The $14 Billion Stimulus Dilemma in Thai Central Bank

The digital wallet, the primary electoral promise of the ruling Pheu Thai Party, has been plagued by disputes regarding the government’s shifting position regarding its financing.

The central bank of Thailand is steadfast in its opposition to the government’s proposal to distribute over $14 billion in cash to nearly all of the country’s adult citizens in an effort to boost consumption, arguing that it would be wiser to restrict aid to those in true need.

In an interview on Tuesday, Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput stated that there is no need to increase demand overall because private consumption is expected to grow roughly by 4% this year following a record growth of 7% last year.

According to Sethaput, the so-called digital wallet scheme should only apply to the 15 million welfare cardholders, out of the 50 million Thai nationals 16 years of age and over, who are now promised 10,000 baht ($273) in cash each.

Although Sethaput’s words align with the BOT’s past stance, their timing is likely to cause a stir with the government, whose relations are already strained due to disagreements over the BOT’s monetary policy path and inflation objective. It hasn’t been easy getting the 500 billion baht cash program approved; the administration of Prime Minister Srettha Thavisin has had to defend the program’s funding on several occasions, and the launch has been repeatedly postponed.

Thus far, Srettha has avoided criticizing the initiative and hailed it as a means of reviving Thailand’s economy after years of slow expansion.

“If you want to do the scheme, it is better to do it in a targeted way and also a smaller way,” Sethaput said. “We don’t see the need to try to stimulate consumption across the board.”

According to the governor, lower-class and vulnerable households were still suffering from the effects of the pandemic and needed assistance, even as private consumption surged along with a recovery in tourism. According to Sethaput, it will be “healthier” financially to restrict the use of the digital wallet to welfare cardholders, or those who fall below a particular income threshold and are qualified for a range of state subsidies and allowances.

The digital wallet, the primary electoral promise of the ruling Pheu Thai Party, has been plagued by disputes regarding the government’s shifting position regarding its financing. Srettha’s cabinet chose to exclude wealthy Thais and finance it through a one-time borrowing after first suggesting to cover around 55 million Thais and funding it from the state budget.

However, the nation’s anti-graft agency’s concerns and possible legal challenges forced the administration to reconsider the funding possibilities. Srettha has promised to give out the money in the latter quarter of this year, even though it’s still unclear how it will be paid for.

The government has been warned by the Bank of Thailand, the banking regulator, to make sure that the decision to borrow 172 billion baht from the Bank for Agriculture and Agricultural Cooperatives to fund the digital wallet does not jeopardize the safety and liquidity of the lender, according to Sethaput.

According to Sethaput, there is a good deal of uncertainty around the digital wallet; therefore, the BOT’s baseline growth predictions for this year and the following year, which are 2.6% and 3% respectively, do not account for the program’s impact. He claimed that even in the absence of the cash giveaway, Thailand’s economic growth will reach its potential of 3%, indicating that the course of monetary policy would remain unaffected.

The digital wallet concept faces serious dangers due to a recent period of political unrest with Srettha and Thaksin Shinawatra, the de facto leader of the Pheu Thai party, facing judicial cases, according to economists at Citigroup Inc. and Nomura Holdings Inc.

If Srettha is found guilty in a case involving alleged ethical violations being heard by the country’s Constitutional Court, he could be removed from office.