Thus, I question why the government must set a high budget deficit of 420,000 million baht (This is an amount equal to the amount of budget that the government intended to borrow through a 400,000 million baht Borrowing Bill, though this was cancelled). If the government says that extra budget is needed to solve the problem of income inequality and unfairness in society according to its roadmap towards national reconciliation (Paen Prong Dong), this should not be so, because if we consider the budget document, we will know that this strategy is neither new nor different from the development of social and quality of life strategy in 2010. But this 2011 strategy has added the phrase “decrease of social differences" in the headline of its budget. Thus, the 2011 budget should not be more than 2010 that much.

Will the 2011 budget deficit negatively affect economic stability and the fiscal position of our country?

If we consider Thailand’s fiscal position, the public debt level is now 41.9 percent of GDP, which is still lower than the fiscal sustainability framework that limits public debt to 50 percent of GDP.

However, we should not forget that the government borrowed 400,000 million baht to stimulate the economy during 2010-2012 following the Thai Kem Kaeng plan last year. Therefore, Thailand’s public debt is supposed to increase to 57 percent of GDP which is above the fiscal sustainability framework.

For this reason, having a deficit budget that exceeds what is necessary may negatively affect Thailand’s fiscal position in the future, even though the deficit in 2011 may already have been totaled to the public debt.

Besides, if we consider Thailand economically stable, the inflation rate will still tend to increase due to the fluctuation of oil price. Also, to have a deficit budget over-stimulate the economy may aggravate and increase inflation that affects the daily lives of people, especially the poor and labourers who depend on their monthly salaries.

Questions may arise on the suitability and negative impacts of setting this high budget deficit in 2011. However, the 2011 National Budget Bill has been accepted by parliament. What people can do from now on is to follow up and investigate the work of the government in whether the budget is used effectively for the benefits of Thai people or not.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com