Thailand is set to raise about $5 billion through a combination of promissory notes and term loans. This strategy is being adopted to fund various measures aimed at easing living costs, as the country is shunning traditional bond issuances due to soaring sovereign yields. The increase in yields is attributed to the Iran war, which has pushed them to multi-month highs.
The government intends to issue 35 billion baht (approximately $1.1 billion) in four-year promissory notes monthly from June to September. Additionally, an extra 35 billion baht will be secured through term loans to serve as a liquidity buffer. Jindarat Viriyataveekul, the director-general of the Public Debt Management Office, confirmed these plans. The cost of the four-year notes is considered "pretty cheap," expected to be slightly over 1%.
This decision to avoid additional bond issuance is likely to be well-received by investors, especially given the recent surge in Thai sovereign yields alongside global markets following the outbreak of the Iran war. The yield on 10-year Thai government bonds recently fell one basis point to 2.33%, but this is still near its highest level in over 17 months. A more than 60 basis point surge since the end of February has widened the spread between two- and 10-year yields to about 110 basis points, the highest since November 2022.
The government's approach prioritizes short-term financing over bonds due to current market volatility. Jindarat stated, "Given the current market volatility, we think it's best to use bridge financing first and refinance through government bonds later once market sentiment improves." The four-year maturity of the notes provides sufficient flexibility for this strategy. The fundraising is slated for completion by the end of September next year, and the additional state spending is projected to boost economic growth by approximately 0.4 percentage points both this year and next. While the government has no immediate plans to tap overseas markets, as domestic borrowing costs remain significantly cheaper, there have been discussions about potentially raising the public debt ceiling from 70% to 75% of GDP to allow for up to $30 billion in additional borrowing, though a decision has not been finalized.
Prime Minister Anutin Charnvirakul's administration is also proceeding with a 400 billion baht emergency borrowing plan, partly to fund a gradual energy transition. Over 24 million Thais have signed up for a co-payment program, highlighting the urgent need for financial assistance amidst rising fuel and living costs. Term loans are favored for energy transition projects as they allow for flexible fund drawdowns aligning with actual spending needs. Thailand's domestic liquidity is deemed ample, and local borrowing costs are currently very low, with a benchmark interest rate of 1%.
