Public debt will balloon, says top finance official

However, Thailand is fully capable of financing the mega-projects planned to strengthen long-term economic fundamentals, if the government is committed to proceeding with them after launching measures to boost short-term demand and ease unemployment, he said.

The global crisis also serves as a timely reminder that Thailand should concentrate on agriculture and tourism, he said.

"As the world's combined trade deficits are expected to shrink from US$1 trillion (Bt36.4 trillion) to $100 billion, it shows the crisis will last long. [Cash] infusions into the economy are inevitable but as we address short-term problems, we need to base them on long-term goals," he said during an interview.

"We should start asking ourselves if we should shift focus to agriculture and tourism. When we put 100 per cent in the electronics industry, we gain only 5 per cent. But in agriculture and tourism, we gain 100 per cent and with proper know-how, it could be 200 per cent," he said. "Agriculture could be the buffer against future shocks."

Suparut expressed concerns over the government's income, as consumption and corporate earnings nosedive. Revenue might be more than Bt130 billion behind budget this year, which is in line with some economists' forecast for a Bt200-billion shortfall.

Plunging value-added tax collections is the first warning sign. In the first two months of this year, VAT contracted by over Bt10 billion each month against the targeted shortfall of Bt5 billion, due to lower imports for local manufacturing and lower domestic consumption.

Corporate income taxes for last year, to be paid in May, would be worrisome, but the Finance Ministry expects worse when corporations pay taxes for the first half of 2009 in August, he said.

Adding more gloom to the revenue picture are zero withholding taxes from deposits as interest rates fall and a drop in personal income taxes as people lose their jobs.

Given the downsizing of the economy and need for upsizing borrowing, public debt could soar 5 percentage points per year, he said.

The public debt ceiling can be raised, but it should not go up by too much, as interest costs eat into the annual expenditure and investment budgets.

Fiscal discipline must be upheld as Thailand cannot afford to run budget deficits

for long. If public debt bal-

loons too quickly, it would

also hurt currency stability.

"Japan's public debt-to-GDP ratio is over 100 per cent, while that of the European Union is about 70 per cent. The threshold could be expanded if we need to, and we don't need to lie that we don't need to," he said.

Public debt of Bt1.3 trillion account for 38 per cent of gross domestic product, near the 40-per-cent ceiling.

While the government needs to address unemployment and job creation in the immediate term, medium- and long-term goals must be taken into account. That means the government has to proceed with planned mega-infrastructure projects. Despite the tight revenue, there is room to finance them, he said.