The value of Finance Ministry treasury bills in circulation at the end of the first half was more than double what it was a year earlier, due to the government facing a cash shortfall. The Thai Bond Market Association reported that the value of outstanding treasury bills at the end of June was Bt460 billion, an increase of 108.14 per cent on the corresponding period last year.

The ministry had earlier planned to issue treasury bills worth Bt250 billion in the course of the current fiscal year, which ends next month.

"The government is facing a fiscal budget problem," association president Nattapol Chavalitcheevin said yesterday. "Its revenues have missed the target, so it has turned to issuing T-bills to raise funds."

The Finance Ministry's revenue target was Bt1.36 trillion in the 2006 fiscal year. However, with the unclear political and economic conditions, there are fears the target will be missed.

Corporate income tax revenue for the first half of the year is due this month and this should provide a good indicator, as it represents a sizeable portion of the government's total revenue.

Finance Ministry officials said that if there is any revenue shortfall, it could be about Bt10 billion, which would be balanced by the treasury reserves.

Government revenues last month missed their target by Bt8.31 billion, resulting in 10-month revenue figures falling short by Bt292 million.

"Issuing T-bills in the current environment of rising interest rates leaves the Finance Ministry with a huge burden of [short-term] interest payments," he said. "To reduce that burden, maybe it should be issuing bonds, which take a little bit longer to mature."

Nattapol said the large-scale issuing of T-bills is bound to fade if the government posts a fiscal deficit. In practice, with a fiscal deficit, the ministry will finally ask for Cabinet approval to issue government bonds.

He said the government has created a lot of off-balance-sheet spending, which is not accounted as public debt.

The 108.14-per-cent growth in treasury bills in the first half of the year has helped the overall bond market to record growth of 59.77 per cent. This is despite private sector bond issues dropping 5.32 per cent in the year-on-year comparison. Corporate bonds issued in the first six months of this year were valued at Bt66.55 billion, compared with Bt70.29 billion in the corresponding period last year.

Nattapol expects that by the end of this year, new corporate bond issues for the 12-month period will amount to about Bt150 billion, compared to Bt180 billion in 2003 and last year.

Meanwhile, the net buy from foreign investors in the secondary bond market has increased from 2 per cent in 2004 to about 18 per cent, he said.

"We cannot tell why. We are only told by the dealers that the sellers are foreigners," he said. "It's probably because they see the investment opportunities in Thailand."

Following new regulations introduced last month under which all bonds, including bills of exchange, must register with the association, Nattapol expects that by next year it should be clear how much Thailand's bill of exchange market is really worth.

Following last year's Picnic Corp scandal, in which Picnic defaulted on its bills of exchange, the Securities and Exchange Commission worked with the association to ensure all debt-instrument issues are registered and rated.

Nattapol said bills of exchange worth Bt200 billion are currently registered and he estimates that the overall bills of exchange market is worth between Bt700 billion and Bt800 billion.

Piyarat Setthasiriphaiboon

 The Nation