VietNamNet Bridge - The Central Institute of Economic Management (CIEM) said that government debt of VND30 trillion to the State Bank of Vietnam (SBV) put pressure on monetary policy.

The loan was mentioned in CIEM’s report about the national economic performance in the third quarter of 2015. 

How the government, which has borrowed money from SBV and Vietcombank, a commercial bank, will pay the debt is a question raised by Nguyen Anh Duong, deputy head of CIEM’s Macroeconomy Division.

“The government has borrowed from the central bank and commercial banks. In the third quarter, it borrowed VND30 trillion from SBV. A question has been raised about how it will pay the debts when the year nearly ends?” he said.

“Will this help develop the monetary market, or will the government have to issue bonds?” he continued.

Duong pointed out that the credit growth slowed down in the third quarter in comparison with the second quarter since commercial banks were cautious amid the bad debt and interest rate pressure. 

The dong/dollar exchange rate has been fluctuating due to factors outside the national economy, including the Chinese yuan devaluation.

Vietnam’s exports grew slowly in the third quarter, with export turnover increase obtained thanks to the higher export volume. The trade deficit was $0.9 billion in the third quarter, thus raising the total trade deficit to $4.3 billion this year.

However, the state budget deficit has not put pressure on the dong/dollar exchange rate.

The biggest challenge for the national economy now is the pressure from the fiscal policy. The public debt has nearly hit the ceiling set by the National Assembly (65 percent of GDP), while the state lacks money to disburse development projects.

In principle, to be able to pay debts, the government will have to increase its revenue. However, if it tries to increase revenue from tax collections, it will place a burden on businesses which have suffered heavily from economic recession.

The government can issue bonds to mobilize capital from the public, but it now finds it difficult to issue long-term bonds. It is easier to issue short-term bonds, but the debt payment pressure will be heavy.

“In 2012-2013, the government issue short-term government bonds in large quantities. It borrowed money when the year began and had to pay debts when the year finished, which put pressure on the state budget,” Duong said.

According to Duong, there are three problems in fiscal policy: strict discipline in expenditure and investment has not been followed; no debt payment plan has been figured out; and the private sector does not sufficiently favorable conditions to make investments.

Tri Thuc Tre