VietNamNet Bridge – Issuing local authorities bonds proves to be the only solution for localities now to cover the local budget deficit. However, this may be a big threat, according to experts.


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On January 3, 2013, the Vietnam News Agency reported that the Da Nang City People’s Committee issued local authorities bonds worth VND5 trillion.

In 2012, the state budget faced the overspending with the deficit by the end of November 2012 reaching US$6.2 billion,

Experts have pointed out that the Decree No. 01 in 2011 on the government bond issuance and the Circular No. 81 in 2012 by the Ministry of Finance have both accidentally generated a wave of issuing local authorities bonds as the methods to offset the deficits, despite the warnings about the possible threats.

A government’s report showed that VND68.292 trillion worth of government bonds were issued in 201, while the figure was VND80.447 trillion in 2011 and it is expected to reach 120 trillion dong in 2012.

HCM City, Da Nang and many other localities have proposed to issue local authorities bonds to raise money to spend on necessary things. It would be very dangerous if the race of issuing local authorities bonds does not aim to fund the policy implementation or the projects, but just aims to fill in the empty budgets to ensure the implementation of the GDP plan.

If bonds are issued just to make the budget full, the money would no more have the capability of creating new products through the investment and production process. As such, the money would lose its main function as the means for exchange, while it would get frozen, thus bringing damages to the national economy.

In another scenario, the money to be raised from bond issuance would be poured into public investments. This would bring some certain effects. However, if overly high amounts of money is poured into public investments, the investments from the private economic sector, a very important link of the national economy, would see its wings clipped, i.e. that the private investments would be blocked and would not be able to thrive.

A research work by Nguyen Tri Dung, the coordinator of the macroeconomic consultancy project of the National Assembly’s Economics Committee in 2000-2010, has found out that every one percent of the public investment increase would lead to the 0.48 percent decrease of private investment after one decade.

Besides, the possible public debt crisis should be seen as a high risk hung over the local authorities in case they cannot pay debts.

A report showed that by the end of 2011, Vietnam’s public debt had accounted for 55 percent of GDP, much higher than the average level of 30 percent in other Asian countries.

Once local authorities issue bonds in masses but cannot pay debts, the government would become the unwilling debtor. Therefore, worries have been raised about the decision to lift the ceiling public debts to 65 percent by 2015.

Analysts say Vietnam should learn the lesson from China.

In November 2011, the Chinese Ministry of Finance released a controversial decision on allowing two provinces Zhejiang and Guangdong and two big cities of Shanghai and Shen Zhen releasing 3-5 year local authorities bonds. However, in June 2012, the ministry had to released a decision to stop the bond issuance.

SGTT