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Thailand to Miss Stimulus Borrowing Target as Spending Falters

Thailand to Miss Stimulus Borrowing Target as Spending Falters

Thailand is likely to sell fewer bonds this fiscal year than previously announced, as government spending to cushion the blow from coronavirus outbreak is hampered by delays in identifying the right projects.

The government may borrow only 450 billion baht ($14.4 billion) through sale of securities and through term loans in the year ending Sept. 30, less than the 600 billion baht planned earlier to fund the Covid-19 stimulus program, said Patricia Mongkhonvanit, director general of the Finance Ministry’s Public Debt Management Office. The remaining 550 billion, part of the 1 trillion baht borrowing for stimulus, will be completed in the 2020-21 fiscal year, she said.

“We have no problem with borrowing, but we need to wait for projects to be ready first,” Patricia said in an interview in Bangkok, adding the less-than-expected fund mobilization is also because some of the projects were being financed by the balance from the central budget. “We will make sure our borrowing won’t disrupt the bond market.”

Thailand to Miss Stimulus Borrowing Target as Spending Falters

Lower bond supply may help temper the recent rise in benchmark Thai bond yields and ease the cost of funding for the record 1.9 trillion baht stimulus program. Southeast Asia’s second largest economy is on course for its deepest ever annual contraction of 8.5% this year after the virus outbreak sent the nation’s tourism and trade into a slump.

Total sovereign bond sales next year is seen between 700 billion to 800 billion baht as the government’s funding need is estimated at about 2 trillion baht, both little changed from this fiscal year, Patricia said. The debt management office is coordinating closely with Bank of Thailand on the timing of bond offerings and plans to sell more treasury bills to meet the demand for short-term instruments, she said.

Yield Curve

“The yield curve is quite steep already, so we don’t think it will keep steepening further, “ Patricia said. “It should hover around the current level given the expectation that the local key rate will be unchanged.”

The Bank of Thailand cut the nation’s key interest rate three times this year to a record low of 0.5% and said it will preserve the limited policy space to act at the appropriate and most effective timing. The central bank has weighed other unconventional policy tools and urged the government to take a lead with fiscal policy to spur growth.

Other key points from the interview:

  • Thailand has raised 338.8 billion baht for the Covid-19 stimulus response by the end of August
  • The Finance Ministry is set to sign a $1.5 billion loan agreement with the Asian Development Bank this month as it diversifies the source of funding for the Covid-19 stimulus with costs close to borrowing locally. ADB loan to come with a three-year grace period
  • Issuing dollar bond remains an option and the ministry may tap overseas market if demand for corporate bond issuances picks up
  • Government to review its debt-to-GDP limit of 60% this year to see whether the current level remains appropriate for the economic situation
  • Thai public debt-to-GDP, which is now around 46%, is unlikely to exceed the limit over next five years unless the government comes up with another big borrowing plan
  • Thailand’s public debt-to-GDP is “very conservative” as it includes non-government guaranteed state enterprises debt as well. Government debt alone accounts for 37% of GDP

©2020 Bloomberg L.P.