The Ministry of Finance (MOF), which is drafting a decree on public debt management, plans to remove the policy on giving government guarantees for loans from financial institutions.

 

Under current law, the government can act as a guarantor for those who borrow money from other institutions, including businesses in all economic sectors (but in reality, only state-owned enterprises can receive the favor); finance & credit institutions; and the Bank for Social Purposes and Vietnam Development Bank.

Truong Hung Long, head of the MOF’s Debt Management and External Finance Department, said the public debt had nearly hit the ceiling set by the National Assembly. Therefore, it is necessary to tighten borrowing.

The ministry is collecting information to review the three-year implementation of the Public Debt Management Law. It is expected that a report on the issue would be submitted to the Prime Minister by the third quarter, in which the changes would be suggested.

It is highly possible that the government would maintain the granting of guarantees for non-commercial banks, including the Bank for Social Purposes and Vietnam Development Bank.

A government report to the National Assembly released in October 2014 showed that the public debt has been increasing rapidly, approaching the safety line of 65 percent of GDP.

It is estimated that the public debt would be equal to 60.3 percent of GDP by the end of 2014 and 64 percent of GDP by December 31, 2015. The number of loans received under the government’s guarantee have been increasing by 50 percent per annum.

In 2014, the government acted as the guarantor for institutions to borrow roughly VND500 trillion, and the figure is expected to increase to VND642 trillion in 2015.

MOF did not give details about the loans the government has guaranteed. However, analysts noted that the guarantee has been given mostly to bank loans provided to fund large-scale projects, especially power plant projects.

In August 2014, for example, the government acted as the guarantor for a credit package worth $157 million LienViet Post Bank provided to Vietnam- Laos Power JSC which is developing the Xekaman 1 hydropower project.

If the buyer cannot pay the debt, the government will have to come forward and pay the debt for it.

According to MOF, if the government stops giving guarantee for finance institutions, it will be able to gather strength on national key projects, while helping slow the public debt increase.

MOF is drafting a medium-term program on issuing government bonds in the international market with an aim to strengthen the mobilization of long-term capital and restructure short-term loans, minimize costs and diversify capital mobilization for investment and development.

TBKTSG