Thailand will limit public debt to no more than 77% of GDP instead of 60% if the pandemic compels borrowing, the PDMO says.

Ministry relaxes 60% bar to IMF standards

Thailand’s fiscal sustainability framework will limit public debt to no more than 77% of GDP instead of 60% if the government needs to borrow to soften the social and economic blow from the pandemic, says a senior official at the Finance Ministry.

The 77% is based on the fiscal sustainability framework for emerging markets set by the International Monetary Fund. The Finance Ministry can raise the ceiling to match the threshold, said Patricia Mongkhonvanit, director-general of the Public Debt Management Office (PDMO).

Public debt is estimated to hit 57% of GDP in the next fiscal year after taking into account the 1 trillion baht in borrowing and a 600-billion-baht budget deficit for fiscal 2021.

The national debt level reached 59% of Thailand’s GDP after the 1997 financial crisis. Public debt amounted to 7.02 trillion baht at the end of March 2020, representing 41.3% of GDP.

A review of the ministry’s fiscal sustainability framework is conducted every three years, with a check-up due next year.

Thailand has managed to keep public debt to GDP below the sustainability framework’s ceiling of 60% for decades, offering fiscal policy space for the government to buffer against economic shocks.

Taking out public debt is essential for assisting people and businesses affected by the pandemic, as well as to rehabilitate the economy, Ms Patricia said.

Borrowing under the 1-trillion-baht royal decree must be done prudently because the market is still fragile, as concerns about the virus impact on the economy have encouraged people to hold cash and shun long-term investment, she said.

Year-to-date, investors have yanked 97 billion baht from government bonds and 17 billion baht from Bank of Thailand bonds.

Despite the selling spree, demand for government bonds is picking up, as seen by the bid coverage ratios of the five- and 15-year government bonds put on auction on April 22, which were more than double and 5.6 times, respectively.

Ms Patricia said the PDMO will try to prevent a crowding-out effect on corporate bond issuance. Overseas borrowing, capped at 20%, is among the options for the 1-trillion-baht public debt.

To comply with the Fiscal Responsibility Act that stipulates the government allocate at least 2.5% of annual budget for debt repayment, the Budget Bureau has reserved 3% of the fiscal 2021 budget, or 99 billion baht, to service debt.

‘‘ PDMO will try to prevent a crowding out effect on corporate bond issuance.

PATRICIA MONGKHONVANIT

Director-general, PDMO