Slow Investment Spending Could Drag on Thai Progress

Erratic delivery of public investment has left Thailand plodding behind faster-growing Southeast Asian economies, yet regulations introduced by the military-led government have made it even harder for state agencies to spend this year.

Disbursements for public projects fell by 5% in each of the two latest quarters, as bureaucrats observed stricter procurement rules introduced in the second half of 2017 to clamp down on graft, Reuters reported.

That reduced support for the economy just at the time that growth began to falter late last year, adding to pressures on Prime Minister Prayuth Chan-ocha’s junta as it prepares to return Thailand to democracy in early 2019.

The finance ministry has banked on stronger export growth to keep its 2018 economic growth forecast at 4.2%, though analysts reckoned the fall in public investment spending could be worse than the ministry anticipates.

“Disbursement has been disappointing and is a key downside risk to growth,” said Charnon Boonnuch, an economist of Nomura in Singapore, who predicts 4% growth for 2018.

Assistant central bank governor Jaturong Jantarangs warned last month that the drag on public sector spending caused by the new rules could last into the third quarter of this year. It is a reason why investors have retreated from construction firms, even though more infrastructure projects are underway.

The construction materials index has fallen 11% since the middle of last year while the construction services index slumped 28%, underperforming an 11% rise in the broader share market. “Builders will continue to face risks of delays in the bidding of public works,” said Kamonyos Sukhumsuwan, a senior fund manager of Asset Plus Fund Management.

Completing four years in power this month, the junta’s best year for economic growth was 2017, when it notched 3.9%, a distant fourth behind the Philippines 6.7%, Malaysia’s 5.9% and Indonesia’s 5.07%.

Chances of catching up this year will be handicapped by the 3.5% reduction in government investment spending in 2017, which marked a sharp reversal from a 30% jump in 2016.

Prayuth, the army chief who led a coup in 2014 against a civilian government, should want to show more success if he intends contesting a general election to retain the premiership.