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13 Jan 2022

Thai Economy

Government’s Additional Borrowing during 2022-2023 May Affect Liquidity, but Still Manageable (Business Brief No.3962)


It is likely that the budget deficit during 2022-2023 will continue to rise higher than pre-pandemic levels, and this may in turn affect the government’s borrowing plans in 2022. KResearch expects that outstanding public debt (based on the calendar year) may approach THB9.90 trillion in 2022, an increase of THB1.50 trillion over that reported for 2021. Of that total, a big portion will likely be mobilized through the issuance of more government bonds and treasury bills. However, the impact on liquidity in the overall Thai bond market may be limited as the Bank of Thailand (BOT) is expected to reduce the limit of its bond issuance 2022, and redeem some of its bonds, with the aim of releasing more liquidity into the market, and offering room for the issuance of more government bonds per the government’s borrowing plans to facilitate its COVID-19 rehabilitation measures.
    Although there are ways to ease the impact of the government’s increased borrowing on liquidity in the bond market, KResearch is of the view that the Thai government bond yields may increase during 2022, driven by two factors. They are the upward trend in the US Treasury yields, and the fact that the Thai government is scheduled to issue more bonds. As a result, the two-year and 10-year Thai government bond yields are expected to increase to 0.80 percent, and 2.20 percent in 2022, over the 0.66 percent, and 1.90 percent, as of the end of 2021.
Despite the government’s increased borrowing, we at KResearch expect that liquidity in the commercial banking system in 2022 will remain at an elevated level or increase slightly in 2022 (albeit not as fast as seen in 2021), because of the limited growth anticipated for commercial banking lending amid the protracted COVID-19 pandemic while there is sufficient liquidity in the form of deposits. Moreover, the BOT will likely reduce the issuance of bonds to avoid a liquidity squeeze in the system. Therefore, liquidity in the Thai financial system will likely rest with the potential capital outflows during 2022, particularly from 2Q22 onwards as the US Fed may press ahead with their tightened monetary policy following the end of the QE program. Nevertheless, the BOT’s Monetary Policy Committee is expected to keep its policy rate steady at 0.50 percent for most of 2022, with the aim of supporting the Thai economic recovery.

Thai Economy