With the country adopting a new accounting method for balance of payments (BOP), the country must be more cautious in implementing its public and private policies, because the current-account balance will be worse than expected, says a leading central bank official.

Bank of Thailand (BOT) assistant governor Suchada Kirakul said that due to the new accounting standard, which has been implemented by other countries, the current account is forecast to show a deficit of US$700 million to $2.7 billion (Bt25.16 billion to Bt97.1 billion) this year, compared with an estimated surplus of $1.5 billion to $3.5 billion.

The new accounting method will also worsen the current-account deficit next year, to $3.2 billion to $6.2 billion rather than the previously forecast deficit of $2 billion or surplus of $1 billion, Suchada said.

The new method will include reinvested earnings of multinational companies in the BOP, which is in line with International Monetary Fund standards.

Foreign investment in Thailand is higher than Thai investment abroad. Thus, the reinvested earnings included in the BOP will adversely affect the current account and increase the capital-account deficit, compared with the old standard. But the BOP account will not be affected by the new method, said Suchada.

She said the readjusted current-account figure did not indicate a worsening economic situation, but rather showed the Kingdom has financed the deficit with more foreign capital than earlier expected.

"It means we've saved less than expected, and as a result we must increase domestic savings," she said.

Using the new method, the savings-investment gap last year indicates domestic savings of 4.4 per cent of gross domestic product (GDP), lower than investment capital and higher than the 2.1-per-cent gap using the old standard.

Suchada said the deficit financed with foreign direct investment was not of concern but questioned how long the deficit would be financed with long-term funds.

"We must be more cautious about deficit financing, whether it is with short-term or long-term money," she said.

The current account will fall under increased pressure once the government's mega-projects are completed. The country experienced a deficit of $3.7 billion, or 2.1 per cent of GDP, last year, but the readjusted accounting method pushed the deficit up to $7.9 billion, or 4.4 per cent of GDP.

The new accounting method overturns the current account to show a deficit of $300 million, or 0.2 per cent of GDP, in the first nine months of this year from a surplus of $2.8 billion, or 1.9 per cent of GDP.

In the first 10 months, the current account showed a surplus of $500 million, due to a $200-million trade surplus and a $300-million service and transfer account surplus.

Domestic demand continued to slow. October's Private Consumption Index expanded 1.3 per cent year on year, compared with 2 per cent in September. Suchada said that despite improving confidence in the political situation, the recent flooding had affected consumer income, causing a slowdown in consumption.

The Private Investment Index showed 1-per-cent growth, compared with a 1.5-per-cent hike the previous month.

Anoma Srisukkasem

The Nation