ASEAN KEY DESTINATIONS
Thailand to increase spending to boost growth
The Thai government is to boost spending to support economic growth, under threat from the credit crisis, pushing the 2008/09 budget gap up to about 350 billion baht ($10 billion), Reuters quoted the finance minister as saying Wednesday.
But the bond market shrugged off supply fears, with yields falling as investors looked for relatively safe bets amid the global credit crisis, especially with interest rates expected to be cut, dealers said.
"People are more concerned about the crisis than the deficit. They expect interest rates to come down as the economy is bad. They want to play safe," one fund manager said.
The new budget plan for the fiscal year that started on Oct. 1 means 1.94 trillion baht of state spending and a deficit of 349.5 billion baht, or 3.5 percent of nominal 2009 gross domestic product, up sharply from 2.4 percent under the original budget.
"We'll increase the budget by another 100 billion baht to help the poor with spending and to create more jobs," Finance Minister Suchart Thada-Thamrongvech told reporters.
The deficit will be funded by bond issues and other borrowing, and finances may be helped by some debt restructuring.
"The bigger budget is needed as we have an emergency situation. The economy and exports are slowing and private investment is sluggish," Suchart said. "We need to boost spending and create jobs."
The Federation of Thai Industries said this week the global economic crisis could cost a million jobs early next year.
That will affect new entrants to the workforce -- about 7000,000 each year. Thailand's workforce numbers 20 million, most in agriculture but 5.7 million in non-agricultural jobs.
Last week Suchart said the economy would probably grow less than 4 percent next year after about 5 percent this year and 4.8 percent in 2007.
The Bank of Thailand concurred, saying the economy might grow less than 3.8 percent next year, below the bottom of its projected range of 3.8-5.0 percent, due to the global slowdown.
"It's possible to see that, as the world situation is changing very quickly," the central bank's chief economist, Amara Sriphayak, told an economics seminar on Wednesday.
She said the economy might hit bottom in the first quarter of next year, tracking the US economy.
Last week Governor Tarisa Watanagase said Thai interest rates could be cut if the economy slowed more than expected. But she did not expect the economy to fall into recession next year.
The central bank, which reviews policy next on Dec. 3, left its main rate at 3.75 percent this month, but a sharp fall in inflation has given it room to focus on addressing risks to growth. That should support bonds despite the expected supply.
"Given the dovish BoT outlook, risk aversion and limited appetite for offshore investment, the market should be able to absorb the additional issuance, if it is spaced out evenly across four quarters and across the maturity spectrum," Standard Chartered Bank strategist Danny Suwanapruti said.
"Even with the potential supply, our prognosis for the Thai bond market remains bullish near-term," he said.