Government’s financial burden increases with digital wallet project

The government’s financial burden, expressed as the ratio of interest to estimated government revenue, is expected to rise from the current 8% to 11% in the coming year. This projected increase is due to the implementation of the government’s flagship digital wallet handout.

An anonymous source from the Finance Ministry revealed that the present 8% ratio aligns with an A rating per international credit rating agencies’ standards. An escalation to 11% would result in a downgrade to a BBB+ credit rating, on par with the country’s current sovereign credit rating.

Back in 2019, the ratio seemed manageable at 6%, thanks to the Public Debt Management Office’s efficient handling of borrowing costs. However, the Covid-19 pandemic brought about a shift in 2020-2021. The government passed two emergency decrees permitting borrowing up to 1.5 trillion baht to alleviate the pandemic’s fallout, pushing the ratio to a precarious 8%, just below the 10% ceiling of the government management framework.

The current government aims to fund its digital wallet project, projected to cost 500 billion baht, using funds from the fiscal 2024 and 2025 expenditure budgets. This includes funds derived from Section 28 of the State Fiscal and Financial Discipline Act.

Additionally, the government has chosen to expand the budget deficit for fiscal 2025 by 152 billion baht. This decision will necessitate more state borrowing to balance the deficit, amounting to 865 billion baht or 4.42% of GDP. Consequently, this will elevate the government’s interest burden from 8% to 11% in 2025, according to the source.

Despite these figures, the government’s public debt management is deemed to be within the financial discipline framework. The State Fiscal and Financial Discipline Committee, led by Prime Minister Srettha Thavasin, states that the government’s debt-to-revenue ratio should not surpass 35%. As of September last year, this ratio stood at 26%.

Furthermore, the proportion of foreign currency-denominated debt to total public debt must not exceed 10%. As of September last year, this ratio was a mere 1.4%. Similarly, the ratio of foreign currency-denominated debt to goods and service export revenue should not surpass 5%, and it was a nominal 0.05% as of September last year.

As of February this year, the total public debt amounted to 11.3 trillion baht, equivalent to 62.5% of GDP.

An adjusted medium-term fiscal plan released in January showed the government’s debt repayment budget proportion to the expenditure budget has increased annually. It stood at 10.5% for fiscal 2023, 11.0% for fiscal 2024, and is projected to incrementally rise to 13.3% by 2028,reported Bangkok Post.