VietNamNet Bridge - Investors have repeatedly voiced their concern about Vietnam’s public debt which has been increasing rapidly, and about the national default risk, according to Le Xuan Nghia, head of the Business Development Institute (BDI).

Investors have repeatedly voiced their concern about Vietnam’s public debt

Nghia said on Bizlive that the decrease in financial indexes in the last months of 2015 showed that Vietnam has experienced a short-term growth period and is now on the way to economic downturn.

However, he emphasized the decline will occur for a short time only, from the second quarter of 2015 to the end of the first quarter of 2016. Meanwhile, Vietnam’s economy will see growth in the long term, especially when growth is empowered by a series of free trade agreements (FTAs), including the TPP (Trans Pacific Partnership) Agreement.

It is expected that 2.5-3 million people would leave rural areas for urban areas in a so-called ‘second urbanization wave’, which would help improve low productivity.

The first urbanization wave helped productivity increase by 50-60 percent, while the second is believed to be even more impressive.

Nghia, however, emphasized that there are still two worrying problems: the increasing interest rates and exchange rate fluctuations.

While China, the US and Vietnam all have inflation rates of less than one percent, their interest rates are different. The highest interest rate in the US is 4.5 percent, while it is 4.3 percent in China and 11 percent in Vietnam.

It is expected that 2.5-3 million people would leave rural areas for urban areas in a so-called ‘second urbanization wave’, which would help improve low productivity.

This is attributed to Vietnam’s increasingly high bond yield: the government has been attracting big amounts of capital through bond issuance.

“The amount of money is limited. When the government attracts  the money, there will  not be much money left for businesses,” Nghia explained.

However, despite the high bond yield, it is still difficult for Vietnam to mobilize capital. It is because of the investors’ decline in confidence amid Vietnam’s high CDS (credit default swap).

“Greece fell into crisis when the CDS climbed to 320 points. Meanwhile, Vietnam’s CDS is 270 points and sometimes 300,” Nghia said.

“Investors are worried about Vietnam’s rapid increase in the public debt and the nation’s default risk,” he added.

The report of ADB (the Asian Development Bank) on funding infrastructure projects released at the 2015 Vietnam Development Partners’ Forum also showed the bank’s concern about Vietnam’s public debt.

Thoi Bao Kinh Te Viet Nam, quoting the report, said that while low-income economies see their public debt declining, Vietnam’s public debt has been increasing rapidly in recent years.

The public debt and government-guaranteed debt have increased twofold since 2000, now equal to 60 percent of GDP, higher than the average level in the region.