Plan to enforce stricter fiscal discipline

The government must urgently rebuild confidence among rating agencies by demonstrating its creditworthiness

- WICHIT CHANTANUSORNSIRI

Thailand’s most aggressive fiscal stimulus came during the pandemic in 2020-2021, when the government was forced to borrow 1.5 trillion baht, the largest such programme in Thai history, to support an economy that had effectively ground to a halt.

During the severe hardship of the pandemic, millions were forced to depend on government assistance to sustain their livelihoods. As a result, public debt rose beyond the previous ceiling of 60% of GDP, leaving lasting repercussions for the government's fiscal position that persist to this day.

As signs of fiscal strain began to emerge, three major credit rating agencies that assess sovereign creditworthiness worldwide — Moody's, Fitch and S&P — quietly turned their attention to Thailand. Moody's and Fitch subsequently issued early warning signals by revising Thailand’s economic outlook to negative from stable.

According to caretaker finance minister Ekniti Nitithanprapas, a downgrade of Thailand’s outlook by all three major global credit rating agencies would be a clear warning that a sovereign credit rating cut could follow in the near term. Such a development would inevitably drive up borrowing costs for both the government and the private sector.

Policymakers have urged the government to rebuild confidence among credit rating agencies by demonstrating fiscal discipline.

The first step was the repayment of 35 billion baht in debt to the Bank for Agriculture and Agricultural Cooperatives (BAAC), incurred by previous governments to finance their projects.

The next step is the announcement of the closely watched medium-term fiscal framework (MTFF), which aims to narrow the fiscal deficit from 4.4% to a maximum of 3% by 2029, while raising the value-added tax (VAT) to 10%, the ceiling allowed by law.

Notably, this is the first time a VAT increase has been explicitly outlined in a MTFF.