The fiscal position remains strong and it can raise its public debt ceiling if necessary, Finance Minister Arkhom Termpittayapaisith said on Wednesday, as the country deals with its worst Covid-19 outbreak to date.
Despite significant borrowing to fund the outbreak response, the country's ratio of debt to gross domestic product (GDP) was still low compared to peers at 56%, and expected to remain below its 60% ceiling at the end of this fiscal year to September, the minister said.
"If there is a need to increase our debt ceiling, the fiscal policy committee... can revisit and raise this threshold," he told the Thailand Focus 2021: Thriving in the Next Normal forum organised by the Stock Exchange of Thailand.
The government will work hard to stimulate the economy, especially by gradually reopening the country, to keep its GDP growth target of 4-5% next year, he said.
For 2021, the Finance Ministry forecast GDP growth of 1.3%, while the Bank of Thailand predicts 0.7%. Last year, the economy contracted 6.1%, the deepest fall in over two decades.
BoT Governor Sethaput Suthiwartnarueput told the virtual forum that bond yields in Thailand would be less exposed to “another taper tantrum” than those in some other emerging economies. A low level of external debt and high foreign reserves mean “we are very resilient to a balance-of-payment type shock,” he said.
Mr Sethaput joins Bank Indonesia Governor Perry Warjiyo in discounting the possibility of a major local impact once the US Federal Reserve starts unwinding its easy policy — unlike the battering some emerging markets took in 2013. Investors are awaiting more clarity on the eventual tapering of bond buys from Fed Chairman Jerome Powell’s planned speech Friday, or at the US central bank’s Sept 21-22 meeting.
“Thailand’s bond market relies less on non-resident financing than what we see in other countries. So the transmission from the global spike to the local spike is not likely to be as sharp as in other countries,” Mr Sethaput said. “Even if there is going to be a local yield spike as a result, the transmission into the real economy is also likely to be muted,” as 90% of Thai corporate financing is bank-based, he said.
Thailand’s economic rebound will remain uneven and bumpy as the nation grapples with a prolonged Covid-19 wave and a tardy vaccine roll out, Mr Sethaput said. A slow recovery in the tourism sector will remain a drag on the economy.
Currency woes
Down 8.8% against the dollar so far this year, the baht has declined more than its Asian peers as Thailand swings to a current-account deficit after years of surplus, the governor said. The shortfall was seen at US$9 billion so far this year but a healthy fiscal position, including high foreign reserves, is seen providing a buffer, he said.
More losses and volatility may be in store for the baht because of domestic factors, according to the central bank’s Monetary Policy Committee. The currency rallied 1.4% on Tuesday on signs that the nation’s Covid outbreak is easing, but swung between gains and losses on Wednesday.