$1.5bn ADB loan approved

$1.5bn ADB loan approved

Outlay to kick-start virus-hit economy

The cabinet approved yesterday the Finance Ministry's proposal to borrow US$1.5 billion from the Asian Development Bank (ADB) to stimulate and rehabilitate the economy.

The borrowing scheme is part of the government's plan to issue a royal decree to borrow 1 trillion baht to revive the virus-hit economy.

The ministry reported to the cabinet it needs to borrow to offset a budget deficit in fiscal 2021 and the government is still in dire need of a budget to stimulate and rehabilitate the economy.

The 2020 annual budget expenditure was set at 3.2 trillion baht, with a revenue target of 2.73 trillion, resulting in a 469-billion-baht budget deficit. This fiscal-year budget represents 17.9% of GDP.

The cabinet in June approved a bill for fiscal 2021 budget expenditure of 3.3 trillion baht and revenue of 2.67 billion, leaving a deficit of 623 billion.

The ministry also predicted for the foreseeable future the domestic money market is likely to see higher volatility given anticipated higher demand from the private sector to boost liquidity as it copes with the impact of the Covid-19.

Rachada Dhnadirek, a deputy government spokeswoman, said the government still has room to secure an overseas loan and the Finance Ministry is capable of managing foreign exchange risk.

After the ADB loan scheme was settled, the proportion of overseas loans to public debt would represent only 2.46%, far below the government's fiscal sustainability framework at 10%, said Ms Rachada. As of July 24, overseas loans totalled 140 billion baht, making up 1.9% of public debt.

The Finance Ministry is scheduled to sign the borrowing deal, which carries a floating interest rate based on the six-month London Interbank Offered Rate plus 0.50% a year.

The repayment will be divided into two tranches, with the first worth $500 million carrying a term of 10 years, with a three-year grace period. The second tranche worth $1 billion carries a term of five years, with a three-year grace period. The ministry is required to disburse the borrowing by June 30, 2021.

In a related development, Prime Minister Prayut Chan-o-cha told the National Economic and Social Development Council to speed up screening and approving the proposed projects applying for the 400-billion-baht budget earmarked for economic and social rehabilitation.

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