The move, as commented by analysts, aims to get more money for the state’s spending.

The Ministry of Finance (MOF) warned that the state is lacking money for expenditure due to sharp falls in revenue from tax collection. 

Meanwhile, it is difficult to raise funds through government bond issuance because commercial banks, which are the main buyers, can now buy government bonds within the limit.

Treasury bills are short-term, less than one year, bonds. Government bonds are long-term (more than one year) securities.

To implement the plan, the State Treasury last Monday called for bids for VND3 trillion worth of 13-week (91-day) bills and VND3trillion worth of 26-week (182-day) bills.

The bills were issued under the form of book entry, deposited at the Vietnam Securities Depository Center and listed at the Hanoi Stock Exchange. The principal of the bills will be paid once when they mature. 

Nearly half of the bills called for tender have been sold to commercial banks and finance institutions at the interest rate of 4 percent per annum and 4.8 percent for 13-week and 26-week bills, respectively.

MOF had to raise funds for state spending when the other two sources for capital mobilization were narrowed.

The National Assembly’s Resolution No 78 stipulates that from 2015 the government can only issue long-term government bonds (five years or more), while it cannot borrow money in the short term to offset state budget overspending.

Meanwhile, the State Bank has set up limits for commercial banks in investments in government bonds. 

The State Bank’s Circular No 36 stipulates that state-owned banks can use no more than 15 percent of their short-term capital to buy government bonds. 

The limits are 35 percent for joint stock, joint venture and 100 percent foreign owned banks, 15 percent for foreign bank branches and 5 percent for non-bank credit institutions.

Resolution 78 and Circular 38 both have led to sharp falls in the capital mobilized for the state budget. An official report showed that only 1/3 of the VND250 trillion capital mobilization plan has been implemented this year. 

An MOF official said that the bond issuance plans had failed completely in some bidding sessions with no bonds in dong sold. 

He said the Treasury has accepted to pay higher interest rates for bonds of different terms, to make bond bidding sessions more successful. 

TBKTSG