Govt's plan to borrow 'good for BOT'
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The Finance Ministry's plan to borrow a huge sum to finance infrastructure projects would help the Bank of Thailand manage the exchange rate much more easily - restraining the baht's appreciation - and could clean up some of the central bank's balance she
Moreover, the government would not need to borrow directly from the central bank, said Chakkrit Parapuntakul, director-general of the Public Debt Management Office.
The government may need to borrow about Bt1.7 trillion over the next seven years, out of total funding for infrastructure investment estimated to be Bt2.27 trillion. Part of the cost would be financed by public-private partnership, which could cut some of the government burden, he said.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said last week that the government in the next six months would ask Parliament to allow it to borrow in order to finance infrastructure projects, which include road links with other Asean countries, as well as railway, port and airport expansion.
The government has already issued an executive degree to borrow Bt350 billion for flood-prevention investment. More borrowing is expected to increase public debt substantially from the current level of about 40 per cent of gross domestic product.
However, Chakkrit said borrowing is expected to be about Bt250 billion, while GDP is estimated to expand by about Bt720 billion a year, so the debt-to-GDP ratio would not increase substantially.
More government borrowing would also help the Bank of Thailand manage its balance sheet, as it currently carries an accounting loss of Bt420 billion on its books. If the government borrowed from the market, it could result in liquidity being dried up, so the central bank could then inject money into the system by redeeming its bonds, thus reducing its interest burden, he said.
More government spending would likely to weaken the baht, since government investment could entail the importation of a large volume of capital goods, which would mean additional spending in foreign currencies, he said, adding that exporters often call for the central bank to make the baht weaker since it would make their products cheaper to foreign buyers.
Doing it this way, the government would not need to borrow directly from the central bank, Chakkrit said.
Virabongsa Ramangkura, chairman of the Bank of Thailand, said last week that the central bank should help the government with infrastructure investment.
