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20 May 2021

Thai Economy

Government’s New THB700 Billion Loan to Help Enhance Flexibility in Fiscal Management amid Increased Uncertainties under COVID-19 Pandemic (Business Brief No.3931)


The Cabinet recently approved the draft of an executive decree authorizing the government to borrow another THB700 billion, in addition to the previous THB1 trillion loan, which has almost been used up. The new loan is intended to help enhance the government's flexibility in ensuring that the economy can weather the impact of the latest wave of COVID-19. The real use of the new loan will rest on the COVID-19 situation and economic conditions in the future. If the draft of an executive decree was not approved amid the protracted pandemic, the government would lack a fiscal tool to implement a COVID-19 relief package.

The new loan is expected to cause Thailand's public debt to lean towards 60 percent of GDP at a faster pace, and the government may need to increase the public debt ceiling in the near future. Raising the public debt limit is possible because it stood at 54.3 percent of GPD as of the end of March 2021. We at KResearch project that public debt, including the new THB700 billion loan, will reach approximately 58.7-59.6 percent of GDP as of the end of the 2021 fiscal year. It is expected that about half of that new loan limit will be borrowed by the end of the 2021 fiscal year.  

Meanwhile, close attention must to be paid to responses of investors towards the government's additional loan. The public sector's future communications on this matter and fiscal discipline are also imperative. If investors view that the new loan is necessary to cope with the current situation and is not an issue related to fiscal discipline, it may not affect investors' confidence. However, if investors have questions on the lack of fiscal discipline, which may give rise to fiscal risks and undermine long-term fiscal sustainability, the new loan may hurt investors' confidence. This in turn could cause the government bond yields and borrowing costs to increase.     

Regarding the impact of the new THB700 loan on economic growth, additional public borrowing and spending typically help spur economic growth, but since the persistent COVID-19 pandemic has crimped consumer income and consumption, the results of additional borrowing and spending by the government will rest with the magnitude of the COVID-19 pandemic. For this reason, we at KResearch may have to keep monitoring the COVID-19 situation over the near term before we can ascertain the impact of the new loan on the Thai economic performance. Preliminarily, KResearch maintains our growth forecast for Thailand's 2021 GDP at 1.8 percent. Close monitoring will also be made on the COVID-19 situation and economic indicators for our future projections. ​

Thai Economy