Central bank soothes debt concerns

Central bank soothes debt concerns

Government deploying fiscal policy to rev up economic recovery during pandemic

Applicants turn up at the Miracle Grand Convention Hotel in Lak Si district to apply for jobs. Fiscal policy has played a greater role in stimulating recovery, especially for jobs and infrastructure in preparation for the post-pandemic period.
Applicants turn up at the Miracle Grand Convention Hotel in Lak Si district to apply for jobs. Fiscal policy has played a greater role in stimulating recovery, especially for jobs and infrastructure in preparation for the post-pandemic period.

The prospect of Thailand's public debt-to-GDP ratio edging closer to the 60% ceiling is a minor concern because fiscal policy is being used to rev up economic recovery momentum amid the pandemic, says the Bank of Thailand.

As the coronavirus outbreak has crippled economies around the globe, fiscal policy has played a greater role in stimulating recovery, especially for employment and infrastructure projects in preparation for the post-pandemic period, said governor Veerathai Santiprabhob.

"During this time, we should not stick to the number of the public debt ceiling, but focus mainly on economic reform in line with a changing economic landscape for the post-pandemic period," Mr Veerathai said.

The cabinet recently approved an additional loan of 214 billion baht to compensate for the budget deficit, intended as a credit line in case public expenses exceed revenue, according to the Public Debt Management Office (PDMO).

The level of borrowing will be assessed by the government in the event that revenue collection falls below the target by 9% or about 300 billion baht, said Patricia Mongkhonvanit, the PDMO's director-general.

If the government borrows the full loan amount, this will increase the ratio of public debt to GDP to 52.4% in 2020 from the existing 45.8% or 7.4 trillion baht, according to the PDMO.

For fiscal 2021, the ratio of public debt to GDP is expected to rise to 57.8%, depending on GDP growth.

In the event of higher public spending to support economic recovery momentum, the capability of public debt payment in the long run should be taken into account, Mr Veerathai said.

At the same time, income generation is another key role for the government, particularly in terms of tax structure and public assets, he said.

Separately, the Bank of Thailand plans to implement a debt restructuring programme for businesses (DR BIZ) under a creditors' pool concept, designed to help distressed business operators overcome the coronavirus crisis.

For the initial stage of the DR BIZ programme, the central bank will concentrate on businesses with a credit line in the range of 50-500 million baht each.

Commercial lenders borrowing from several banks make up about 4,800 companies with a total credit line of 1.2 trillion baht, Mr Veerathai said.

The customer segment could be the initial target participating in the debt restructuring programme, especially for tourism-related businesses that have been reeling from the Covid-19 crisis.

The DR BIZ programme is a collaboration of the central bank and the private sector, including commercial banks, specialised financial institutions and real sector businesses.

The programme will become effective from Sept 1. It is expected to continue for the next two years in line with the central bank's forecast for the domestic economy to take two years to recover to the pre-pandemic growth rate.

Under the programme, the central bank will focus mainly on debtors with good debt-servicing ability who have been heavily affected by the outbreak and classified in the non-performing loan (NPL) segment.

The regulator also allows NPL-saddled debtors, who have been classified in the bad-loan segment before Jan 1, 2019, to enter the debt restructuring programme.

Although the credit line is set at 50-500 million baht, banks can implement the programme to help customers whose credit lines are lower than the stipulated amount.

Commercial loan clients have largely borrowed less than 50 million baht and have only one or a few creditors.

The central bank will, however, expand the credit line of the debt restructuring programme to be less than 50 million baht for the next phase.

"The central bank has implemented debt relief measures, as a pre-emptive practice, to help both individuals and commercial borrowers quickly before being classified as NPLs to overcome the crisis," Mr Veerathai said.

The central bank will allow several debt restructuring instruments to be applied, covering both existing debts and additional loan offerings.

These include lowering debt instalments, extending the debt instalment period, adjusting debt conditions in line with debtors' debt-servicing ability and allowing a grace period.

The programme will speed up the debt restructuring procedure. After receiving comprehensive documents from borrowers, a consideration process will take a month to complete.

The scheme will also support a creditors' pool to offer additional credit lines to customers who have a good payment record and a clear business plan.

"A new loan or an additional credit line are not solutions to overcome the crisis and doing business for the post-Covid period," Mr Veerathai said. "The existing debt restructuring is in line with [debtors'] ability on debt repayment and liquidity management in accordance with a changing economic landscape, which will support business operations in the post-Covid period."

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