VietNamNet Bridge - The government has instructed the State Bank of Vietnam to work with relevant ministries to design a mechanism to lend money from national foreign exchange reserves to the government to serve spending.

 

Borrowing money from foreign exchange reserves was a solution put forward at the April government meeting. 

The resolution released after the meeting said the lending of money from the national foreign exchange reserves aims to provide more capital for investment development and to ensure the nation’s financial and monetary security.

The idea of borrowing money from the foreign exchange reserves was put into discussion amid a warning about the lack of money for government spending in 2015.

In fact, the Ministry of Finance (MOF) fulfilled 34.5 percent of the yearly tax collection plan in the first four months of the year, an increase of nine percent in comparison with the last year’s same period. 

However, the revenue from crude oil exports, which makes up a large proportion in total revenue, decreased sharply by more than 30 percent.

Most recently, MOF’s Vice Minister Vu Thi Mai at an official meeting with relevant ministries, expressed her worry about the difficulties in implementing the government bond issuance plan.

MOF recently reported the failure of government bond bidding sessions with very small percentages of bonds sold. 

Mai warned that Vietnam needs to seek sources of revenue for the state budget from different sources rather than relying on tax collection, which is forecast to decrease as a result of free trade agreements (FTAs).

While all possible revenue sources are limited, the foreign exchange reserves, which have been high in recent years, are believed to be the ideal alternative source that can provide money for the government’s spending.

A report from the State Bank showed that foreign exchange reserves have reached $35 billion.

Commenting about the suggested solution, Dr. Nguyen Tri Hieu, a renowned banking expert, said he could see both positive and negative impacts on the national economy.

He noted that borrowing money from foreign exchange reserves is the method many countries use when they lack money. The State Bank can lend money to the government to disburse expenditures for investment and development.

However, Hieu warned of two problems.

First, once the State Bank lends money, the foreign exchange reserves will be smaller. This may cause difficulties for the State Bank in case it needs foreign currencies to intervene in the market when necessary.

The current foreign exchange reserves are big enough to pay for three-month imports. However, according to Hieu, this is just “sufficient”, not “abundant”.

Second, the borrowing will add to the public debt burden.

Dat Viet