Barnett, S. and V. Haksar (2001), “Medium-term Debt Outlook,” in Thailand; Selected Issues, International Monetary Fund, Country Report, No. 01/147, Chapter IV.
Lane, T. (1996), “The First-round Monetary and Fiscal Impact of Bank Recapitalization in Transition Economies,” an IMF Paper on Policy Analysis and Assessments, no. 96/8.
Prepared by Lorenzo Giorgianni. Part of the data was kindly provided by Teresa Dabán.
The sample of emerging market economies comprises Argentina, Bolivia, Brazil, Chile, Colombia, Czech Republic, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Slovak Republic, South Africa, Thailand, Turkey, Uruguay, Venezuela. The fiscal data is not necessarily comparable, as country definitions vary. Thus, the cross country evidence presented in this paper is, at best, illustrative of general trends.
The size of the structural deterioration broadly matched the observed increase in debt service, with increases in other current expenditures offset by declines in capital spending.
Thailand has a tradition of underachieving deficit targets. During 1999–2001, outturns for the comprehensive public sector undershot plans by between 2 and 2½ percent of GDP.
The definition of government debt under the 1986 Government Finance Statistics manual excludes FIDF liabilities since they are considered to be part of the financial public sector. The Thai authorities have, however, included such liabilities in the headline definition of public debt, recognizing that the financial sector restructuring activity by the FIDF is of a fiscal nature, and that its liabilities are conceptually interchangeable with government paper—indeed around 14 percent of GDP in FIDF losses have already been fiscalized.
Fiscal accounting practices typically neglect contingent liabilities, including those that explicitly commit the government to future cash outlays.
Market reception of the plan was positive, and the yield curve flattened on its disclosure.
The baseline projections assume a more conservative medium-term macroeconomic framework than what suggested by Thailand’s own long-run history (e.g., growth is assumed at 4½ percent in the baseline, while it averaged 6¼ percent over the last 30 years).
In the model, consolidation is also helped by the presence of a modest buoyancy in revenues as the output gap is gradually eliminated. Detailed information on the forecasting model for revenues, expenditures and financial sector costs which underpins the IMF staff debt projections can be found in Barnett and Haksar (2001).
The sensitivity analysis takes the end-FY2003 projected debt ratio as starting point.
The size of the shock to real interest rates is equal to one standard deviation times a weight of minus 25 percent (equivalent to the historical correlation between growth and interest rates).
As in footnote 11, using a minus 37 percent median emerging market correlation between growth and interest rates.
The weighted average maturity of central government domestic debt is just over 5 years. However, including NFPE and FIDF (on- and off-balance sheet) domestic liabilities, the weighted average maturity drops to around 3.3 years.
The treasury cash reserves, which are maintained at around ½ percent of GDP, provide an additional, albeit limited, buffer.
The recently announced fiscalization plans would allow some refinancing of the FIDF’s short-term borrowings with longer-term government bonds. As a result, the average borrowing cost is expected to increase, though the rollover risk would be eased.
Currently, over ¾ of gross public indebtedness (including contingent liabilities) is financed domestically, with the rest (roughly $21 billion) externally—of which, about half is in U.S. dollars and the other half in yen. The low borrowing costs on external debt reflects, by and large, the current low interest rates on yen-denominated debt.
Specifically, a 10 percent depreciation of the baht increases external interest payments roughly by 0.1 percent of GDP, and raises the domestic currency value of external debt by around 2 percent of GDP.
The share of external borrowing from international capital markets is around 14 percent.