Ministry delays debt refinancing

The ministry has to postpone issuing bonds to roll over debt owed by the Financial Institutions Development Fund (FIDF), as the ministry is waiting for the executive decrees expected to be approved at today’s Cabinet meeting, Chakkrit Parapuntakul, director-general of the Public Debt Management Office, said yesterday.
Another tranche of Bt16 billion debt due on January 18 is also expected to be rolled over, he said.
The ministry had planned to manage debt worth Bt850 billion for fiscal 2012, of which Bt400 billion was borrowing to finance the budget deficit and Bt340 billion to refinance FIDF debts. It also expected to issue government bonds worth Bt525 billion for this year.
However, the government now plans to borrow an extra Bt350 billion-Bt400 billion to finance post-flood reconstruction projects and Bt50 billion to support the insurance industry.
The Finance Ministry would end up managing over Bt1 trillion in debt this year, mainly by refinancing and issuing new government bonds.
The large public debt burden – currently worth Bt4 trillion, which is equivalent to 41 per cent of gross domestic product – has prompted the government to ask the Bank of Thailand to pay the FIDF’s debt worth Bt1.14 trillion. The government plans to submit to the Cabinet today a draft emergency decree to require the central bank to take over this amount of public debt.
The cost of borrowing is now about 3-4 per cent, down from 5-6 per cent in recent years.
It might take about 30 years for the central bank to pay off the FIDF’s legacy debt. The central bank could collect fees from financial institutions for debt repayment. Currently banks pay 0.4 per cent annually of their deposit base to the Deposit Protection Agency. Under the draft decree, the central bank will be authorised to collect up to 1 per cent from banks, or 0.6 percentage point more.
The ministry plans to issue government bonds worth Bt161.5 billion between this month and March.
“The timetable for bond issuance this year will be made after the Cabinet approves the decrees,” he said.
However, savings bonds for retail investors are not as popular as expected. There is about Bt3 billion left of the issue with a maturity of three years and coupon rate of 3.75 per cent.
The return may not be attractive as banks have recently raised deposit rates to compete for funds.
Since the savings bonds are available only at ATMs and counters of Krungthai Bank, many people may not be aware of them, he added.