The government will not lift the public debt ceiling but will tighten its financial discipline to develop enterprises and further attract social investment to create the resources needed for reform and socioeconomic development.

Lifting the ceiling would affect the country’s loan repayment capacity, Deputy Prime Minister Vuong Dinh Hue told the National Assembly (NA)’s second session on October 20.

To maintain safety, “Vietnam has to control public debt to no more than 65 per cent of GDP, government debt to no more than 55 per cent, and national foreign debt to no more than 55 per cent, to 2020,” he said at the team discussion on economic development.

Many proposals in regard to raising the public debt ceiling have been forwarded to the government to open up space for investment and development. Deputy PM Hue insisted, though, that the ability to repay debts is much more important than setting a ceiling.

Following international practice in limiting debt repayment obligations over national budget collections at 25 per cent is facing a host of difficulties. In 2015 the rate was 27.5 per cent, including debt repayment and borrowings to roll over debts.

Vietnam’s public debt is among the top issues on the government’s agenda as it has already crossed the line set by the NA of 65 per cent of GDP. At the end of 2015 public debt stood at 62.2 per cent of GDP, government debt 50.3 per cent, and national foreign debt 43.1 per cent, according to a World Bank report.

In a report released last month the Ministry of Planning and Investment (MPI) issued a warning that the risk of public debt climbing beyond the ceiling was becoming “more apparent”. In its report on public debt management during 2016-2020, the government proposed increasing the debt ceiling from 50 per cent to 55 per cent of GDP.

The NA Finance and Budgetary Committee, however, said that because the State budget still faces difficulties and national financial security hasn’t been firm enough, a rate of 53 per cent could be considered but it should be reduced to 50 per cent by 2020.

The government has made commitments to ensure public debt sustainability and to rebuild fiscal buffers. “It is important that this commitment is now followed through with concrete actions to balance the budget over the medium term,” the World Bank’s lead economist in Vietnam, Mr. Sebastian Eckardt, told a July meeting. “Efforts to rein in fiscal imbalances will have to be balanced with reforms to create fiscal space to maintain investments in critical infrastructure and public services.”

VN Economic Times