The Cabinet recently has resolved to approve an executive decree to borrow an additional THB700 billion on the top of the previous THB1 trillion loan. This additional borrowing decree will help enhance the government’s flexibility to revitalize the country’s economy. The actual use of the new loan will depend on the future of the COVID-19 situation and economic conditions. If such an executive decree was not approved in the midst of the protracted pandemic, the government would lack the fiscal tools to assist and treat those affected by COVID-19 epidemic.
The additional borrowing brings Thailand’s public debt level closer to the 60% GDP ceiling at a faster pace, and requires an expansion of such ceiling that is feasible in the near term. The public debt level stood at 54.3% of GPD as of the end of March 2021. KResearch projects that with the additional THB700 billion borrowing already included, the public debt level will be about 58.7-59.6% of GDP at the end of the 2021 fiscal year.
The follow-on focus will be on the responses of investors to the government’s additional borrowing, and it is critical to communicate and maintain fiscal discipline from now on. If investors believe that additional borrowing is necessary and unrelated to fiscal discipline, it may not affect investors’ confidence. If investors have doubts about fiscal discipline that could create risks and undermine long-term fiscal sustainability, additional borrowing could affect investors’ confidence and will drive up government bond yields and borrowing costs. However, government bond yields depend not only on domestic factors, but also on foreign factors.
Normal government borrowing and spending typically help spur economic growth, but the persistent COVID-19 pandemic has crimped consumer income and spending. Therefore, the stimulus effect of additional borrowing and spending by the government will depend on the severity of the COVID-19 pandemic and must be further monitored in order to make conclusions about the impact of this additional borrowing decree on Thai economic performance. Initially, KResearch maintains its growth forecast for Thailand’s 2021 GDP at 1.8%, and will continue to monitor the COVID-19 situation and economic indicators for future projections.
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