The government will be looking more to international sources of funding in 2022 although most public borrowing will still be raised domestically as the Finance Ministry has embarked on a sustained policy of fiscal support to drive the economic recovery and domestic spending at the same time as reopening the kingdom to foreign tourism. Thailand’s former flag carrier Thai Airways is reported to be in discussion with lenders for a ฿25 billion loan facility while also lobbying for ฿25 billion in state financial support as it advances its survival plan.
A top Thai finance official on Wednesday rejected a funding request from the former flag carrier Thai Airways to the Ministry of Finance for ฿25 billion to help its liquidity position as it ramps up its operation after emerging in June from a court ordered financial restructuring process. In August, the airline reported profits of ฿11.1 billion for the first six months of the year and is reported to be focusing its attention right now on developing flight links between Europe and the kingdom as part of its restructuring operations.
The Director of the Public Debt Management Office Patricia Mongkhonvanit has rejected a reported request from Thai Airways made to the Finance Ministry for ฿25 billion in state funding or additional borrowings to help with the recovering flag carrier’s efforts to transform its business.
On Wednesday, she pointed out that Thai Airways is no longer a state enterprise although she accepted that the state, through the Finance Ministry, held a significant stake in the airline which emerged from a restructuring process in June 2021 after creditors overwhelmingly backed a deal based on a moratorium on debt repayments and efficiencies as opposed to financial haircuts for creditors and debt holders.
Status of the state’s involvement in Thai Airways has become a persistent source of political speculation
The status of the state’s involvement in the airline is an ongoing source of speculation with some government ministers reported to be in favour of readmitting it to the fold as a state enterprise, including Minister of Finance Arkhom Termpittayapaisith and Deputy Prime Minister and Economics czar Supattanapong Punmeechaow, while the government’s official policy is to let it run its course for now as a commercial enterprise.
The statement by Ms Patricia, on Wednesday, signifies this latter approach and is reported to be supported by many senior officials within the Finance Ministry and Ministry of Transport.
Ms Patricia said that the government was precluded from processing a loan for the firm, which lost its state enterprise status before being placed into bankruptcy last year, under the terms of the Public Debt Act (2005).
Borrowing plans as the kingdom’s public debt is set to rise next year to support a nascent economic recovery
She made her comment as she briefed the press on the government’s ongoing borrowing plans to support the economy as it engages in what financial analysts believe will be a recovery beginning in the fourth quarter of this year.
This recovery is dependent on a new buoyancy in foreign tourist arrivals and steady fiscal support from the government to underpin domestic expenditure and demand at a grassroots level.
Ms Patricia explained that government borrowing or overall public debt will rise in the next year in the period to the end of September 2021 to September 2022 from 57.98% of GDP to 62%.
Expanded public debt and budget deficit
The government is planning to run a deficit of ฿700 billion for the year to the end of September 2022 and had pulled back on its projected borrowing requirement since September this year when it announced it was extending the public debt limit to 70% of GDP under the 2018 State Fiscal and Financial Disciplines Act.
She explained this will see a government funding requirement of ฿2.54 trillion with ฿1.1 trillion in new borrowing on top of existing borrowings of ฿1.44 trillion.
The top financial official indicated that given what is currently a tight domestic market for borrowing, the government could be looking at foreign borrowing to pursue its programme next year.
Nearly 94% of government debt in Thailand, in the recent past, has been long term and nearly all domestically sourced.
This week, Ms Patricia indicated the government may have to look at international financial institutions or the wider international market to fund the planned increase in government expenditure to support the economy.
Funds will be raised, still, predominantly from the domestic money market which is tightening
However, the main source of funding will still be domestic.
A range of financial instruments is being used by the ministry including promissory notes, government bonds and term loans.
This will require discipline to make sure that the funding is used to support government programmes to drive the economy and also for capital projects in accordance with strategic government objectives.
‘Government borrowing will mainly focus on domestic borrowing. But if it is necessary to borrow money abroad, it must be considered on a per-project basis, such as the U-Tapao Airport investment project. More or not, it depends on government policy,’ she said.
She highlighted the need to support infrastructure projects and the benefit of these works both to the economy and the wider public.
Wrong to look at the debt on a per capita basis
She rejected speculation by reporters about how much would be borrowed per capita as part of the government’s plan to give impetus to the economy.
‘Government debt should not be calculated per capita because it is not in accordance with international principles. The debt incurred by the government is to invest in infrastructure. To develop the country and allow people to use their services efficiently,’ she explained.
Thai Airways request comes as it seeks a further ฿25 billion from a range of banks and institutions in talks
The request from Thai Airways established as Thailand’s national airline in 1961 through a partnership with SAS Airlines, comes as it has recently indicated that it is seeking ฿25 billion in state support while it is also in negotiation for a loan facility from a range of banks for a further ฿25 billion.
The former state-owned airline had ฿410 billion in combined debt when it declared bankruptcy in May 2020. It emerged from the resulting process in June this year.
In August, the airline announced an ฿11.1 billion profit for the first six months of 2021. For 2020, however, it reported a record-breaking loss of ฿141 billion with the airline effectively grounded for an extended period because of the pandemic.
The business plan originally suggested it would cut staff from 21,300 to 14,500 by the end of 2021 but this now appears to have been extended to the end of 2022.
Less fuel-efficient aircraft put up for sale
It recently put aircraft up for sale while returning 16 aircraft held on lease reducing its fleet to 58 planes in 4 categories which it plans to use in a new focus on serving links between Europe and Thailand according to Mr Piyasvasti Amranand who is in charge of the firm’s restructuring process as Chairman.
Mr Piyasvasti is a former President of the airline.
He says the aircraft being put on the block are no longer fuel-efficient for the airline’s new flight schedule and operation plan.
Before being divested of its state enterprise status and filing for bankruptcy in 2020, the government staged a dramatic about-turn in its policy towards the airline having, at one point, signalled that it was prepared to guarantee a further ฿50 billion in bank borrowings.