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Economy

Thailand's budget delay seen exacerbating economic woes

Political infighting takes toll as coronavirus outbreak hits growth

Prime Minister Prayuth Chan-ocha, centre, removes his face mask to speak to journalists during a visit to Suvarnabhumi International airport in Bangkok on Jan. 29.    © AP

BANGKOK -- The already weakening Thai economy has been dealt another blow after political squabbling led to another delay in the passing of the national budget at a time when the coronavirus outbreak in China is rippling through the region and threatening growth.  

On Wednesday, Thailand's Constitutional Court dashed hopes of immediate financial relief for the economy by deciding to accept a complaint about the questionable manner of parliamentary votes in the passing of the national budget.

This means that 3.2 trillion baht ($102 billion) set aside for the 2020 fiscal year will yet again be frozen. The bill has already been delayed by four months because of a political tussle within the pro-military coalition government.

The court's decision to accept the request by the speaker of the parliament comes in the wake of multiple economic headwinds. Southeast Asia's second-largest economy grew 2.5% in 2019, according to the Fiscal Policy Office, the think tank of Thailand's finance ministry. That dismal growth is a five-year low.

It now faces the coronavirus outbreak that is threatening to halt the flow of Chinese tourists, a smog that has led to the closure of schools, a severe drought in the provinces and a strong Thai baht that is making exports expensive.

Chuan Leekpai, the speaker, sought the court's view after a falling out between members of two leading political parties in the ruling alliance headed by Prime Minister Prayuth Chan-ocha's Palang Pracharath. It happened after the final reading of the delayed budget was voted on Jan. 11, with 253 in support and 196 abstentions.

But this comfortable victory for the ruling regime, which has a wafer-thin majority, was short-lived.

A politician from the Democrat Party claimed two parliamentarians from the Bhumjaithai Party, a coalition partner, were not present on the day and voted by proxy. Two parliamentarians from Prayuth's own party were also alleged to have done the same.

For Prayuth, this is a new headache. As the leader of the military government for nearly five years until last March, Prayuth had control of an obedient legislature that rubber-stamped all the junta's bills.

A source within Prayuth's inner circle said the disparate parties within the coalition are pursuing their own interests at the expense of a broader agenda.

"The political mood in Government House is different from [how it was] before, when technocrats were involved," the source said, referring to the prime minister's office. "They [coalition parties] know that the prime minister needs their votes, and the PM knows that he is their only ticket to be in government. It is a no-win situation."

Chinese tourists wearing protective masks pray at the Erawan Shrine in Bangkok on Jan. 30. The spread of the coronavirus could hurt the tourism sector.    © Reuters

The price of such political disunity is voter confidence. The Thai Chamber of Commerce, one of the country's most influential business bodies, warned on Wednesday that growth would slip below 2.5% in 2020.

It compounds the assessment made by the University of the Thai Chamber of Commerce that the tourism industry could lose as much as 80 billion to 100 billion baht, or between 0.5% and 0.7% of gross domestic product, because of coronavirus.

Chamber chairman Kalin Sarasin was quoted by local media as saying that the delays in budget spending dampen hopes that some sectors could begin to benefit from government funds as soon as February. "More than 200 projects worth as much as 40 billion baht which the private sector won [bids] to construct since last year's flood remain unpaid," Sarasin told Thai media.

This delay exacerbates an already poor record of spending last year. A research conducted by Kiatnakin Phatra Financial Group, a business consultancy, reveals government spending was 20% less than what was allocated in the previous fiscal year.

"This was supposed to be the year to promote more investment for Thailand, but it has begun with so many bad things happening," said Supavud Saicheau, a Thai economist and adviser at the Kiatnakin Phatra. 

World Bank figures also show the challenge that still exists for the poverty-reducing plans rolled out by the junta. In 2017, with much fanfare, the junta implemented a welfare program to the tune 40 billion baht to help 11 million poor Thais through a welfare card that allows them to buy goods at shops supported by the regime. In the second year, the program was expanded to absorb 14 million recipients of the welfare card.

The Bank's latest report on the Thai economy warns the Prayuth administration that the number of the poor could grow. "Official poverty estimates in 2018 were two percentage points higher than estimates in 2015, rising from 7.2% in 2015 to 9.9% in 2018," the Bank noted in its Thailand Economic monitor, released in January. "All regions in Thailand registered higher poverty rates in that period."

"That is a lot," said Birgit Hansl, World Bank country manager for Thailand. "The key that drives poverty reduction is growth in wages. If you don't have increases in productivity, you will not see increases in wages."

While the Thai economy has relied heavily on tourism receipts, the spread of coronavirus has put paid to hopes that the sector could lift growth. Over 39 million tourists visited Thailand last year, 11 million of whom were from China. The sector accounts for six million jobs, nearly 16% of Thai employment, and its direct and indirect earnings contributed to 21.6% of GDP, according to the World Travel and Tourism Council.

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