Thailand to Rely More on Bonds to Bridge $68 Billion Funding Gap

(Bloomberg) -- Thailand plans to significantly increase the share of long-dated sovereign bonds to meet its financing needs as Southeast Asia’s second-largest economy continues to reel from the coronavirus pandemic.   

Bonds will make up 48%-56% of the government’s borrowing of 2.3 trillion baht ($68.4 billion) in the fiscal year that began Friday, compared with 31% a year earlier, when it relied more on short-term securities such as promissory notes and treasury bills, said Patricia Mongkhonvanit, director general of the Public Debt Management Office. 

“It’s time for us to mitigate the risks from heavily issuing short-term instruments in the previous year,” Patricia said in an interview Friday. “We plan to issue more long-term bonds to meet investors’ demand,” she said, adding that insurance companies and local funds prefer bonds with maturities of at least 15 years.

Prime Minister Prayuth Chan-Ocha’s government plans to further ramp up economic stimulus measures once the Covid-19 outbreak eases to prevent a second straight year of economic contraction, something that hasn’t happened since the Asian financial crisis in 1998. The government is relying on borrowing to fund stimulus, raising the public debt ceiling last month to 70% of gross domestic product from 60% to allow for more state spending amid the pandemic.

The debt office plans to auction 272 billion baht of bonds in the three months through December, almost 18% more than the previous quarter, to support expanded stimulus measures. The increased supply won’t hurt the market because of ample domestic liquidity, Patricia said.

The debt office is in talks with market participants and is ready to adjust bond maturities to meet demand, Patricia said. The office sets its bond auction schedule on a monthly basis. 

Under a tentative borrowing plan for the current financial year, three- and five-year bonds will account for about half of the total issuance, down from 60% last year. The supply of 10-year bonds will rise to 18% from 12% in 2020-21, and securities with maturities ranging from 15 to 50 years will make up the rest, Patricia said.

The Finance Ministry is in talks with banks for some foreign-currency loans to finance select government investments, Patricia said, adding that it’s still weighing whether to tap overseas bond markets.

“We haven’t closed the door on that,” she said. “Overall borrowing costs outside may be higher than local rates, but there are other benefits from that. It helps build up our credibility and also sets benchmarks for the private sector.”

Other key points from the interview:

• Total funding needs for the current fiscal year, including 1.1 trillion baht of new borrowing, compare with a record 2.6 trillion baht in 2020-21
• The higher public-debt ratio is unlikely to hurt Thailand’s credit ratings, as the higher cap will give the government more flexibility to finance value-added projects and boost the economy

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