Amid a political vacuum that may affect fiscal policy mechanism, questions have been raised toward the magnitude of such impact on public spending and investment. Based on an assumption that the political impasse may remain through to 2H14, KResearch foresees the following possible scenarios:
Broadly speaking, the political stalemate could affect budgetary disbursements and off-budget expenditures, thus likely cutting into perhaps THB48-80 billion of public spending and investment planned for 2014, i.e., around 0.5-0.8 percent of the GDP.
Should political instability linger well into 2015, public spending and investment could be more severely disrupted. This is particularly true if the FY2015 budget bill is delayed, making it impossible to implement new investment projects or budgetary appropriation for transfer to local authorities. Close attention should thus be paid to how the political impact will have on this issue.
The GDP will directly feel the pinch of delayed budgetary disbursements as a result of shrinking public spending and investment, as well as ebbing consumption and private investment. As the caretaker government remains unable to introduce new short-term economic stimuli, the private sector may see a need to place new projects on hold until the dust settles.
Amid fiscal constraints, monetary policy may be the sole mechanism to keep the economic recovery on track. This matter will likely become high on the agenda during the next Monetary Policy Committee (MPC) meeting.
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