More 'fiscal' workout Thailand gets cracking

Friday 29 July 2016 15:46
* Infrastructure spending in the coming fiscal year may rise to 4% of GDP from c3.5%, limiting further downside growth risks

* Extra spending will push up the public debt-to-GDP ratio, but still to a comfortable level, with HSBC expecting a rise to nearly 48%

* However, sluggish external demand and high household debt are likely to keep a lid on GDP growth for the foreseeable future

.....it is encouraging to see the government taking a proactive stance on fiscal policy, adding measures and continuing to accelerate infrastructure projects. As such, it is important for investors to take note of what's in store for the next few quarters. Here are the highlights:

For a start, there is still legal room for an increase in the fiscal deficit by some 50% from the currently planned 2.7% of GDP (THB390bn). Meanwhile, public debt is still at a manageable 43.4% of GDP, and we forecast a rise to 47.8% by the end-2017.

Next, disbursements for prioritised infrastructure projects were insignificant in FY2015, rising only slightly in FY2016, but this will likely gain pace in FY2017, with 12 out of the 20 projects approved so far. Total public infrastructure spending looks set to rise from 3.2% of GDP in FY2015 to 4.0% in FY2017. This can potentially lift nominal GDP by 0.7ppt in FY2017. However, much of the earlier phase of infrastructure projects involves construction and little imported equipment. As such, we do not expect an acceleration of investment to impact the current account significantly for the next few quarters. The large current account surplus should continue to be supportive of the Thai baht, with HSBC's FX Research team expecting USD-THB to decline to below 35.00 in 2017.