BANGKOK – It was one of those moments that investors and analysts in Thailand have been waiting for: insight into the government’s massive Bt2,000bn ($68bn) infrastructure spending plan.
But rather than a big press conference, it came in a little-publicized lunch talk by Chadchart Sittipunt, Thailand’s transport minister, to members of the Japan-Thailand Association last Friday.
In the most detailed account yet, Chadchart gave an elaborate presentation on the seven-year plan to build high-speed railways and motorways, upgrade existing rail lines and highways, extend Bangkok’s mass-transit system and enhance ports and airports. Virtually the entire budget will be earmarked for transport or transport-related facilities such as truck terminals, with about one per cent going towards customs and trade-related facilities.
The lion’s share, or about 64 per cent of the entire budget, will go on rail projects, including four high-speed train lines that will hook Thailand up to neighboring countries.
The transport minister also gave the first clear indication of the government’s infrastructure spending priorities, saying the government’s focus over the first year or two would be on highway construction and road upgrades, then extension of Bangkok’s mass-transit system and sweeping plans to double-track the existing provincial rail network and build new dual-gauge rail lines.
The four high-speed rail projects – which account for nearly 40 per cent of the total infrastructure budget – and expansion of water transport and airport facilities would come later in the seven-year time frame, although companies may be invited to submit tenders for such projects from next year, he added.
First though comes what one analyst described as the “really hard part: financing”. Chadchart clarified government plans to raise Bt2,000bn through borrowing, mostly through domestic bond issues. A draft bill to authorise the borrowing is making its way through parliament but is likely to take most of this year amid intense debate about the government’s debt position – which just exceeded 44 per cent of GDP in 2012.
Economists have noted that Thailand is in strong position, with manageable debt levels, an economy that has bounced back from devastating floods in 2011 to register annual growth of 6.4 per cent last year and forecasts of 5.3 per cent growth in 2013. The baht has appreciated about 6 per cent so far this year to around Bt28.90 to the dollar.
The financing however will be nearly all domestic to avoid exposure to external currency risks, and will be in phases, possibly on a project-by-project basis, according to the transport minister. “We are not talking of a lump sum,” Chadchart said. “People say, ‘oh if the world economy crumbles, you will have big problem…’ – well in that case the government at the time can postpone or cancel some projects. We don’t need to do everything. The bill just gives authority to borrow,” he told the FT. “Hopefully it will be through by the year’s end.”
A key issue, however, is affordability, according to critics. “We’re not debating on the necessity of building infrastructure, we are debating on the amount and method of borrowing… this law should not be a blank cheque,” Korn Chatikavanij, deputy leader of the opposition Democrats and a former finance minister, said recently.
The government “has no plans to increase revenue, only to decrease revenue, such as cutting corporate taxes from 30 per cent to 20 per cent”, he warned. “Now the government is borrowing Bt2tn but has no plans to pay off the principle within the next 10 years and is merely passing the responsibility onto future governments.”
Chadchart has argued that phased borrowing will enable the government to effectively manage repayment costs.
Analysts, including those who express some reservations about Thailand’s future debt load, generally agree that the positive aspects of the programme will outweigh the negatives. Already, notes Ian Gisbourne, strategist at Thai broker Phatra Securities, the infrastructure plan “has become an important part of the investment case for Thailand”. It will also help boost the region’s goal to boost connections with neighbouring countries, he added, noting the finance ministry’s estimates that it could boost GDP by an average of 1 percentage point per year for seven years.
Indeed, said Santitarn Sathirathai, analyst at Credit Suisse, “the government’s infrastructure programme is likely to contribute to a higher investment-to-GDP ratio and urbanisation, which in turn is likely to increase trend real GDP growth from our previous estimate of 4.2 per cent to 4.5-5 per cent during 2014-18.”
However, he added in a research note:
In the medium term, we are more worried about the negative impact on the current account than the likely deterioration in the fiscal position. The former is already on a downward trend due to strong domestic demand, thanks to commutative fiscal and monetary policies. An additional boost to investment from public infrastructure projects could result in a significant negative saving-investment gap, posing risks to the balance of payments and aggregate liquidity.
Execution is still the biggest risk, he said, noting: “The biggest obstacles lie in the technical aspects of some of the projects, uncertainty relating to financing, as well as potential protests from local community and environmental groups.”
Over half of the seven-year infrastructure programme faces a high risk of delay, warned Santitarn. “We are more optimistic about road construction and double tracking railroad projects. The technical, management and financing issues are ‘simpler’ than they are for high speed trains and these projects do not require much more land acquisition.”
Many foreign companies see the plan, which envisages the completion of several hundred projects including four new high-speed rail lines, dual tracking of more than 2,000km of existing rail lines, expansion of Bangkok’s mass-transit system, within the next seven years, as a potential bonanza.
The high-speed rail projects alone account for $39bn or nearly 40 per cent of the total infrastructure budget, while the MRT extension for Bangkok accounts for another $15.7bn.
At least five countries have already expressed interest in the high-speed rail projects, said Chadchart: China, Japan, Spain, France and South Korea, and there are likely to be many more. But, he added, only those projects requiring international expertise will be open to international tender. The exact criteria will be determined at a later point, he said. “I think the types of projects will be fairly obvious, we want international companies in projects where we need their expertise, for example on high-speed rail”.