(Bloomberg) -- Thailand’s cabinet has approved a plan to widen the budget deficit target for next year by about $4.2 billion to help stimulate Southeast Asia’s second-largest economy.

The budget gap for fiscal year starting Oct. 1 will widen to 865.7 billion baht ($23.6 billion), or 152.7 billion baht more than previously targeted, according to Chalermphol Pensoot, director of the Budget Bureau. The shortfall as a percentage of gross domestic product will rise to 4.42% from 3.56% projected earlier as the government also slashed the growth estimate for this year to 2.7% from 3.2% earlier. 

The cabinet also revised the medium-term budget framework covering fiscal years from 2025 to 2028, while pledging to keep the public debt to GDP ratio below the legal ceiling of 70, Government Spokesman Chai Wacharonke told reporters.

The move to embrace a higher deficit that will be funded through borrowing follows Prime Minister Srettha Thavisin’s order last week to weigh various options to fund his government’s 500-billion-baht cash handout plan. The original proposal to finance it through a one-time borrowing faced resistance from some state agencies and lawmakers worried that the payout may fan inflation and swell the fiscal gap.

Srettha on Tuesday declined to comment on whether the deficit plan was revised to finance his digital wallet program, saying all the details including source of funding will be announced on April 10. 

The distribution of the cash handout, delayed by several months over differences on how it will be funded, is being targeted for the fourth quarter of this calendar year. The handout seeks to provide 10,000 baht each to 50 million adult Thais through a digital app that can be spent on a range of goods and services within a specific time-frame in a designated area. 

Stimulus measures, that include energy subsidies, are “extremely necessary” as the Thai economy wallows in sub-2% growth in the past decade. Uneven recovery post pandemic and borrowing costs at a decade-high hobble its recovery, Srettha said last week. 

The baht has dropped almost 7% against the dollar this year, the most in emerging Asia, as weak domestic consumption and disinflation weaken the currency’s outlook. A discord between the central bank and government over whether to cut the nation’s benchmark rate has also raised the political risk of investing in the baht, weakening its allure. 

The local currency held losses to trade 0.6% lower at 36.672 per dollar at 1:29 p.m. local time after the government unveiled the latest fiscal target. The dollar’s strength and risk aversion spurred by stronger-than-expected US data continue to weigh on emerging Asian currencies.

The nation’s main opposition party slammed the move to widen the deficit, saying it was done to find a way to finance Srettha’s digital wallet. It also claimed that the government was planning to borrow more this year and take a loan from a state-owned bank.

“The government has came out with bizarre ways, creating confusion as well as tearing all rules and fiscal framework just to ensure they can launch the digital wallet later this year,” Sirikanya Tansakun, deputy leader of Move Forward Party, posted on X.

--With assistance from Pathom Sangwongwanich and Hooyeon Kim.

(Updates with more information from second paragraph.)

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