By Panu Wongcha-um and Devjyot Ghoshal

BANGKOK Thailand's new government will use its controversial digital handout plan to spend its way out of what it calls an economic "crisis" without making any major cutbacks or hitting its credit ratings, a senior government advisor said.

Prime Minister Srettha Thavisin's signature 500 billion baht ($13.87 billion) stimulus policy has faced criticism over fears it could stoke inflation and adversely impact the fiscal position of Southeast Asia's second-largest economy.

But Prommin Lertsuridej, Srettha's chief of staff, said the package was essential to fire up a sluggish economy that has lagged regional peers since the pandemic, and reach average growth of 5% annually.

"We are not just imagining this. I can give you the numbers," Prommin told Reuters, pointing to lacklustre economic data and repeatedly describing the economy as being in a state of "crisis".

Thailand's economy grew just 1.8% year-on-year in the second quarter, sharply slowing from the previous quarter, hit by weak exports that undercut a recovery in its crucial tourism sector.

"If you look at this as a crisis then you have to propose the law," he said, referring to the government's plan to submit a bill to parliament to borrow money to finance the scheme.

The populist programme will provide digital payments of 10,000 baht ($279) to about 50 million of Thailand's more than 70 million people to spend in their localities within six months, starting in May 2024.

Those who earn more than 70,000 baht ($1,941) per month or have net saving of less than 500,000 baht are excluded.

Srettha's administration expects about 40% of recipients to combine the handout with other family members to start a new businesses or build a house, according to a government presentation seen by Reuters.

The government will not make any major cutbacks to its budgetary spending plans to accommodate the handout, and look to pay back about 100 billion baht every year aided by an increase in state revenue as the economy expands, said Prommin.

The scheme had also been discussed with the central bank, which suggested some tweaks, and would not have an impact on the country's fiscal position or credit ratings, he said.

But some analysts are sceptical, as are some opposition lawmakers who have attacked the ruling Pheu Thai party for risking breaching Thailand's fiscal regulations.

"We expect Thailand's fiscal outlook to remain uncertain for the rest of this year," said Tim Leelahaphan, an economist at Standard Chartered Bank in Thailand.

"Also, the Pheu Thai-led government's ability to implement its pledged economic policies including the handout scheme has yet to be assessed, adding to fiscal uncertainty."

($1 = 36.0700 baht)

(Editing by Martin Petty)