Solutions sought to boost foreign investment in government bonds

Vietnam’s Government bond market needs to be made more appealing.(Photo: tapchitaichinh.vn)

In the first five month of 2018, foreigners bought VND1.5 trillion (US$65.9 million) worth of Government bonds in the primary market and VND3 trillion (US$131.85 million) in the secondary market. The figures were VND20.8 trillion (US$914.16 million) and VND12.6 trillion (US$553.77 million), respectively in 2016, and VND10.3 trillion and VND20.5 trillion in 2017.

In 2017, bond transactions involving the foreign sector accounted for less than 5.1% of the total value issued in the primary market. The figure was 6.1% in the secondary market.

However, a positive change was recorded in the rate of foreign ownership in the Government bond market, which increased from 4.5% in 2015 to 5% in 2017.

In 2016 and 2017, the Finance Ministry for the first time successfully issued approximately VND11.5 trillion (US$507.72 million) worth of 20-year and 30-year government bonds for fully-foreign-funded investors. The move reflected a demand for long-term investment from the sector.

According to Nguyen Thi Hoang Lan, Deputy Director of the Hanoi Stock Exchange (HNX), macroeconomic indicators are what foreign investors consider when they decide to pour their money into a nation.

That’s why Vietnam needs a stable and consistent macroeconomic policy, particularly in public debt management, she added.

Lan noted the Government should also offer investors instruments to prevent foreign exchange risks. The State Bank of Vietnam has allowed currency forward contracts, but their subjects do not include non-residents.

A currency forward locks in the exchange rate for the purchase or sale of a currency on a future date, and does not involve any upfront payment from the parties involved.

Macroeconomic policy on exchange rate and investment capital management, tax structure and stability in taxation are other factors when it comes to boosting foreign investment in Government bonds, Lan said.

She highlighted that the simplification and standardisation following international criteria of administrative procedures is also necessary.

Lean procedures facilitate both Government management and capital flow, thus increasing the competitiveness of the market, Lan said.

Infrastructure solutions and technical solutions that impact bond supply and demand should be taken into consideration, she added.

Head of the Finance Ministry’s Finance-Banking Department Phan Thi Thu Hien said to encourage foreign investment, the ministry is working to complete the legal framework for Government bond issuance with simplified procedures and better transaction fees.

To fulfill its goal, the ministry has stepped up cooperation with the World Bank and Asian Development Bank, she said.