State Treasury controls amount of Government bonds flexibly and effectively

Capital mobilisation in 2019 achieved positive results. Photo: T.L

Mobilising sufficient capital needs for the State budget

According to the State Treasury, economic growth was stable; State budget revenue reached a high level and was expected to surpass the estimate. Meanwhile, the disbursement of capital construction investment in the first months of the year was not accelerated, as the remainder of the State fund in the last time was at a high level. In addition, borrowing demands of the central budget (to compensate deficit expenditure and pay principal debt) in the next years is high, increasing pressure for payment of debts for the State budget and risk of debt rollover.

Facing this situation, the State Treasury advised the Ministry of Finance on solutions to ensure the harmonisation of targets to mobilise sufficient capital needs for the State budget, save borrowing costs for the State budget, restructure the debt portfolio of Government bonds to harmonise debt repayment and extend the debt portfolio term.

The State Treasury has controlled the amount of issued Government bonds in keeping with market conditions, meeting demand on the Government's principal debt payment in accordance with the disbursement progress of capital construction investment and ensuring stability of the Government bond market. At the same time, the State Treasury has issued various types of Government bonds and focused on issuing Government bonds with terms of five years or more, increasing the amount of long-term bonds (from 10 years or more) to restructure the debt portfolio of Government bonds; regulated Government bond issuance rates flexibly and reasonably, closely followed the market and taken advantage of favourable market conditions to issue long-term bonds with low interest rates.

The State Treasury worked with Social Insurance and relevant units to issue Government bonds for Social Insurance. It also used temporarily idle funds for the central budget to advance the central budget to reduce issuance of Government bonds and save interest expenses for the central budget.

Capital mobilisation in 2019 has achieved positive results, meeting capital demand for the State budget and contributing to combining budget management with capital mobilisation.

According to the State Treasury, the average term of Government bonds issued in 2019 is 13.58 years (up 0.89 years compared to the end of 2018 of 12.69 years); The average term of the Government bond portfolio is 7.33 years (an increase of 0.50 years compared to 2018 of 6.83 years). The average interest rate of Government bonds issued in 2019 is 4.68 percent annually.

For bond investor structure, the rate of Government bonds held by social insurance, insurance companies, investment funds and financial companies by the end of November was 55.2 percent, higher than the 50 percent target for 2020 set by the Prime Minister in the Prime Minister's Decision No. 1191/QD-TTg approving the roadmap for developing for development of bond market.

Combining the effectiveness of budget management and issuance of Government bonds in 2018, the Ministry of Finance approved the use of VND 45,500 billion of State funds to advance for the central budget, contributing to saving VND 1,600 billion of interest expenses for the State budget. In 2019, the Ministry of Finance approved the advance of VND 56, 800 billion of State funds.

Issue new bond products

According to the State Treasury, in 2020, the State Treasury system will continue to improve the legal basis to create a framework for State budget management in a safer and more efficient manner and in keeping with international practices.

In 2020, the Government bond issuance will continue to be the main capital mobilisation channel of the Government. Capital mobilisation not only meets the demand for balance of the State budget but also promotes the development of the domestic capital market and restructures the Government bond debt portfolio in a safer and more sustainable manner.

To achieve these objectives, the State Treasury will issue Government bonds by bidding through the Hanoi Stock Exchange to accomplish the capital mobilisation targets assigned by the Ministry of Finance, ensuring compliance with regulations on term limits according to the National Assembly's resolution and targets on reforming the State budget and public debt in the direction of ensuring the sustainable safety of national finance.

The State Treasury will also continue restructuring the debt portfolio of Government bonds through the swap and buyback of Government bonds matured in 2020, 2011 and following years to harmonise debt repayment obligations, restrict risks in liquidity for the State budget, contributing to extending the debt portfolio term of the Government bonds .

The management of debt repayment cash flow will ensure harmonisation through the issuance of government bonds with interest payment term which is longer and shorter than the standard term of interest payment to extend peak debt at a number of future occasions, ensuring budgetary financial security.

The State Treasury will research and deploy new bond products, new operational activities; pilot issuance of standard bond codes and issue bonds to support liquidity for market makers.

Especially, budget management will combine with debt management through the use of temporarily idle funds to advance for the central budget, thereby supporting the task of raising capital and reducing debt repayment expenses for the central budget.