VietNamNet Bridge - The Ministry of Finance (MOF) has warned that the state budget will lack VND32 trillion this year because of the cap the State Bank of Vietnam (SBV) has set on the amount of government bonds commercial banks can buy.

The figure was released by an MOF representative at a press conference reviewing the national economy’s performance in the first quarter of 2015.

The same problem was reported by Deputy Minister of Planning and Investment Cao Viet Sinh, on behalf of the inter-ministerial taskforce on economic management, to the Prime Minister one week before.

To deal with the problem, MOF suggested cutting 10 percent of regular spending estimates for the other nine months of the year and issuing long-term international bonds to raise funds to restructure domestic short-term debts.

The ministry has requested SBV to lift the cap on the amount of government bonds that commercial banks can buy. Banks currently can use 15-35 percent of their short-term capital to buy government bonds.

In 2015, the government plans to issue VND250 trillion worth of dong bonds for government’s spending.

However, the National Assembly, when approving the 2015 state revenue and expenditure budget, decided that the government can only issue long-term, not short-term bonds, to cover expenditures.

Meanwhile, SBV, in an effort to tighten commercial banks’ investments in government bonds, decided to set up limits on the amounts of government bonds that commercial banks can buy.

The SBV’s decision has worried MOF’s officials, because commercial banks have always been the biggest buyers of government bonds for many years.

A report shows that 80 percent of issued government bonds were sold to commercial banks, and 2/3 of the bonds were short-term ones with high interest rates.

In 2013, short-term bonds (1-3 years) accounted for over 80 percent of the government bonds issued. In 2014, short-term bonds accounted for 52 percent of VND232 trillion worth of bonds issued.

SBV tells MOF not to rely on banks

The central bank had been firm with the MOF by saying that MOF would be better not to rely too much on commercial banks.

Governor of the State Bank Nguyen Van Binh noted that the proportion of government bonds that commercial banks buy has been increasing very rapidly in the last few years, from 30 percent, 40 percent, 60 percent to 80 percent last year.

Binh emphasized that commercial banks have more than enough money to take on all the VND250 trillion worth of bonds the government plans to issue this year. However, Binh noted that banks’ capital should be used for investment, production and business rather than for real estate projects and government bonds.

Pham Huyen