The Thai government grapples with heightened borrowing costs as foreign investors pull out of the local bond market, attributed to a disparity in interest rates with the US. Plans to borrow 2.4 trillion baht for 2024 and a 560 billion baht economic stimulus further complicate financial strategies, amidst rising yields and inflation concerns. Despite these issues, hope remains for the local bond market’s resilience.
The Thai government is confronting significant challenges regarding borrowing costs as foreign investors withdraw from the local bond market. In the first quarter of the year, an outflow of 34.3 billion baht from the Thai bond market resulted in a decline in government bonds held by foreign investors. This situation arises from a stark disparity between local interest rates and those of the United States, rendering Thai bonds less appealing to potential investors.
The government intends to borrow approximately 2.4 trillion baht ($66.4 billion) for the fiscal year 2024, representing a nine percent increase compared to the current year. Of this total, over 700 billion baht will constitute new borrowing while the remainder will serve to refinance existing debt.
Additionally, the Thai government has proposed a 560 billion baht ($15.8 billion) economic stimulus plan, which includes measures such as direct consumer transfers, energy price reductions, and moratoriums on debt for select borrowers. Concurrently, rising yields on Thai government bonds, influenced by an upward trend in US Treasury yields and an intention to issue more bonds, heighten the overall borrowing costs.
The depreciation of the baht has fueled capital outflows, as investors express concern about the potential for further devaluation. Furthermore, uncertainty regarding US interest rate policies complicates the borrowing landscape, contributing to a heightened financial burden as interest rates rise globally. This situation poses challenges for Thailand in raising adequate funds to address its budget deficit.
Despite these hurdles, the local bond market maintains an optimistic outlook. Corporate bond issuance is anticipated to reach between 900 billion and 1 trillion baht this year, predominantly comprising investment-grade bonds. Factors such as India emerging as a viable investment alternative and its addition to global bond indices could influence the Thai bond market. Nonetheless, stakeholders remain steadfast in their confidence in the local market’s resilience and its critical role in stimulating economic growth.
In summation, the Thai government faces substantial borrowing challenges due to increased costs and foreign capital outflows. With a significant borrowing plan and an economic stimulus initiative in place, concerns over rising yields, inflation, and the depreciation of the baht further complicate funding efforts. Nevertheless, the local bond market exhibits promising potential for resilience and growth, signaling a cautious optimism among stakeholders regarding its future contributions to Thailand’s economy.
Original Source: www.thailand-business-news.com
