Our latest economic projection as of January 2010 suggests an economic expansion of 3.3–5.3 per cent in 2010 and 2.8–4.4 per cent in 2011, with an increasing role of private investment replacing government expenditure, which will gradually subside since the need for continued fiscal stimulus wanes as the economic growth becomes self-sustaining. Here, I would like to point out that this projection is due for a revision in April. With the stronger-than-expected performance in the last quarter of 2009, it is highly likely that these numbers will be revised upward. Ladies and Gentlemen, Having pointed out a fairly positive outlook, I will now turn to the second topic of my talk: the key challenges going forward and I must quickly add that looking ahead there are both external and domestic uncertainties. Policymakers therefore will have to be watchful and well-prepared to implement appropriate policy to ensure continued growth momentum amidst these challenges. First, the global economic recovery, particularly those of the industrialized economies, remains fragile and subject to downside risks. In spite of the higher-than-expected growth in the fourth quarter of 2009, the US economy is still beset by high unemployment, continued deleveraging, and weak financial institutions. All of these will have dampening effects on domestic demand, especially consumer spending – the main growth driver for the US economy. At the same time, concerns on the Eurozone’s sizable fiscal deficits especially those of the peripheral economies may trigger another round of confidence problems.
Here, the latest development on sovereign debt crises in Europe underscores the importance of the restoration of our fiscal discipline. If there are no changes in our policy, the ratio of public debt to GDP will increase to over 60 percent by 2012. This will not only leave little room for the government to use more fiscal stimulus should there be a new crisis in the region or in the global economy but it could also put Thailand in the spotlight of the foreign investors who have become much more sensitive to the issue of fiscal sustainability. This is why we have to rethink the stance of our fiscal policy once the short-term political and economic uncertainties fade away. Furthermore, to ensure fiscal sustainability over the medium to longer term, Thailand will need fiscal reforms that include: •  Continued fiscal consolidation;  •  Broadening of our tax bases;  •  Reforms to increase the efficiency and equality of the tax system; and  •  Greater allocation of public spending toward investment expenditures. Indeed, the government realizes the need for fiscal consolidation and reforms. With the better-than-expected tax revenues, thanks to the solid economic recovery, the budget deficit for this fiscal year and the extent of public debt will probably be lower than originally expected. The government has also taken initiatives to work on some reform measures such as the introduction of property taxes. These are commendable initiatives that remain to be seen whether will be successfully implemented.