Ministry mulls offshore loans to shore up domestic liquidity

Economy October 12, 2018 01:00

By The Nation

THE Ministry of Finance is exploring the use of overseas loans as a source of financing to counter the prospect of reduced domestic liquidity amid an uptrend in local interest rates.

Theeraj Athanavanich, public debt adviser in the ministry's Public Debt Management Office (PDMO), said that the office will study these external sources of financing for the government, given the likelihood of the rising trend for domestic interest rates, in an effort to head off the risks to Thailand's liquidity position.

“We've been asked by the Finance Minister to study sources of funds, particularly for long-term projects,” he said. “We may have to examine the costs of borrowings from abroad, possibly from the ADB (Asian Development Bank), the World Bank or Jica (Japan International Cooperation Agency). Next year, we plan to make domestic borrowings as the cost remains low at less than 3 per cent.”

Thailand's external public debt remains very low, with yen-denominated borrowings of about 50-60 billion yen. The foreign exchange risk on this debt is expected to be closed this year through local refinancing.

This means there is room to make more external borrowings by the government, Theeraj said.

With the US Federal Reserve expected to keep raising its benchmark Fed Funds rate, the Bank of Thailand has been looking for the right timing to raise its policy rate, he said.

However, the PDMO does not believe that now is the right time for the Thai central bank to act, as some sectors of the economy remain fragile in spite of the country’s overall satisfactory economic growth, he said.

Last year, capital movements presented challenges to PDMO's debt management but, given Thailand's luck of late, there have been more capital inflows than outflows compared with the trend in a number of other emerging-market countries, Theeraj said. This situation reflects Thailand's strong economy.

Next year will see more capital movements, serving up more challenges to the debt management office in light of other countries' monetary policies, he said.

Since 2014, the government has made borrowings for Thailand's development and infrastructure investment and, despite the higher public debt, the country's gross domestic product (GDP) has increased.

In 2014, GDP was Bt12.06 trillion, with public debt of Bt5.69 trillion - 43.3 per cent of the nation's GDP. This year, GDP has increased by about Bt4 trillion to Bt16 trillion and the public debt has risen to Bt6.67 trillion, equating to 41.32 per cent of GDP.

 “We don't want (people) to focus on how much the public debt has risen or declined. But we want (people) to look at the debt quality. Whether the debt has been used for the economy,” Theeraj said.

 “This government's borrowings have been made for investment in the country's infrastructure for future income generation.”

This government has set the budget deficit continuously, but the deficit has been used more for the country's investment, he said.

The government's investment budget to total budget is below 22 per cent for fiscal 2018, while the budget deficit is about 1-2 per cent - within the frameworks of the International Monetary Fund and the World Bank.

Thailand had a budget deficit of Bt250 billion and an investment budget of Bt440 billion in fiscal 2014. The following fiscal year, the budget deficit was still Bt250 billion but the investment budget rose to Bt450 billion.