The Thai government is grappling with increased borrowing costs due to foreign investor withdrawals from the bond market, leading to significant capital outflows. Plans for a substantial increase in borrowing and an economic stimulus initiative are underway, while concerns over inflation and the depreciation of the baht further complicate the situation. Nonetheless, optimism remains for the local bond market’s capacity to raise funds amid these challenges.
The Thai government is currently confronted with escalating borrowing costs as foreign investors withdraw from the local bond market. In the first quarter of this year, capital outflows amounted to 34.3 billion baht, resulting in a decrease in the volume of government bonds held by foreign entities. The disparity between domestic and U.S. interest rates has rendered Thai bonds less appealing, as investors opt for the higher returns offered by U.S. government securities.
To respond to these borrowing challenges, the Thai government has announced plans to borrow approximately 2.4 trillion baht ($66.4 billion) for the fiscal year 2024. This marks a 9% increase from the previous year, comprising over 700 billion baht designated for new borrowing, while 1.7 trillion baht will be allocated for refinancing existing debts. Additionally, a 560 billion baht ($15.8 billion) economic stimulus plan has been introduced to include direct consumer transfers, reduced energy prices, and debt moratorium options.
Rising bond yields are also exerting pressure on the Thai market as U.S. Treasury yields climb, coinciding with the government’s plan to issue more bonds, thereby increasing yields on both two-year and ten-year Thai government bonds. The prevailing concerns surrounding inflation and rising interest rates further complicate this landscape.
Moreover, the depreciation of the baht has intensified capital flight, with investors wary of potential declines in the value of Thai assets. The uncertainty regarding U.S. interest rate decisions adds complexity to the situation, as higher global interest rates elevate borrowing costs, adversely affecting Thailand’s budget financing abilities.
Despite these adverse conditions, there remains a degree of optimism surrounding the local bond market. Projections indicate that corporate bond issuance may reach between 900 billion to 1 trillion baht this year, primarily with investment-grade bonds. The rise of India as a competing investment avenue and its inclusion in global bond indices could influence the Thai market, yet stakeholders maintain confidence in the local market’s resilience and its critical role in economic growth.
In conclusion, the Thai government’s borrowing challenges stem from foreign capital outflows and widening interest rate differentials. Despite rising borrowing costs and concerns over asset value depreciation, the firm issuance of corporate bonds along with a comprehensive economic stimulus plan indicates a potentially robust local bond market. Stakeholders exhibit optimism regarding the resilience of this market to support Thailand’s economic aspirations.
Original Source: www.thailand-business-news.com
