The Thai government’s borrowing costs are escalating due to foreign investor withdrawals from the local bond market, resulting in significant capital outflows. The government plans to increase its borrowing to 2.4 trillion baht, alongside a stimulus plan of 560 billion baht. Concerns over inflation and rising interest rates, coupled with a weakening baht, pose challenges to funding availability. However, optimism remains for the bond market’s capacity for resilience and fundraising.
The Thai government currently faces increased borrowing costs, primarily due to foreign investors departing from the local bond market. In the initial quarter of the year, a significant outflow of 34.3 billion baht led to a decrease in foreign-held government bonds. Additionally, the disparity between local interest rates and those for US government bonds further diminishes the attractiveness of Thai bonds, driving investors toward higher returns available in the US market.
In an effort to address these challenges, the Thai government intends to borrow approximately 2.4 trillion baht (about $66.4 billion) for the fiscal year 2024, representing a 9% increase from the current year. Out of this total, over 700 billion baht will be new borrowing, with the remaining 1.7 trillion baht allocated to refinancing or restructuring existing debts. Alongside this, the introduction of a 560 billion baht ($15.8 billion) economic stimulus plan aims to provide direct transfers to consumers, reduce energy prices, and implement a debt moratorium for select borrowers.
The rise in US Treasury yields coupled with an increase in bond issuance by the Thai government has contributed to rising two-year and 10-year Thai government bond yields. Additionally, there are growing concerns regarding inflation and rising interest rates that have further unsettled the Thai markets.
The depreciation of the baht has exacerbated capital outflows, as investors grapple with uncertainty over the potential decline in Thai asset values. Moreover, elevated interest rate policies in the US and Europe have raised global borrowing costs, complicating the local fundraising landscape for the Thai government as it seeks to finance its budget deficit.
Despite these hurdles, optimism remains regarding the resilience of the local bond market’s capacity to generate funds. Corporate bond issuance is projected to reach between 900 billion and 1 trillion baht this year, predominantly consisting of investment-grade bonds. Factors such as the rising prominence of India as an alternative investment location and its inclusion in global bond indices could influence the Thai bond market’s dynamics. Stakeholders remain confident in the local market’s resilience and its potential contribution to economic growth.
In summary, the Thai government is grappling with higher borrowing costs amid significant foreign capital outflows and a widening gap between domestic and US interest rates. With plans to raise substantial funds through new borrowings and economic stimulus measures, the government aims to counteract these challenges. Despite the current adversities facing the local bond market, there exists optimism regarding its capacity for substantial fundraising, particularly in the corporate sector. This resilience is crucial for driving Thailand’s economic growth in this fluctuating environment.
Original Source: www.thailand-business-news.com
