The Thai government confronts elevated borrowing costs driven by foreign capital exit from the bond market. As it plans to borrow 2.4 trillion baht for FY 2024 and implement new economic initiatives, concerns over bond yields, inflation, and global interest rates remain prevalent. Nevertheless, optimism exists for corporate bond issuance in the local market with expected figures ranging from 900 billion to 1 trillion baht this year.
The Thai government is currently grappling with increased borrowing costs due to a decline in foreign investment in the local bond market. During the first quarter of the year, capital outflow reached 34.3 billion baht, significantly reducing the amount of government bonds held by foreign investors. The disparity between local and US interest rates detracts from the allure of Thai government bonds, as US government bonds offer higher returns.
To address financial needs, the Thai government intends to borrow approximately 2.4 trillion baht (equivalent to $66.4 billion) for the fiscal year 2024, reflecting a 9% increase from the previous year. This plan encompasses over 700 billion baht in new borrowing, alongside 1.7 trillion baht aimed at refinancing existing debts. Furthermore, the government has proposed a 560 billion baht ($15.8 billion) economic stimulus strategy, which includes consumer direct transfers, energy price reductions, and a temporary debt moratorium for certain borrowers.
The situation is compounded by rising bond yields, as the increasing rates of US Treasury bonds and the Thai government’s plans for further bond issuance have caused yields on local bonds to climb. Prevalent concerns regarding inflation and interest rate hikes add to the instability within Thai markets, further exacerbating the government’s financial landscape.
Additionally, the depreciation of the baht has prompted capital outflows, raising investor concerns regarding the value of Thai assets. The uncertainty over US interest rate adjustments creates further complexities, as elevated borrowing costs globally hinder the Thai government’s efforts to finance its budget requirements.
Despite these difficulties, there is a sense of optimism regarding the local bond market’s potential for fundraising. Corporate bond issuance is anticipated to fall between 900 billion to 1 trillion baht this year, primarily composed of investment-grade bonds. The rise of India as an alternative investment option and its integration into global bond indices may also have a transformative effect on the Thai bond market. Nevertheless, stakeholders remain hopeful about the market’s resilience and its capacity to support the economy.
In summary, the Thai government faces significant challenges, including rising borrowing costs and capital outflows linked to foreign investor withdrawal from the bond market. Despite these hurdles, plans for increased borrowing and an economic stimulus initiative reflect an attempt to mitigate financial pressures. Moreover, the prevailing sentiment indicates a cautious optimism about the local bond market’s ability to adapt and thrive amidst external factors.
Original Source: www.thailand-business-news.com
