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Thai govt to raise spending to spur growth


June 28, 2008

Thai govt to raise spending to spur growth
Thai government is planning to increase fiscal spending in the 2008/2009 budget by 10.5 percent to support economic growth, Reuters reported Friday. Introducing the budget bill, Prime Minister Samak Sundaravej said state spending of 1.84 trillion baht ($54.8 billion) would help the economy expand around 5.0 percent in calendar 2008 and 5.5 percent in 2009.

"The economy is expected to sustain growth in the rest of this year despite the impact of high oil prices and rising inflation," he said in a budget speech to parliament.

Analysts expected the economy to grow 4.5-5.0 percent this year and 4.5-5.5 percent in 2009. The 2008/2009 bill, for the fiscal year starting on Oct. 1, projects a budget deficit of 249.5 billion baht, or 2.4 percent of nominal 2009 gross domestic product. That's bigger than a 165 billion baht deficit projected for the current fiscal year, or 1.75 percent of 2008 GDP.

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Opposition leader Abhisit Vejjajiva questioned the growth projections, saying they were based on what he called an unrealistic assumption that inflation would average 5.5 to 6.0 percent in 2008 and 3.5 percent in 2009.

Persistent oil price spikes this year have prompted analysts to raise inflation expectations for this year to 6.0-7.0 percent from 4.0 percent predicted in March. They predict inflation to ease to within a 2.7-5.0 percent range in 2009.

Annual inflation averaged 5.8 percent during January-May and in May itself it hit a near 10-year high of 7.6 percent.

The consumer price index for June, to be published on Tuesday, is expected to show that inflation climbed to 8.5 percent, underlining the rising price pressures globally from oil, other raw materials and food.

Finance Minister Surapong Suebwonglee suggested that oil prices might fall to around $70 per barrel next year from record levels current of more than $130-140 now, but opposition MP Korn Chatikavanij dismissed the remarks as far-fetched.

Surapong conceded during the debate that oil prices would be a volatile factor in 2009 but said government stimulus spending should spur domestic consumption.

Economic projections in the budget bill were consistent with forecasts made earlier by finance ministry officials, and stock and financial markets did not react to them on Friday.

About 6.8 percent of the proposed 2008/2009 budget is earmarked for housing subsidies for the poor, debt moratoriums for 340,000 farmers, and other measures to boost flagging consumer confidence.

Samak said public investment in infrastructure projects in 2009 would not be less than in the current year. The bill provided for an 18.2 percent rise in the defence ministry budget, although smaller than a 24.3 percent increase a year earlier when Thailand was being run by an army-appointed cabinet after the 2006 coup against Thaksin Shinawatra.

The new budget is due to get final parliamentary approval in early September and take effect on October 1.

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