Thai Government Faces Fundraising Hurdles Amidst Foreign Investor Withdrawal

The Thai government faces rising borrowing costs due to foreign investor withdrawal from local bonds. Economic factors, including an increase in bond issuance and inflation, exacerbate this challenge. Despite these hurdles, projections for corporate bond issuance remain positive, indicating resilience in the local market.

The Thai government currently faces increased borrowing costs as foreign investors withdraw from the local bond market. In early 2023, a capital outflow of 34.3 billion baht significantly decreased the amount of government bonds held by foreign entities. This shift is primarily attributed to the disparity between local and US interest rates, rendering Thai bonds less appealing to investors who seek higher returns from US government bonds.

The government’s intention to borrow approximately 2.4 trillion baht (or $66.4 billion) for fiscal year 2024 represents a 9% increase from the current year. Out of this amount, over 700 billion baht will fund new borrowing, while the remaining 1.7 trillion baht will be used for refinancing or restructuring existing debts. Additionally, the government has proposed a 560 billion baht ($15.8 billion) economic stimulus plan aimed at direct consumer support, energy price reductions, and debt relief for selected borrowers.

The rise in US Treasury yields, paired with the Thai government’s plans to issue additional bonds, is driving up the yields on two-year and ten-year Thai government bonds. Coupled with worries over inflation and increasing interest rates, this scenario has created a sense of instability in the Thai markets.

Furthermore, the depreciation of the baht has encouraged capital flight as investors express concern over the potential decline in value of Thai assets. The ambiguity surrounding possible US interest rate reductions adds complexity, as sustained high interest rates in the US and Europe elevate global borrowing costs, further impacting Thailand’s financing capabilities for its budget deficit.

Despite these significant challenges, there remains a degree of optimism regarding the local bond market’s capacity to attract funding. Projections indicate that corporate bond issuance might reach between 900 billion and 1 trillion baht this year, with a majority categorized as investment grade. The emergence of India as a viable alternative investment destination and its inclusion in global bond indices may influence the Thai bond market, yet confidence remains intact among stakeholders regarding the market’s resilience and its vital role in economic progression.

In conclusion, the Thai government’s borrowing costs have escalated due to capital outflow, increased yields, and a fluctuating exchange rate. Although hurdles persist, particularly the exit of foreign investors and economic challenges, there is cautious optimism about the local bond market’s potential for growth and resilience. Moving forward, strategic measures may enhance Thailand’s financial landscape and mitigate the risks associated with external economic factors.

Original Source: www.thailand-business-news.com