Bonding for the future: Thai govt sets sail with expanded issuance

The director-general of the Public Debt Management Office (PDMO) yesterday asserted that the planned issuance of government bonds in fiscal next year will be proportionate and appropriate. The limit for bond issuance for the said fiscal year has been expanded by approximately 160 billion baht.

Patricia Mongkhonvanit revealed the increase is intended to counterbalance the budget deficit for fiscal next year and foster the growth of the domestic bond market.

“The issuance of government bonds has not been excessive, which would lead to oversupply in the market. We believe issuance is at an appropriate level and we are confident the market can support it.”

While discussing the high yield of 10-year government bonds, she pointed out that it was influenced by numerous factors. These include policy rate increases overseas, a rise in domestic money market interest rates, and the availability of more alternative investment options for investors. The yield of 10-year government bonds last year was higher than the current level, she added.

She further stated that the escalating yields align with the global trend of increasing interest rates, which will consequently amplify the government’s fiscal burden for interest payments. However, the PDMO plans to restructure short-term debt into long-term debt with fixed interest rates, thereby reducing the government’s fiscal burden.

Robust fiscal sector

Patricia further highlighted that the fiscal sector is robust with an abundance of foreign reserves. Fitch Ratings, in July, confirmed Thailand’s sovereign credit rating at BBB+ with a stable outlook, citing GDP growth and the tourism sector‘s recovery as crucial factors. This rating mirrors investor confidence in government bonds.

Investors previously voiced apprehensions about the hike in the bond issuance limit for fiscal next year to 1.25 trillion baht, a rise from 1.08 trillion in fiscal this year. The return on 10-year government bonds considered a benchmark, reached a peak of 3.19% yesterday.

The government has increased the fiscal next year’s budget to 3.48 trillion baht, a rise from the 3.35 trillion set by the Prayut Chan-o-cha administration, an increment of 130 billion baht. The budget deficit has now reached 693 billion baht, up by 100 billion baht.

In related news, the chief economist issued a stark warning over the government’s increasing reliance on fiscal budget deficits, cautioning that such an approach could harm the economy over an extended period. Read more about the story HERE.