The Thai government’s efforts to raise a further ฿1 trillion in borrowing to fund its economic stimulus package is being closely watched by analysts. One significant and positive side effect may be that the days of the Thai baht being seen as a safe haven for foreign capital may be finally put behind the kingdom leading to a more competitive currency. However, for now, all eyes are on the government’s management of the Covid 19 virus and its ability to get the economy back to work which may be a tricky balancing act as it seeks to avoid another outbreak.

The Director-General of the Thai Public Debt Management Office, Patricia Mongkhonvanit, on Thursday indicated that the government is already in talks with international parties exploring financing methods to fund a huge ฿1.9 stimulus package that has raised concerns among some observers that it may burden the country with an unsustainable debt load.

The Director-General Thai Public Debt Management Office, Patricia Mongkhonvanit on Thursday gave some insight into the government’s approach as it works towards financial a huge stimulus programme in the face of concerns that a large rise in government debt may be ultimately unsustainable for an economy with record levels of household debt and an ageing workforce that will be further decimated in the aftermath of this crisis. However, Ms Patricia struck a confident note while at the same time saying that any package negotiated would be competitive, balanced and ring-fenced from the governments’ day to day requirements.

The Director-General of the Public Debt Management Office in Thailand has confirmed that the government is looking at a range of options to raise at least ฿1 trillion which will be needed to fund the gigantic stimulus package agreed in principle by the Thai cabinet last Tuesday.

The scale of the package, comprised of support for the private bond market, loans to the small business sector and direct income payments, has raised questions about the sustainability of such government expenditure and the consequences of higher than normal government debt given the country’s already sky-high level of personal borrowing.

Some estimates that the borrowing package could take government debt close to the legal ceiling

There have been estimates suggesting that the borrowing package required to fund the plan set out this week will bring government borrowing to 57% of GDP, a fraction short of the 60% which is the limit placed on it by law.

Bank of Thailand sees a 5.3% contraction in 2020

The problem for Thailand is that following a bad year in 2019, 2020 according to realistic scenarios faced up to by the Bank of Thailand and the World Bank, will see the kingdom’s economy contract sharply. 

The Bank of Thailand is, in fact, suggesting a contraction of 5.3% as the government grapples with the difficult balancing act of ensuring the country is safe from the virus which has now remerged as a serious threat again in Japan.

It presents the government with quite a challenge and it will have to look to how other countries are handling the conundrum raised by this simple but tricky coronavirus which has stunned the world with its devastating impact and turned the global economy on its head in just a few months.

High household debt levels and an ageing workforce are key factors in this equation in the long run

There are also concerns among some economists that the Thai economy with its ageing workforce, already unsustainable levels of household debt and facing perhaps a world depression, may not be able to rebound out of the debt spiral as in previous crises which the kingdom was able to successfully shrug off.

Director is sanguine about the challenge

Patricia Mongkhonvanit, however, is sanguine about the challenge.

‘We’ll explore all possibilities,’ she was quoted on Thursday by New York financial news agency Bloomberg. ‘We won’t borrow ฿1 trillion all at once. We’ll proceed gradually, as the funding need arises.’

The problem for Thailand, of course, is that it will be joined in the market by countries from all over the globe attempting to effectively relaunch their economies.

Public debt team looking at a broad range of instruments and is optimistic about finding a package

Ms Patricia indicated that the Thai government will make use of a broad range of instruments to fund the package including government bonds and treasury bills as well as promissory notes, term loans and savings bonds.

She also indicated that the government may approach such institutions as the Asian Development Bank although Deputy Prime Minister Somnkid Jatusripitak earlier in the week ruled out a loan or financing from the International Monetary Fund. 

Ms Patricia, sounded an optimistic note on Thursday. ‘Our objective is mainly to tap the local market first. There is ample domestic liquidity and demand for our products.’

Thai governments being closely watched by foreign analysts as this borrowing will be a new departure

The government’s moves are being closely watched by foreign analysts. The Australian and New Zealand Bank Group notes that the level of borrowing suggested by the government is twice the deficit run by the administration in the last few years.

One positive development as a consequence of this may well be a depreciation in the value of the Thai baht or at least an absence of the problems experienced during 2019 when the Thai currency became a safe haven or shelter for foreign capital. 

It is hard to credit that as this year opened, this was a priority or key goal for the Bank of Thailand.

Talks with international parties already taking place says top official as foreign exchange risks weighed

Ms Patricia revealed that talks are already taking place with international partners as the government looks for a competitive package and contemplates the cost of such financing as well as foreign exchange risks which is a key consideration for any Thai government.

Goal is to treat this package is a once-off and separate it from normal government borrowing requirements

The Director-General indicated that the funding for the stimulus will be where possible, treated as separate to the government’s normal annual deficit.

She also observed that the market had stabilised since the Bank of Thailand intervened some weeks ago to support the fixed income mutual fund and corporate bond sectors which are a key target of the stimulus measures being proposed.

Further reading:

Challenge of defeating both a health and economic emergency a big ask for Thailand’s government in crisis mode

Thailand faces a third shock after the virus if high debt and the informal economy are not prioritised

Economist warns economy needs ‘blanket’ fiscal support and a ‘big problem’ if the virus effect persists

Huge demand for emergency supports with over 20 million to apply for self employed payments

Leaders in Thailand and across the world fighting a historic threat to the public and the economy – a virus

Thai government responds with targeted stimulus plans to help the economy through the virus crisis

Bank of Thailand says it has more scope as the economy is left reeling from biting coronavirus setback

No limit on borrowing as Somkid plots the biggest stimulus package yet to address the virus crisis