EDITORIAL

A better approach to debt management

By The Nation

 

Fresh legislation promises to improve Thailand’s capacity to control the economy, though there are drawbacks

 

The public debt-management legislation approved by the National Legislative Assembly yesterday will set a new paradigm for the country’s management of public finance. Proponents say the new law will increase managerial efficiency of public financial affairs while helping to develop a broader and deeper domestic bond market to further upgrade the country’s capital markets.

 

These key benefits may be obvious, but there are certainly downside risks in the eyes of conservatives as far as more public borrowing in the future is concerned.

 

As of July this year, Thailand’s public debt stood at around Bt6.22 trillion, representing 41 per cent of the country’s GDP. It is relatively low considering the country’s debt-service capacity and other factors. 

 

Under the new law, public debt is more clearly defined as being borrowed and guaranteed directly by the Finance Ministry. Debts of the Bank of Thailand and other state-owned financial institutions, among others, are excluded. Previously, the law was not that specific, prompting amendments to the definition of what constitutes public debt. 

 

The new law also excludes obligations of state-owned asset-management and credit-guarantee agencies while spelling out more specifically the role of the Finance Ministry as supervisor of the country’s public debt management.

 

The ministry also has the duty to manage debt repayment in a fashion that helps form the benchmark for the much-needed domestic bond market, which has greater breadth and depth.

 

With public debt currently around 41 per cent of GDP, Thailand still has ample room to manage its public finance. Sixty per cent of GDP is seen as the upper limit for public debt in terms of sound fiscal discipline.

 

Besides increased efficiency and development of a more sophisticated domestic bond market, the legislation should pave the way for the government to gain greater capacity to borrow from capital markets.

 

In this context, more scrutiny of public financial affairs is warranted, since every citizen is going to have a share of his or her debt service once any borrowing becomes a public obligation.

 

While the amount of public debt might not change as a result of the new law’s more specific definition of public financial obligations, the government’s capacity to do more borrowing should increase.

 

On one hand, it is a reasonable advancement of the country’s public-debt management, but on the other hand, more built-in check-and-balance mechanisms are required to ensure fiscal responsibility and prudence.

 

A country’s capacity to service its public debt varies. For example, big economies like the United States and Japan have much bigger public financial obligations as a percentage of their GDP. In the case of Japan, its public debts represent a staggering 234 per cent of GDP, while the US public debt is about 74 per cent of GDP.

 

In the case of Thailand, the 60-per-cent threshold is said to be fine considering its debt-service capacity, but conservatives would think otherwise.

 

After all, thanks to the incumbent National Legislative Assembly, future governments will have more room to manoeuvre in terms of managing the affairs of public finance and borrowing.

 

Source: http://www.nationmultimedia.com/detail/opinion/30331818

 

-- © Copyright The Nation 2017-11-17

5 hours ago, webfact said:

After all, thanks to the incumbent National Legislative Assembly

... for avoiding all the rules it will pass onto the next elected government that will not have absolute power.