BoT backs borrowings

BoT backs borrowings

Governor in favour of huge state loan

A stall and closed stores at Bangkok's Chatuchak weekend market, which is nearly deserted following the latest wave of the Covid-19 outbreak in the capital. Varuth Hirunyatheb
A stall and closed stores at Bangkok's Chatuchak weekend market, which is nearly deserted following the latest wave of the Covid-19 outbreak in the capital. Varuth Hirunyatheb

The Bank of Thailand (BoT) is urging the government to borrow an additional 1 trillion baht to address the severe economic impact of the Covid-19 pandemic and boost the country's long-term growth prospects.

The central bank's governor, Sethaput Suthiwartnarueput, on Monday said he would consider such state borrowing to be reasonable.

Given that the economic impact of the pandemic is expected to be harder and longer than the BoT's earlier assessments, fiscal policy should play a key role in ameliorating lockdown pain and supporting the economy, Mr Sethaput added.

Lower household incomes and higher unemployment caused by the outbreak are the key affected areas which need fiscal measures. During 2020-2022, household income is expected to decrease by 2.6 trillion baht, of which 2020-2021 will see a 1.8 trillion baht loss, and another 800 billion baht hit in 2022.

As a result the BoT sees it as reasonable for the government to borrow an additional 1 trillion baht, which will account for 7% of the country's gross domestic product (GDP). Such a move would increase the country's public debt ratio to 70% of GDP by 2024.

If the government borrows now to support economic expansion for the next 10 years, it would be better than borrowing later on, Mr Sethaput said. If the government can maintain existing fiscal stability, it would not matter if public debt peaked at 70% of GDP, the governor added.

At the same time, Thailand has a low risk of sovereign downgrade from international credit agencies because of its solid financial conditions, particularly its low external debt ratio and strong international reserves.

A clear spending plan would help the government maintain the existing fiscal stability, widen the tax base, and expand Thai GDP for the next 10 years. Under this scenario, the country's public debt ratio would continue to decline.

Mr Sethaput also said the government should use additional borrowing to boost economic multipliers, such as the existing co-payment scheme, loan guarantee scheme, and other subsidy measures to provide people with relief from the hardships of the pandemic.

On monetary policy, the BoT has implemented a lot of debt-aid measures to ease the financial burden of both households and businesses. In addition, the central bank plans to improve existing measures in accordance with borrower demand, risk profile, and debt repayment abilities, on a case-by-case basis, amid an uneven K-shaped economic recovery.

"We plan to adjust debt-aid measures from a short-term debt moratorium to longer-term debt restructuring because the Covid-19 impact is expected to be longer than previously forecast," said the governor.

The BoT is ready to implement additional measures, if it is necessary. The central bank's debt-aid measures have five criteria: longer-term debt restructuring; targeted borrowers; wider coverage; survival of both borrowers and creditors; and avoiding moral hazard.

Mr Sethaput said the BoT's debt assistance measures have been progressing, particularly its soft loan scheme and other measures helping individual borrowers.

As of August 9 this year, the value of soft loan approvals was 89.44 billion baht and it is expected to hit 100 billion baht within six months or sooner. The scheme helped small and medium-sized enterprise (SME) loan growth in the commercial banking system to hit 0.7% in the second quarter of 2021, on a year-on-year basis. Without the scheme, SME loan growth would have likely been negative.

Last week Finance Minister Arkhom Termpittayapaisith said his ministry has stuck to the rules that public debt shall not exceed 60% of GDP in order to maintain financial discipline.

Earlier the Joint Standing Committee on Commerce, Industry and Banking suggested the government should raise this debt to GDP ratio to 65-70%, since borrowing a total of 1.5 trillion baht under current two emergency decrees has not been sufficient to adequately deal with the impact of the pandemic.

The public debt to GDP ratio is expected to edge up to 58% by the end of the 2021 fiscal year, up from 56.09% as of June 30 this year, according to the Public Debt Management Office.

Supant Mongkolsuthree, chairman of the Federation of Thai Industries (FTI), welcomed the prospect of an additional 1 trillion baht in borrowing to restore the Covid-battered economy.

"The government's 500-billion-baht borrowing it announced earlier is not enough," said Mr Supant, adding that the public debt ceiling can be raised to more than 60% of GDP to adjust to the Covid-19 situation.

The FTI played down concerns over an increase in public debt, because if the government used the new loan efficiently, the economy would be rejuvenated and could move forward.

"We are more worried about household debt, which will increase more rapidly than public debt," said Mr Supant.

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