Thai Public Spending Delay Adds to Growth Risks: Southeast Asia
Thailand’s economic growth may slow further this year as the government’s attempt to push through an amnesty bill for political protesters risks delaying its $64 billion infrastructure spending plan.
Prime Minister Yingluck Shinawatra’s ruling Pheu Thai party said it will resume debate tomorrow on a law to exonerate protesters involved in demonstrations stretching from a coup in 2006 that ousted her brother, Thaksin Shinawatra.
Prioritizing that legislation may mean lawmakers won’t have time to vote on a plan to spend 2 trillion baht ($64 billion) to modernize railways, roads and ports, an investment that the government says may boost annual gross domestic product growth by 1 percentage point and create 500,000 jobs. The infrastructure bill hasn’t been scheduled during the three-month parliament session that began last week.
“The delay will hurt growth,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “It will also create a negative feedback loop. This could be interpreted by investors as a sign that politics is rearing its ugly head again,” he said, adding that a delay in infrastructure spending may slow growth by about 0.3-0.5 percentage point.
The Bank of Thailand last month cut its expansion forecast for this year to 4.2 percent from 5.1 percent and its export growth estimate to 4 percent from 7.5 percent, citing cooling global and local demand. Gross domestic product increased 5.3 percent in the first quarter from a year earlier.
The SET Index slid about 10 percent in the past 3 months, the worst performer in Asia, on concern export growth may slow and the government’s amnesty push may spark political protests. The baht dropped in July for a fourth straight month, its longest losing streak since 2008.
Yingluck’s government has raised minimum wages and handed incentives to first-time car buyers to boost local demand after floods in 2011 damaged factories and crimped consumption. Finance Minister Kittiratt Na-Ranong said last month the seven-year infrastructure spending plan is needed to offset weakness in exports (THCTEXPY) and consumption.
A separate 350 billion-baht plan to build reservoirs and flood channels in northern and central Thailand to prevent a repeat of the deluge was put on hold after a local court ruled in June that the government must first conduct public hearings and study their environmental and health impact.
Similarly, the draft bill for investment in high-speed trains, dual-track rails, roads and a new airport link is stuck in parliament. Only 0.01 percent of the budget will be disbursed this year starting November, the government estimates.
Credit Suisse Group AG today cut its forecast for Thai economic expansion this year to 4 percent from 4.7 percent, citing delays in infrastructure spending and weaker-than-expected export growth.
“The medium-term outlook depends critically on three factors: the execution of the infrastructure projects, the momentum of domestic demand growth and a recovery in external demand,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore.
Thailand should increase infrastructure spending as a percentage of GDP, and needs about $105 billion in investments by 2020, according to Goldman Sachs Group Inc. Government spending is projected to rise to 2-3 percent of GDP by 2020 from about 1 percent now, Goldman Sachs estimates, lagging behind the 4-5 percent of GDP that the Philippines may spend.
“Implementation will be key, and will depend in part on individual governments’ prioritization of infrastructure,” Goldman Sachs economists led by Andrew Tilton said in a note on May 30. “We think that political stability will be vital for successful implementation of infrastructure plans.”
Philippine President Benigno Aquino, who has overseen an economic resurgence, has made infrastructure a priority and is seeking about $17 billion in investments to build highways and airports. Public spending on infrastructure rose 42 percent in the first half from a year earlier, government data showed.
Meanwhile, Yingluck risks reigniting street protests as her party pushes ahead with an amnesty for jailed supporters and changes to the constitution imposed after the 2006 coup.
The police closed five roads around parliament and Government House yesterday amid concern as many as 5,000 protesters may join rallies against the amnesty bill this week, spokesman Piya Uthayo said. About 3,200 people joined a demonstration in Bangkok on Aug. 4, he said.
“People will monitor whether the protests are prolonged,” Bank of Thailand Governor Prasarn Trairatvorakul said yesterday. “I just hope all parties will think about the country’s benefit and help find a solution to this, so we can move on to dealing with other problems.”
The police may ask the government to extend the use of the Internal Security Act beyond Aug. 10 if the protests grow, Piya said. Thai Army Chief Prayuth Chan-Ocha yesterday dismissed rumors that the army may seek to topple the government, and urged people to stop spreading “damaging” coup rumors.
Japanese investors, Thailand’s biggest source of foreign direct investment, have complained about project delays, Kittiratt said. While companies including Toyota Motor Corp. and Suzuki Motor Corp. (7269) won’t move their production bases from Thailand, they may reconsider expansion plans if flood-prevention measures aren’t completed on time, he said.
“Thailand has a poor record when it comes to implementing big infrastructure projects,” Gareth Leather and Krystal Tan of Capital Economics Ltd. said in a July 29 research note. The government has spent only 60 percent of its planned budget over the past eight years, they said.
Exports in June unexpectedly fell, slipping for a second straight month, while manufacturing output declined for a third month. An index of consumer sentiment fell in July, its fourth straight monthly decline.
The Thai Chamber of Commerce said last month that the government must ensure its infrastructure-investment plans are transparent and include public participation to avoid delays.
“We support the government’s plans to invest in infrastructure, but we want them to be careful in implementing and prioritizing projects,” said Pornsilp Patcharintanakul, the chamber’s vice chairman.
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