The Thai government is facing an increase in borrowing costs as foreign investors exit the local bond market. In fiscal year 2024, borrowing is projected at 2.4 trillion baht, with a significant economic stimulus plan proposed. While the local bond market is encountering challenges, corporate bond issuance shows potential for significant growth amidst these pressures.
The Thai government is currently experiencing a rise in borrowing costs as foreign investors withdraw from the local bond market. In the first quarter of this year, a substantial outflow of capital, amounting to 34.3 billion baht, resulted in a reduction of outstanding government bonds held by foreign entities. This trend is largely attributed to the significant gap between local and US interest rates, making US government bonds more appealing due to their higher returns.
The government’s borrowing plans for fiscal year 2024 are ambitious, with a projected total of 2.4 trillion baht ($66.4 billion), reflecting a 9% rise from the previous year. Of this amount, over 700 billion baht will constitute new borrowing, while approximately 1.7 trillion baht will focus on refinancing existing debts. These initiatives are critical for maintaining economic stability amid rising costs and pressures.
In an effort to stimulate the economy, the Thai government has unveiled a 560 billion baht ($15.8 billion) economic stimulus plan. This plan encompasses various measures including direct consumer transfers, energy price reductions, and a debt moratorium for designated borrowers, aiming to alleviate financial strains within the population.
Recent trends in the bond market indicate rising Thai government bond yields, particularly for two- and ten-year maturities. These increases are a direct response to climbing US Treasury yields and the government’s plans to issue additional bonds, contributing further to the complex financial landscape.
Inflation and the prospect of increasing interest rates have fueled investor apprehension regarding the Thai markets. Concurrently, the depreciation of the baht has exacerbated capital outflows, as concerns over Thai asset values mount. The potential for a US interest rate reduction remains uncertain, further straining the global borrowing costs, which could hinder Thailand’s financial strategies.
While challenges persist, the local bond market shows promising prospects. Corporate bond issuances are projected to reach between 900 billion and 1 trillion baht this year, predominantly in the investment-grade category. The rise of India as an emerging investment hub, alongside its recent inclusion in global bond indices, could influence the dynamics of the Thai bond market. Stakeholders express confidence in the resilience of local markets, emphasizing their pivotal role in supporting the economy.
In conclusion, the Thai government’s increasing borrowing costs and capital outflows from the bond market highlight significant economic challenges. However, the proposed fiscal strategies and ongoing corporate bond issuance indicate a resilient financial outlook. As the government continues to navigate these complexities, the local bond market remains a critical component in supporting Thailand’s economic stability and growth.
Original Source: www.thailand-business-news.com
