Thailand Looks to Pay Foreign Debt!
The strength and stability of the Thai baht has been welcome news to many, not least the Public Debt Management Office (PDMO). The PDMO have certainly receive a windfall moving swiftly to exchange foreign-dominated debt for baht-denominated debt – instantly wiping out millions off the Balance of Payment deficit.
According to reports published in the Bangkok Post, the plan is to convert approximately US$250 million in dollar debt to baht-denominated debt over the next few months. Theeraj Athanavanich, a bond market advisor for the PDMO, also went onto explain that it wasn’t just dollar debt that they were looking to convert but also 30-40 billion yen-denominated debt. This was said to depend upon exchange rate movements in the next few months.
With the baht continuing to grow in strength, Finance Minister Apisak Tantivorawong said now was the perfect opportunity to curb foreign exchange rate risk. Impressively, Thailand’s foreign debt only accounts for 4.99% of the public debt and the government has urged state enterprises to follow suit and swap foreign currency debt.
It was revealed at the end of May that Thailand’s total public debt was THB6.34 trillion which equated to 42.9% of the country’s GDP, 95.1% was in baht-denominated debt. The decision to reduce foreign debt further illustrates the confidence that analysts and economists have in the currency and its hopes for the future.
Indeed, such has been the performance of the baht over the last 12 months it has become the second-best performing Asian currency after the South Korean won. The currency is approximately 7% up against the greenback in 2017 with the baht hovering around 33.5 to dollar in recent weeks.
Further moves were made to strengthen small and medium-sized enterprises (SME) with Fiscal Policy Office director-general Krisada Chinavicharana calling for the major banks to shoulder costs incurred from currency hedging. The move would be seen as increasing the competitive advantage of many businesses in this sector. The decision comes after the commercial banks had requested that the Finance Ministry foot the bill of hedging costs.
Mr Krisada was adamant that banks shouldering the hedging costs as it would have little impact on their operating cost so therefore should be given back to their customers. What is clear is that the government is committed to encouraging growth of companies in the SME sector as these are seen as central to Thailand’s continued growth.
Thailand’s economy is on the up with growth reported last year of 3.2% and the currency remains stable and strong, something that will increase investor confidence. Large sums are also being spent on infrastructure which will again enhance the countries position when challenging on the ASEAN and global markets.