Peerapat Wongchaiwat, Ph.D. Fiscal Policy Office, Ministry of Finance

Fiscal Rules and Fiscal Responsibility Laws

in case of Thailand

Outline Fiscal Rules

Fiscal Responsibility Act

B.E. 2561 (FRA)

New Budget Procedure Act B.E. 2561 (BPA)

3

Public Debt in Thailand

Thailand holds a strong fiscal position, well below under the threshold

30

35

40

45

50

55

60

65

70

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Public debt/GDP

Public debt to GDP threshold

≤60%

4

Fiscal Responsibility Act B.E. 2561 (FRA) Fiscal Rules in Thailand

Legal Framework

The Constitution

Budget Procedure Act

Public Debt Management

Act

Fiscal Responsibility

Act

5

CONSTITUTION OF THE KINGDOM OF THAILAND (B.E. 2560 (2017))

Section 140. The payment of State funds shall be made only by the authority of law on appropriations law on budgetary procedure or the law on transfer of appropriations, the law on treasury reserves or the law on financial and fiscal discipline of the State

except that it may be advanced in the case of urgent necessity under the rules and procedure prescribed by law. In such case, the expenditure estimates for reimbursement must be set aside in the Transfer of Appropriations Act, the Supplementary Appropriations Act, or the Annual Appropriations Act for the following fiscal year.

Section 141. The expenditure estimates of the State shall be made in the form of an Act. If the Annual Appropriations Act for the following fiscal year is not enacted in time, the law on annual appropriations for the preceding fiscal year shall apply for the time being. The State shall allocate adequate budgets for the independent performance of duties of the National Assembly, the Courts, the Independent Organs and the State Attorney Organ in accordance with the rules prescribed by the law on financial and fiscal discipline of the State. In the case where the National Assembly, the Court, the Independent Organ or the State Attorney Organ is of the opinion that the allocated budgets may not be adequate for the performance of its duties, it may directly submit a motion to the committee.

Rationale • Constitution: Section 62

State must strictly keep fiscal discipline for fiscal stability and sustainability under a fiscal responsibility law

• No specific legal framework for fiscal responsibility in place

• Fiscal Innovation

• Lack of Comprehensive Fiscal Situations

6

Fiscal Responsibility Act B.E. 2561 (FRA)

Expected Results • Fiscal discipline guideline for agencies

• Discipline on fiscal innovation

• Comprehensive Fiscal Reports & Analytics

Fiscal Responsibility Act B.E. 2561 (FRA)

Lay down additional fiscal disciplines Prepare and revise Medium-Term Fiscal Framework (MTFF) Suggest directions for solving problems regarding budgeting, revenue collection, public debt management

and asset management Set numerical limits on the contingency fund/debt repayment/Multi-year commitment budget/additional

multi-year commitment budget committed during the fiscal year/debt management framework Set out a limit on the compensation rate for expenses or revenue loss from quasi-activities (Section 28) Lay down policies on, and supervise, financial risk management Set out reporting criteria for public debts and fiscal risks

7

Fiscal Policy Committee

Duties & Powers

Chairman – Prime Minister

Deputy Chairman – Finance Minister

BB NESDB BOT MOF FPO

Committee Secretariat

MTFF must have Duration no less than 3 years Serves as the principal master plan for fiscal planning, budget expenditure preparation, public debt management

8

Medium-Term Fiscal Framework (MTFF) (S.13)

Fiscal Policy Committee

Council of Ministers approves MTFF within 3 months after the end of FY

Preparation of the Annual Budget Expenditure

Agencies takes into consideration for their Revenue Collection or generate earnings, budget preparation and Debt financing

Council of Ministers

MTFF Adoption

Approved

The main features of MTFF cover

• Fiscal framework which comprises of fiscal objective and policy measures

01 02

03 04

05

• Overview of current macroeconomic condition and forecast • Fiscal position and forecast

including revenue, expenditure, fiscal balance, and fiscal management • Public debt status and

analysis

• Fiscal Obligations

Medium-Term Fiscal Framework (MTFF)

9

Medium-Term Fiscal Framework (MTFF)

10

Expenditure Rules Under FRA Section 20: Annual Budget Rules

Capital Expenditures must account for no less than 20% of the annual budget and must not be less than the FY Budget Deficit;

Appropriations for Public Sector Personnel and their associated welfare must be sufficiently allocated;

Appropriations for debt repayment must be sufficiently allocated for principal repayment, interests and borrowing expenses;

Any financial obligations required contribution / compensation from the budget must be allocated within a certain period stipulated by law;

Financial obligations arisen from quasi-activities must be allocated at the earliest opportunity;

Contingency Fund for emergency or necessity shall be budgeted only for the purposes of preventing or remedying serious situations or with utmost urgency at a proportion determined by the Fiscal Policy Committee.

11

Expenditure Rules Under FRA Section 20: Annual Budget Rules

Capital Expenditures must account for no less than 20% of the annual budget and must not be less than the FY Budget Deficit;

Appropriations for Public Sector Personnel and their associated welfare must be sufficiently allocated;

Appropriations for debt repayment must be sufficiently allocated for principal repayment, interests and borrowing expenses;

Any financial obligations required contribution / compensation from the budget must be allocated within a certain period stipulated by law;

Financial obligations arisen from quasi-activities must be allocated at the earliest opportunity;

Contingency Fund for emergency or necessity shall be budgeted only for the purposes of preventing or remedying serious situations or with utmost urgency at a proportion determined by the Fiscal Policy Committee.

12

Expenditure Rules Under FRA Section 21: Supplementary Budget

Rationale for Supplementary Budget must be well-defined and at absolute necessity to spend additional money during the current FY and not the next

Sources of funds for the supplementary budget must be clearly specified

Section 24: Transfer of Budget Appropriations Transfer of budget appropriations between public agencies are not permitted unless stipulated otherwise by law.

Appropriations with respect to the Central Fund shall be allocated only in the case where budget expenditure items are not or should not be allocated to individual agencies.

Section 22: Central Fund

Fiscal Responsibility Act *Ratio to Total Budget

≤60% ≤35% ≤10% ≤5%

≤30% ≤5% ≤10% 2.5-3.5% 2.0-3.5%

13

The Ratio set by the Fiscal Policy Committee

14

Revenue Rules Under FRA

Section 25 and 35: Earmark Tax

The earmarking of government revenue for a particular purpose of a certain public agency is prohibited unless a specific legislation allowing such earmarking is enacted.

Section 36: SOEs remittance

State-owned enterprises which are not subjected to Corporate Income Tax shall apportion their net profits and remit a specific sum to the government at the Corporate Income Tax Rate. The Ministry of Finance reserves the right to demand the remittance at a higher rate than this.

The proposal of a legislation pertaining to the collection of extra taxes and fees other than those stipulated in the regulations (surcharge) is not allowed unless it is raised as a part of Local Admistration Organizations’ (LAOs) revenue.

Section 26: Surcharge Tax

Section 6 of BPA: Prescribes that the planning, executing, controlling, monitoring, and evaluating the budget shall be pursued in accordance with this Act and FRA

15

New Budget Procedure Act B.E. 2561 (BPA)

Expected Results Comprehensiveness

Accountability

Efficiency

Effectiveness

Rationale “to improve the overall budget management to be more result-oriented, efficient, and effective”

16

BPA Key Features

Emphasis will be given on outcome achievements or benefits derived from budget spending while spending coverage will also consider other sources of funds

Medium-Term Expenditure Framework (MTEF) will be emphasized and prepared for at least three years ahead (in line with MTFF under FRA)

Ministers and head of agencies receiving the budget are now required to oversee, monitor, and evaluate the spending to improve spending accountability

17

BPA Key Features

Local administrative organizations (LAOs) will become direct budget recipients (7,851 LAOs)

Public Sector Personnel Program is separately classified while Transfer of allotted budgets among agencies under the same integrated program is now permitted

Budget monitoring and evaluation systems will be provided for pre-allocation, ongoing, and post-spending reviews

Agencies can no longer carry over their budget to the following fiscal year unless an obligation has been committed by the end of the fiscal year

18

Public Debt Management Public Debt Management Act B.E. 2548 (2005)

Framework and restriction for

raising loan

Framework and restriction to

provide guarantee

20% + 80% in case of budget deficit/develop the domestic debt instrument market

3% to manage the liquidity of treasury reserves

10% for economic and social development/on-lending to agencies1 (foreign currency)

20% for guarantee the repayment of debt of agencies2//on-lending to agencies1 (domestic currency)

1including a State agency, an agency under State supervision, a local administrative organization, a State financial institution 2including a State agency, a State enterprise or a State financial institution

1.

2.

Section 21. + 25/1.

Section 21/1.

Section 22. + 25.

Section 28. + 25.

19

Challenges

Fiscal Responsibility Act Increased burden to agencies Some challenges to keep the fiscal rules

New Budget Procedure Act Efforts required to ensure understanding of parties involved and

preparation of supporting information systems; Expected volume of work as 7,851 local administrative

organizations becomes direct budget recipients; Full-scale monitoring and evaluation Collection of other sources of revenue from agencies

THANK YOU

Fiscal Policy Office, Ministry of Finance,

Thailand wongchaiwat@hotmail.com