VietNamNet Bridge - If Vietnam becomes insolvent, this will have serious implications for the national economy, not just for several years, but for a few decades, economists have warned. 

The additional report on the 2015 socio-economic situation submitted by the government at the latest session of the 13th National Assembly showed that Vietnam’s public debt has been increasing rapidly, putting Vietnam under pressure for repayment. The government’s debt has exceeded the permitted level. 

According to the Ministry of Finance, in 2015, the government’s direct debt payment accounted for 16.1 percent of the total budget revenue. In 2016, the accounts payable are estimated to account for 14.7 percent of the budget revenue. If including all obligations, such as the debt swap, the figure would be 24 percent.

Also according to the ministry, the repayment pressure would intensify in 2022-2025, when major ODA loans mature.

Dinh Trong Thinh, a lecturer of the Finance Academy, warned that the government’s debt has reached the “dangerous level’, especially foreign debt.

“Some people may think that Vietnam should borrow as much as possible to develop the economy. However, the problem is that Vietnam has borrowed too much in recent years,” Thinh said.

In 2015, the government’s direct debt payment accounted for 16.1 percent of the total budget revenue. In 2016, the accounts payable are estimated to account for 14.7 percent of the budget revenue.

“Vietnam’s foreign debts have exceeded the threshold recommended by international institutions. Meanwhile, the repayment capability is uncertain,” he commented.

In the past, Vietnam did not have to reserve much money for repayment because 70-80 percent of its loans are from ODA (official development assistance) with preferential interest rates, and the ODA loans were still in a grace period.

However, commercial loans have increased in recent years, while the grace periods of ODA loans are nearly finishing. 

Thinh urged to renovate the administrative procedures and tighten the budget spending, or it would become insolvent.

“If this happens, the consequences will be very heavy which will last not only for several years, but for several decades,” he said. 

“If Vietnam declares insolvency, Vietnam will not be able to continue borrowing money, while inflation and other problems will arise,” he said.

International donors have warned that they would stop granting ODA to Vietnam in several years as Vietnam is becoming an average income economy.

However, Thinh commented that this might not be a bad thing for Vietnam. “Once the government and businesses have to borrow money at higher interest rates, they will have to think carefully before borrowing and try every possible means to use the loans in the most effective way,” he said.

Vuong Dinh Hue, during his term as Minister of Finance, asked enterprises to save 10 percent of expenses when implementing projects.

Dat Viet