The Finance Ministry's Public Debt Management Office (PDMO) is weighing whether to issue foreign currency-denominated bonds this March, after not doing so for more than 20 years.
Jindarat Viriyataveekul, the public debt advisor, said the advantage of issuing foreign bonds is managing the risk associated with borrowing from both the government and private sector, as the government is a major borrower. If borrowing is concentrated domestically, it may lead to the crowding out effect, she said.
The crowding out effect is an economic theory that argues rising public sector spending drives down or even eliminates private sector spending.
To spend more, the government needs added revenue. The state obtains it by raising taxes or borrowing through the sale of Treasury securities. Higher taxes can lead to reduced income and spending by individuals and businesses.
According to Mrs Jindarat, another benefit of issuing foreign bonds is it helps private sector entities seeking foreign loans obtain more favourable reference yields, allowing these entities to obtain more favourable interest rates.
However, there is a potential drawback for the government, as issuing foreign currency-denominated bonds could increase the cost of state borrowing if interest rates are higher in foreign markets than domestic rates.
For instance, foreign bonds with a 10-year maturity carry an interest rate of 4.6%, whereas domestic bonds with a similar maturity period carry interest of only 2.5%.
The financial cost of government public debt averages 2.74%, which has increased from 2.4% in the pre-Covid period.
"PDMO is studying whether to issue foreign bonds, with a proposed issuance of around US$500 million to $1 billion. However, the foreign currency has not been determined," she said.
"If the issuance proceeds, the funds raised will be invested in environmental, social and corporate governance projects."
Mrs Jindarat said the assessment of whether to issue foreign bonds should consider not only financial aspects, but also economic factors. Foreign currency debt held by the government constitutes only 1.4% of the entire public debt portfolio.
She said private sector bonds with a maturity value of up to 200 billion baht are set to mature this year, not including the government bonds that may be issued.
This could potentially strain domestic money market liquidity, said Mrs Jindarat.
She said PDMO set a target to issue a combined 100 billion baht worth of savings bonds this year, with a first lot totalling 40 billion, offering higher interest rates for the public compared with previous issuances. This lot is expected to be issued by March, said Mrs Jindarat.
In addition, she said PDMO plans to issue sustainability-linked bonds worth 25-30 billion baht this year.