Prime Minister Abhisit Vejjajiva yesterday unveiled plans to stimulate the economy in order to avoid a possible contraction, while the Bank of Thailand forecast a growth rate of 0.5-2.5 per cent for this year.
The premier said after a meeting with economic ministers and the central bank's governor that fiscal spending and exports would be the main drivers of growth.
However, the risks to economic growth remain significant, the premier said, adding that quick stimulus action should help the country avoid deflation.
Money supply and interest rates are not the key issues at this stage, he said, but banks' cautious position on new lending is.
As a result, the government will turn to the Small Business Credit Guarantee Corp to ease the credit crunch.
On the fiscal side, the government will spend more than Bt300 billion to stimulate economic growth this year, including Bt100 billion from unused state budgets, Bt100 billion from the mid-year supplementary state budget for 2009 and another Bt100 billion from state-owned banks.
Besides fiscal spending and boosting exports, the government is planning to increase domestic consumption and further ease the credit crunch.
For fiscal 2010, which starts in October, the government plans to have a combined fiscal deficit of Bt350 billion as part of a continued stimulus package, Finance Minister Korn Chatikavanij said. Of this planned package, Bt250 billion would be the annual budget deficit, while the balance of Bt100 billion would be the mid-year supplementary budget.
On the 2009 mid-year supplementary budget, he said the Cabinet would meet on January 13 to consider it and then forward it to Parliament for final approval on January 21. The government will accelerate fiscal spending by focusing on the poor while providing incentives for firms that retain workers for retraining or create new jobs.
"The government will spend about Bt400 billion to Bt500 billion in the next 18 months," Korn said at the seminar on "Restoring Thailand's Economic Confidence", hosted by the Sasin Graduate Institute of Business Administration. Korn said political uncertainty remained the country's biggest risk.
Sethaput Suthiwart-Narueput, adjunct professor at Sasin, warned that the government could face a revenue shortfall due to lower economic growth.
Sethaput also urged the government to come up with a contingency plan to rescue banks, particularly small ones, which may need recapitalisation.
Dipak Jain, dean of the Kellogg School of Management, said the government should invest more in the agricultural sector, where Thailand has the most potential in terms of international competitiveness. He said the Kingdom could produce more food to supply the rising world population.
Paul Tiffany, adjunct professor at the University of Pennsylvania's Wharton School, urged the new government to show leadership, steering the country in the right direction.