JAKARTA – Governments in Southeast Asia have increasingly turned to highly unusual measures to fund state coffers depleted by extended pandemic relief programs, raising fears of a massive sell-off of foreign exchange of the region.
Thailand decided on Monday to raise its debt ceiling from 60% to 70% of real gross national product. Its economy deteriorated after the government imposed tighter restrictions on activities in the capital Bangkok and other areas.
The move will “give room” for the government to engage in other fiscal policies in the future, said Finance Minister Arkhom Termpittayapaisith.
To date, the Thai government has authorized 1.5 trillion baht ($ 44.9 billion) in total borrowing to offset the fallout from COVID-19. As a result, public debt is expected to swell to 58.8% of GDP by the end of this month.
In Indonesia, the government will increase the budget for the state’s economic stimulus program to 744.7 trillion rupees ($ 52.2 billion), from 699 trillion rupees. Policymakers seek to revitalize the economy so that annual GDP grows between 3.7% and 4.5% compared to last year. The economy contracted in 2020.
To finance the business, the Indonesian central bank agreed at the end of August to buy 439 trillion rupees ($ 30.8 billion) of government bonds until 2022 as part of a “share-sharing” agreement. of the charge âwith the State. It comes down to the central bank which directly finances the government instead of buying debt on the open market. Debt monetization is prohibited in many other economies.
Meanwhile, in Malaysia, home to Southeast Asia’s highest daily COVID-19 case rates, the government raised the outlook for the annual budget deficit-to-GDP ratio to 6.5-7 in late August. %, against 5.4%.
Malaysia announced in June a 150 billion ringgit ($ 35.7 billion) economic stimulus package as part of a series of funding programs aimed at mitigating the impact of restrictions on businesses.
The projected deficit / GDP ratio would be comparable to the 6.7% recorded in 2009 in the aftermath of the global financial crisis. Malaysia’s debt-to-GDP ratio is also approaching the legal ceiling of 60%.
Malaysia’s central government plans to introduce a bill to the legislature that would raise the debt ceiling to 65%. It was only last year that the cap was raised by 5 points to 60%. The protracted pandemic has forced the state to further ease fiscal discipline to secure funds for next year’s economic stimulus.
Compared to other places in the world, countries in Southeast Asia have recorded a relatively low full vaccination rate. For this reason, governments in the region are reluctant to significantly relax restrictions on movement.
The turbulent momentum has clouded the outlook for economic recovery. The Asian Development Bank lowered Southeast Asia’s economic growth forecast to 4 percent this year, from 4.4 percent.
While the deterioration of public finances is a problem shared between developed and developing economies, the economies of the Association of Southeast Asian Nations are heavily dependent on external debt. In addition, investors tend to sell the region’s currencies if governments appear to ease fiscal discipline.
The ratio of external debt to gross national income stood at 37% in Indonesia and 34% in Thailand, according to 2019 data from the World Bank.
Southeast Asian states therefore face a dilemma. They must spend more funds to keep their savings afloat while the restrictions are in place. Yet a perceived lack of discipline can drive investors away and increase the risk of a currency depreciation.
Governments will need to redouble their efforts to broaden their tax base to help restore fiscal health, said Bhima Yudhistira, director of the Center for Economic and Legal Studies in Indonesia.