Thailand: Thai government introduces stimulus package to jumpstart underperforming economy
October 21, 2014
The Thai government is trying to jumpstart the sluggish economy with the USD 11.2 billion (THB 365 billion) stimulus package that it announced on 30 September. The economy suffered as a result of political unrest in the months that led up to the military coup in May. Since then, weak domestic demand and falling exports have been dragging on growth. In presenting the stimulus package, Prime Minister General Prayuth Chan-Ocha gave a breakdown of how the funds will be used: an approximate of USD 1.2 billion (THB 40 billion) will be distributed as one-off payments to farmers to support rice production. The rest of the funds will target public investment and job creation. While 35% of the funds have been added to the new 2015 budget, the rest will be covered with unspent funds from this year’s budget.
The government ruled out any program similar to the rice subsidy scheme applied during Yingluck Shinawatra’s administration. However, Prayuth pointed out that the government will introduce measures to lower production costs and support rice prices. More specifically, low interest rate loans will be given to local farmers in exchange for keeping their rice in storage. The farmers can sell the rice later on, once market conditions are more favorable. The goal is to prevent the price of Thai rice from falling even further. Prices started dropping when the Yingluck administration rushed to sell stocks in order to pay the farmers after her rice subsidy plan faced liquidity problems. Rice prices have picked up since the military junta came into power earlier this year; however, farmers are still complaining that current prices are lower than production costs.
According to the government, the stimulus package is expected to boost economic activity back to its normal growth rate of 4.0%–5.0% in 2015. Benjamin Shatil, Economist at J.P.Morgan comments:
“The key impetus for growth will need to be fiscal stimulus, and the announcement […] of a large THB365 billion package (worth about 3.5% of GDP; including cash transfers to the agricultural sector as well as faster disbursement targets for the central government budget) should bolster domestic demand significantly in 4Q—if spending can begin in coming weeks. Private consumption is also likely to receive some support from the recent loosening in credit conditions.”
Author: Dirina Mançellari, Senior Economist