Public debt is near ceiling limit

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In the period 2011 - 2016, the total value of ODA capital and foreign preferential loans reached more than $US 32 billion with a disbursement of $US 30 billion.

However, loans have increased rapidly and public debt is near the ceiling limit, which needs to be resolved immediately. Therefore, the modification of the Law on Public Debt Management is necessary.

Public debt increased by 14.8 times for 15 years

As reported by the Ministry of Finance, the Law on Public Debt Management was enacted in 2009 and took effect from 1^st January 2010, which created a legal framework at the highest level on public debt management. After more than 6 years of implementation, the Law on Public Debt Management has created a legal framework in line with the level of socio-economic development, mobilized resources for the State budget, investment and development, especially for the construction of infrastructure, contributing to improving the investment environment as well as promoting the economic growth of the country.

In particular, Vietnam has mobilized a large amount of ODA capital and preferential loans from foreign donors. In the period 2011 - 2016, the total value of ODA capital and foreign preferential loans reached more than $US 32 billion with a disbursement of $US 30 billion. That has contributed to investment in infrastructure and socio-economic development, as well as poverty reduction. In Vietnam, the Ministry of Finance has also mobilized capital for investment and development with total Government bonds of nearly one trillion vnd from 2011 to 2016 with an average growth rate of 34% per year, balancing the State budget and ensuring funds for investment in transport, irrigation, health, education, contributing to the development of the domestic capital market.

The management of public debt (including Government debt, guaranteed Government debt and local Government debt) is guaranteed within the safe limit approved by the National Assembly. By the end of 2016, public debt had been around 64.73% of GDP and Government debt had reached 53.62% of GDP. Accordingly, public debt has been strictly controlled to ensure safety.

The payment of foreign debt and domestic debt is guaranteed, not affecting the credibility of the Vietnam Government in the global financial market. Besides, in terms of macroeconomic stability, Vietnam has recently issued Government bonds with longer maturities and lower interest rates to reduce debt pressure in the short term and reduce loan costs.

In spite of achieving many positive results, the Law on Public Debt Management is currently facing a number of limitations. Since 2001 to date, public debt has tended to rise fast. Accordingly, public debt accounted for 36.5% of GDP in 2001, 40.8% of GDP in 2005, 50% of GDP in 2010 and 62.2% of GDP in 2015. Specifically, public debt at the end of 2015 was 2.3 times compared to 2010, 7.6 times compared to 2005 and 14.8 times compared to 2001. On average for 2011-2015, public debt increased with a rate of 18.4% per year. In addition, the management and allocation of loans mainly focus on programs and projects with public investment (about 44% of total investment for social development for 2011-2015), but Incremental Capital - Output Ratio (ICOR) was relatively high at 8.94 (compared to 9.2 in the period 2006-2010). Moreover, there have been a number of public projects which have to be paid by the Government, mainly in industry sector, transportation, shipbuilding, hydroelectricity, paper, agriculture, forestry, fisheries, manufacturing and processing, steel, chemicals, especially for major projects of Vinashin and Vietnam Paper Corporation.

Do not include SOEs debt in public debt

After a period of research and evaluation, the Ministry of Finance has completed the first draft of the Law on Public Debt Management to consult widely.

The draft has no changes in factors of public debt compared to the current Law. Accordingly, public debt includes Government debt, guaranteed Government debt and local Government debt. Specifically, the draft specifies that Government debt consists of debt issued by the Government including treasury bills, Government bonds and others; Government debt under loan agreements or contracts with the foreign Government and territories, international financial institutions and credit institutions in the country; and other loans including loans from State reserves, the State Treasury and other loans as prescribed by the Law.

Guaranteed Government debt consists of the debt of enterprises, financial and credit institutions which are guaranteed by the Government to implement programs and projects on the list guaranteed by the Government; and the debt of the State bank to implement the credit program of the State. Meanwhile, local Government debt includes: Debt from ODA loans, foreign preferential loans of the Government; loans from banks, the State Treasury and other liabilities in accordance with the Law.

One of the outstanding contents of this draft is to put on-lending of Government loans into a separate program with a number of adjustments and supplements compared to the current provisions in the Law. Specifically, the draft has supplemented and adjusted regulations on compensation of Provincial People's Committees for the deficit of the local budget for investment and socio-economic development in accordance with the State Budget Law. In terms of on-lending, the Vietnam Development Bank shall not have any credit risk, while financial and credit institutions are subject to credit risks. In particular, in the draft, the Ministry of Finance has proposed additional conditions on loans. Accordingly, financial and credit institution must be recognized by international credit organizations (including Standard & Poor's, Moody's and Fitch) to ensure the objectivity of on-lending for financial and credit institutions. For local authorities, the loans shall not exceed the debt limit and deficit of local budgets in accordance with the Law on the State budget.

More lending conditions in the new Public Debt Management Law VCN - The Ministry of Finance has completed and asked for comments on the draft of Public ...

The construction of the Law on Public Debt Management is expected to overcome the shortcomings and limitations over 6 years in the implementation of the current Law to ensure sustainable debt management, in line with socio-economic development of the country in the new period.