World Economy

Vietnam Public Debt Exceeded $110b Last Year

Vietnam Public Debt Exceeded $110b Last YearVietnam Public Debt Exceeded $110b Last Year

Local economists have advised the Vietnam government to be extremely careful with spending because its public debt has reached a dangerously high level.

They raised their concerns after the World Bank early this week reported that Vietnam’s public debt exceeded $110 billion last year. The figure is higher than the government’s estimate of $84 billion, Thanh Nien News reported.

Economist Do Thien Anh Tuan said the government had its own criteria when calculating public debt, so he was not surprised to see the huge mismatch.

In its latest report to the national assembly, the country’s legislative body, the ministry of finance said public debt will hit the assembly’s limit set at 65% of gross domestic product in 2017. But after that the government will try to lower the ratio to 60.2% by 2020.

 Doubts Persist

However, Tuan doubted that the debt will ever reduce. “Even in the best scenario where the economy grows in a stable manner, Vietnam’s public debt will still go up.”

Tuan said to reduce public debt, the government will have to be able to deliver a budget surplus and save an amount of at least 1% of GDP every year. This is a “very difficult” task, considering that the state budget is always in deficit, he said.

The government in fact often asks the national assembly to let it overspend its revenues. In 2013 its budget deficit was equivalent to 6.6% of GDP, even higher than the limit of 5.3% previously approved by legislators.

Economist Nguyen Tri Hieu also forecasted that with its “current situation” Vietnam’s public-debt-to-GDP ratio will soon hit 65%, which he described as “a dangerous level.” The ratio was about 60.3% at the end of last year, according a government report.

 Lack of Fiscal Discipline

Vo Tri Thanh, deputy chief of the Central Institute for Economic Management, said the amount of public debt is not as important as a country’s capacity to repay debts and how effectively it could spend the borrowed money.

He said the government’s inefficient use of loans was reflected in the fact that its public spending has been exceeding targets since 2012.

On the other hand, the government has been issuing bonds overseas to refinance existing loans, which is a good solution in a short time, but will become risky in a long term, according to Thanh.

When new loans brought through bonds are not used effectively, the government will lose creditors’ trust and its future loans will face higher interest rates, he explained.

Last November the government issued 10-year sovereign bonds worth $1 billion in the global market for the first time in more than four years, at a yield of 4.8%. In April this year, the finance ministry advised the government to issue more bonds next year.

Tuan also agreed that refinancing with new bonds could cause problems in the long term, saying that it showed the government’s previous loans were not planned and used carefully, and that the government was having financial difficulties.