Improving efficiency of loan use associated with debt repayment liability

VCN –Motivated by the government's drastic direction, the management, borrowing and repayment of public and government debts in 2020 and the 2016-2020 period have achieved many positive results, but there are still inadequacies.
Reduce troublesome procedures but still ensure loan safety Reduce troublesome procedures but still ensure loan safety
Foreign capital disbursement increased: Not much improvement Foreign capital disbursement increased: Not much improvement
Committee to disburse ODA, foreign loans after returning nearly VND4,100 billion Committee to disburse ODA, foreign loans after returning nearly VND4,100 billion
5555-0244-1-1741-188621
Mr. Vo Huu Hien

The Customs newspaper spoke with Mr. Vo Huu Hien, Deputy Director of the Department of Debt Management and External Finance, Ministry of Finance, about this issue.

Despite positive results in the management, borrowing and repayment of public and government debts in recent years, it cannot be denied that there have been many problems in disbursement and capital mobilization as well as management. What do you think about these issues?

- In the 2016-2020 period, public debt management has been a priority and met the set objectives, capital mobilization has been done effectively with low costs and reasonable risks for investment in socio-economic development.

Public debt safety indicators have been strictly controlled under the debt ceiling approved by the National Assembly and gradually decreased from 2016 to 2019, contributing to increasing the fiscal space, ensuring public debt safety and national financial security.

However, public debt management still has some problems to be addressed to improve efficiency as follows:

Firstly, the disbursement of public investment capital, including the Government's ODA loans and foreign concessional loans, is slow and limited.

In 2020, the economy was seriously affected by the Covid-19 pandemic, so projects funded by ODA loans and foreign concessional loans also faced many difficulties. However, under the drastic direction of the Government and the Prime Minister and the efforts of ministries, agencies and localities, the disbursement rate of public investment capital from foreign loans under the 2020 capital plan is relatively high compared to the same period in 2019.

However, if compared with the disbursement rate of domestic public investment, the disbursement rate of foreign capital is still low. With the current disbursement rate, if the ministries, agencies and localities do not have drastic solutions to overcome the problems, it will be difficult to complete the tasks assigned by the National Assembly for ODA loans and concessional loans in 2020 and for the 2016-2020 period.

Secondly, Government capital mobilization is under certain pressure with the failure to issue Government bonds of less than five-year term.

The restructuring of the public debt portfolio in a sustainable way, based on Resolutions of the Politburo and the National Assembly, has been efficient but had shortcomings.

For example, the focus on raising government bonds of more than five-year term defeated the reference of the bond market to other capital markets and negatively affected the state budget's ability in issuing government bonds.

When the market fluctuates strongly, it will be difficult to issue short-term government bonds to stabilize the market and cannot meet the needs of some investors, especially for some commercial banks that only need to invest in short-term bonds of less than five years.

Third, the size of debt has seen a positive change. By the end of 2020, under the impact of the Covid-19 pandemic, the Government debt to GDP ratio is expected to increase compared to 2019, but still well controlled at 50.8% (compared to the ratio of 52.7% in 2016). However, costs and risks of the Government debt portfolio tends to be less favorable than before, and Vietnam graduated IDA or in other words, the Vietnam have stopped receiving ODA loans from the International Development Association (IDA) of the World Bank (WB) since 2017.

Fourthly, the debt repayment liability of the Government over total State budget revenue tends to increase and is in danger of exceeding the 25% threshold.

The main reason is that the principal repayment schedule is not equal, with high concentration in some years; Government bonds issued to cover the previous overspending reach the due date.

Meanwhile, economic growth slows down and state budget revenue in 2020 sees a deep fall compared to the estimate; it is forecast that the space to increase budget revenue in coming years to support the economy to recover from the pandemic will be restricted. This problem can increase the liquidity risk for the Government when it has to mobilize capital at higher costs to repay debts in years of high principal repayment. On the other hand, potential risks to national financial security may negatively affect the national credit rating if resources are not sufficient to repay the Government’s debts fully and on time.

Fifthly, the management and supervision of the country's external debt indicators have shortcomings in both management tools and methods. Vietnam has been classified in the group of countries capable to access to capital markets instead of relying heavily on ODA loans as previously.

With the fundamental changes in the foreign borrowing capacity of both the Government and the private sector, the national external debt ceiling and limits applied in the previous period are losing their meaning.

The Government has actively researched and consulted with a number of international organizations such as the IMF and the World Bank as well as domestic agencies on the country’s external debt management framework. These organizations and agencies have all recommended Vietnam to consider and adjust the country's external debt management policy and tools.

According to international experience, neither emerging markets apply a general ceiling to the country’s external debt ratio (including the public and private sectors), nor countries set a general ceiling for foreign loans of the private sector. Instead, they often apply management tools for each specific type of enterprise or organization.

What will basic public debt indicators be in 2021, sir?

- Under the State budget estimate in 2021 that the Government is submitting to the National Assembly for approval, if there are no major changes in capital market as well as exchange rate, it is forecast that the public debt would be about 46.1% of re-valued GDP by the end of 2021 (58.6% of GDP which has not been revalued), the government debt would be about 41.9% of re-valued GDP (53.2% of GDP which has not been re-valued) and the government’s direct debt payment obligation to budget revenue ratio could be more than 25% and it is necessary to apply measures to control the indicator.

In order to continue strengthening public debt management, what solutions will be focused on, sir?

- Firstly, to continue to improve institutions and policies on public debt management and implement proactive and consistent debt management tools in accordance with the goals of restructuring the state budget, public debt, and improving the fiscal space according to the orientation of the Politburo's Resolution No. 07-NQ / TW dated November 18, 2016, ensuring public debt safety and national financial security.

To raise capital to meet the need of balancing the budget for development investment with reasonable costs and risks; for domestic loans, to continue to diversify forms and terms of the Government’s loans to meet the need of investors.

To further promote the development of the domestic capital market and the government bond market in terms of width and to give priority to developing long-term investors and attracting foreign investors in the capital and bond markets.

For foreign loans, to make the most of remaining ODA loans and concessional loans; to focus on disbursing ODA loans and foreign concessional loans for signed agreements until the end of 2020, transferred to the 2021-2025 period.

Ministries, agencies and localities regularly urge the completion of domestic investment procedures to promote the negotiation and signing of new foreign loan agreements of the Government, ensuring timely capital mobilization for investment projects.

To improve efficiency of loan use associated with debt repayment liability. It is especially important to ensure the source to ensure timely repayment, to avoid overdue debts affecting the Government's commitments and the national credit rating. To carry out proactive debt management measures, repurchase and swap to expand the peak of high debt repayment liability in a number of years in order to extend the Government debt term.

In addition, to strengthen public debt management, control the state budget's debt obligations, foreign debts of enterprises and credit institutions with tools and policies in compliance with international practices and Vietnam’s current development conditions.

Thank you,

By Hong Van/ Huyen Trang

Related News

Removing difficulties in public investment disbursement

Removing difficulties in public investment disbursement

VCN - According to the report of the Investment Department (Ministry of Finance), the estimated disbursement from the beginning of the year to October 31, 2024 is VND 355,616.1 billion, reaching 47.43% of the 2024 plan, reaching 52.29% of the plan assigned by the Prime Minister.
The biggest challenges businesses are facing

The biggest challenges businesses are facing

VCN - Orders, cash flow, market information, loan approach... are still the difficulties when the Private Sector Development Research Board (abbreviated as IV Board) surveyed the business situation.
Accelerate implementation of solutions to disburse public investment capital

Accelerate implementation of solutions to disburse public investment capital

VCN - Facing the impact of storm No. 3 on economic growth, many experts continue to believe that public investment will play a key role in economic recovery and growth for the entire year of 2024. However, there is only one quarter left until the end of 2024. The target of disbursing at least 95% of investment capital is facing many difficulties.
Continue to publicly disburse public investment capital, many key projects have low rates

Continue to publicly disburse public investment capital, many key projects have low rates

VCN - The Ministry of Finance continues to publicize the disbursement rate of public investment capital plans of many key projects, notably that many projects and component projects have very low disbursement rates.

Latest News

Many factors affecting tuna exports in the last months of the year

Many factors affecting tuna exports in the last months of the year

VCN - Tensions between Israel and Iran escalate, tuna businesses are worried, they may have to stop export orders to the Israeli market in the last months of the year.
Vietnam still dominates Philippine rice import

Vietnam still dominates Philippine rice import

Vietnam continues to assert its dominance as the top rice exporter to the Philippines, with 2.91 million tonnes shipped as of the late October, or over 79% of the Philippines' total rice imports, according to the Vietnam Trade Office in the Philippines.
Vietnam cements ties with partners to engage in global semiconductor, AI industries

Vietnam cements ties with partners to engage in global semiconductor, AI industries

By boosting cooperation with reputable partners across the globe, Vietnam is taking steps to gain a foothold in the world’s semiconductor and artificial intelligence (AI) industries.
Aquatic exports expected to rise in year-end despite challenges

Aquatic exports expected to rise in year-end despite challenges

Aquatic exports is expected to surge in the remaining months of this year, as the year-end festive season comes, despite many challenges in the international markets, according to insiders.

More News

Trade Defense: The Key to Success for Vietnamese Businesses

Trade Defense: The Key to Success for Vietnamese Businesses

VCN - From losses and near bankruptcy, many domestic enterprises have recovered thanks to timely application of trade defense measures. Trade defense is also an effective shield for Vietnamese enterprises against a series of lawsuits from importing countries, thereby maintaining advantages and developing on "away grounds".
Lao Cai Customs sees a triple-digit surge in export-import turnover

Lao Cai Customs sees a triple-digit surge in export-import turnover

VCN - Updated from the beginning of the year to October 24, total import and export turnover through Lao Cai Customs Department increased by 102%.
Coconut is expected to become a billion-dollar export item

Coconut is expected to become a billion-dollar export item

VCN - Talking to the press at the ceremony to launch the first train carrying fresh coconuts to China, Mr. Luu Van Phi, Director of the Department of Industry and Trade of Tien Giang province, said that Vietnam's agricultural export potential, especially fresh coconuts, is expanding with the appearance of international railway transportation from Song Than station.
Plastic exporters interested in converting to recycling technology

Plastic exporters interested in converting to recycling technology

VCN - The Vietnamese plastics industry is facing major challenges in terms of plastic waste and recycling needs. Secretary General of the Vietnam Plastics Association Huynh Thi My (pictured) shared important information about the transformation in production of plastics enterprises to meet increasing export demands.
Logistics sector must embrace innovative trends to stay competitive

Logistics sector must embrace innovative trends to stay competitive

The Vietnamese logistics industry must adapt to new trends and enhance infrastructure to remain globally competitive, speakers said at an event in Ho Chi Minh City on October 31.
Vietnam’s agro-forestry-aquatic product exports likely to set new record

Vietnam’s agro-forestry-aquatic product exports likely to set new record

Vietnam’s agro-forestry-aquatic product exports are likely to achieve a record high of 62 billion USD in 2024, said Deputy Minister of Agriculture and Rural Development Phung Duc Tien.
UKVFTA greatly benefits Vietnam-UK trade: Experts

UKVFTA greatly benefits Vietnam-UK trade: Experts

The UK-Vietnam Free Trade Agreement (UKVFTA), signed into law three years ago, has clearly benefited trade cooperation between the two countries, particularly in the context of Vietnam’s exports to most other major markets declining due to geopolitical tensions and headwinds in the global economy, said experts at a conference in Hanoi on October 30.
Agricultural exports likely to exceed 60 billion USD amid challenges

Agricultural exports likely to exceed 60 billion USD amid challenges

With swift production recovery and continued growth, Vietnam's agricultural sector could potentially surpass the 60 billion USD export target, according to the Ministry of Agriculture and Rural Development (MARD).
Vietnam-Philippines trade likely to exceed 8 billion USD for first time

Vietnam-Philippines trade likely to exceed 8 billion USD for first time

With the current rising trend, trade between Vietnam and the Philippines is likely to exceed 8 billion USD for the first time to hit about 8.5 billion USD in 2024, with Vietnam’s surplus of more than 3 billion USD, according to the Vietnamese Trade Office in the Philippines.
Read More

Your care

Latest Most read
Many factors affecting tuna exports in the last months of the year

Many factors affecting tuna exports in the last months of the year

VCN - In recent years, Israel has always been Vietnam's leading tuna export market after the US and the EU. Therefore, the recent escalation of Israel-Iran tensions is affecting Vietnam's tuna exports to this market.
Vietnam still dominates Philippine rice import

Vietnam still dominates Philippine rice import

Vietnam continues to assert its dominance as the top rice exporter to the Philippines, with 2.91 million tonnes shipped as of the late October, or over 79% of the Philippines' total rice imports, according to the Vietnam Trade Office in the Philippines.
Vietnam cements ties with partners to engage in global semiconductor, AI industries

Vietnam cements ties with partners to engage in global semiconductor, AI industries

By boosting cooperation with reputable partners across the globe, Vietnam is taking steps to gain a foothold in the world’s semiconductor and artificial intelligence (AI) industries.
Aquatic exports expected to rise in year-end despite challenges

Aquatic exports expected to rise in year-end despite challenges

Aquatic exports is expected to surge in the remaining months of this year, as the year-end festive season comes, despite many challenges in the international markets, according to insiders.
Trade Defense: The Key to Success for Vietnamese Businesses

Trade Defense: The Key to Success for Vietnamese Businesses

VCN - From losses and near bankruptcy, many domestic enterprises have recovered thanks to timely application of trade defense measures. Trade defense is also an effective shield for Vietnamese enterprises against a series of lawsuits from importing countr
Mobile Version