VietNamNet Bridge – When the National Assembly promulgated the Law on Public Debt Management in 2009, Vietnam’s public debt to GDP ratio was similar to other countries; however, that ratio has increased rapidly in recent years. Vietnam is faced with the question of how to ensure debt safety, as large or small scale debt does not matter as much as the ability to repay the debt does.


The belt highway 3, a project using Japanese ODA 




According to the Law on Public Debt Management, public debt includes Government debts, debts guaranteed by the Government, and debts of local authorities. Official data on public debt is held by the Department of Debt Management and External Finance under the Ministry of Finance. In the last two years, figures on public debt have been published in the debt newsletters of the Finance Ministry.

Under the NA report at the ongoing NA session, Vietnam’s public debt was posted at more than US$61 billion in 2012, accounting for 55.7% of GDP. According to the Government’s latest report to the NA, the country's public debt in 2014 surpassed US$85 billion, equivalent to 60.3% of GDP, and will climb to a highest ratio ever in 2016 at nearly 65% of GDP.

When the NA issued the Law on Public Debt Management in 2009, Vietnam’s public debt was 52% of GDP. The ratio increased to 56.3% in 2010 and 54.9% in 2011.

It is expected that the public debt will decrease in the 2016-2020 period and stay within the limit of 65% of GDP as approved by the NA in the strategy for loans and debt repayment. With the current economic difficulties, Government revenue cannot meet the demand for regular expenditure and investment, so 98% of the public debt is allocated to development investment projects. Public debt from domestic sources has also increased in recent years due to tightened lending conditions from foreign sources.

Public debt management is increasingly tightened

Nine years ago, the Government issued decree No.134/2005/NĐ-CP on November 1, 2005 on loans and debt repayment management. At that time, Vietnam’s public debt was mainly held in foreign loans, mostly from official development assistance (ODA) at long-term low interest rates. The total foreign debt was recorded at US$13.5 billion and the debt repayment, including principal and interest, was only US$612 million.

Amidst the acceleration of public debt to serve development demand, the NA promulgated the Law on Public Debt Management in 2009 that emphasised the rights and duties of the NA and Government on public debt management.

On July 27, 2014, the Government signed decision No.958/QĐ-TTg ratifying a strategy on public debts and national foreign debts in the 2011-2020 period and a vision to 2030, with the aim of mobilising capital at reasonable costs and risks, meeting the requirement for a balanced budget and socio-economic development.

How to ensure public debt safety?

When the National Assembly issued the Law on Public Debt Management in 2009, Vietnam’s public debt to GDP ratio was similar to other countries. Currently, the public debt to GDP ratio of the US and Japan has exceeded 100% and 200% respectively. Thus, how can Vietnam ensure the safety of public debts? Some countries with a public debt to GDP ratio of only about 30% are still not able to repay debts, leading to the risk of insolvency.

In 2014, Vietnam’s total loan repayment accounts for 26.69% of Government revenue. In 2015, loan repayment, including principal and interest, will account for 31% of total Government revenue in addition to the Government’s regular expenditure of 72% of revenue. With these figures, there will be no money from the Government income to pour into development projects. So, how can Vietnam tackle the public debt issue?

First of all, it is advisable to boost the national economy to increase Government revenue and boost export activities to earn more foreign currency for foreign debt repayment and for national foreign exchange reserves.

Vietnam should improve the structure of loans as it has become a middle-income country with fewer preferential loans and ODA. The Government needs to increase domestic loans with longer terms and lowered interest rates.

It is also necessary to manage public debt and debt repayment in accordance with the Government strategy towards ensuring macroeconomic stability and boosting the national economy. Enhancing the quality of public investment projects to avoid wastefulness is also a matter of concern. It is also recommended that a review of the Government’s currently too high regular expenditure be conducted, to save money for development investment and debt repayment.

Nhan Dan/VNN