The Prime Minister has told competent agencies to carefully appraise and limit Government credit guarantees for new projects, mainly carried out by State-owned enterprises, and consider halting those assurances next year.

To keep public debt at safe levels, the Prime Minister has ordered agencies to launch more checks on and improve management of loan use and submit updated reports on the projects whose loans are secured by the Government.

As for projects which rely on government-guaranteed loans but are inefficient, relevant agencies are required to inform the Prime Minister of causes and responsibilities of the parties concerned.

The Government will restrict capital disbursements from the country’s debt payment fund for projects if its investors can mobilize funds from other sources. Enterprises are told to actively find finances to fulfill their debt payment obligations and enter negotiations with lenders over debt rescheduling.

This year, the Government will scrutinize the approval process for credit guarantees for projects and suspend its loan guarantees for new projects next year to keep public debt at safe levels. The Prime Minister will consider special cases as suggested by relevant ministries and agencies.

At a meeting with State Audit of Vietnam last week, Vice Chairman of the National Assembly (NA) Phung Quoc Hien expressed concern over rising public debt, which had surpassed 62% of gross domestic product (GDP) by end-2015 and is forecast to peak in 2017-2018. Hien said debt payments had made up one-fourth of total budget collections.

A Ministry of Finance report revealed Government debt had reached 50.3% of GDP as of the end of 2015, higher than the ceiling of 50% approved by the legislature for the 2011-2015 period.

A recent report of the Vietnam Institute for Economic and Policy Research said Vietnam’s public debt burden is getting heavier with principal and interest payments swelling over the past years.

The institute quoted figures of the Ministry of Finance and the Asian Development Bank as reporting that interest payments by the State budget were put at VND83.4 trillion (around US$3.74 billion) last year, up from some VND68 trillion in 2014, VND48.1 trillion in 2013, VND39.8 trillion in 2012 and VND29.7 trillion in 2011.

Therefore, ministries are assigned to urgently implement the financial restructuring scheme approved by the Prime Minister for projects using government-guaranteed loans this year. The Ministry of Finance will tell investors to settle loans ahead of deadlines to clear the Government’s debt guarantee obligation for projects whose assets have been established but the investors have not placed them as collateral for the ministry as required.

The Ministry of Finance should work out measures to improve the role of debt management agencies to ensure rule compliance for the beneficiaries of government-guaranteed loans and take proper sanctions against debt payment violations.

The State Bank of Vietnam (SBV) is told to strictly supervise enterprises’ borrowing of offshore loans and solvency and ask the Prime Minister and the Ministry of Finance for approval to deal with cases beyond its authority. The ministry should work with the Ministry of Planning and Investment over forecasts of company borrowing and debt payment in 2017-2020 and add this to the country’s medium debt management plan.

The Prime Minister required close cooperation between the ministries of finance and planning-investment and the SBV in reviewing capital structures of foreign direct investment (FDI) firms. They should assess risks of the sector’s dependence on external loans and seek solutions to cope with capital shortages at big-ticket projects in Vietnam.

Earlier, the Ministry of Finance proposed the Government ponder offering guarantees for projects using offshore loans. The Government should send the National Assembly requests of State-owned groups including Vietnam Electricity Group (EVN) and Vietnam National Oil and Gas Group (PVN) for credit guarantees for big projects in line with the legislature’s resolution on investment in projects and programs of national significance.

A Ministry of Finance report showed government-guaranteed loans had neared US$26 billion as of 2015, with external debt accounting for 84% of the total. The loans have been used to finance projects in energy, oil and gas, and aviation. Many of the projects in paper and cement production and shipbuilding have failed to meet requirements for mortgaged assets.

SGT