Vietnam’s public debt may reach 95% of GDP

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vietnam dongIf counting on the state owned enterprises’ (SOEs) loans not guaranteed by the government, the total public debt of Vietnam would be 95 percent of GDP, far exceeding the safety line of 60 percent of GDP, VietnamNet reported.

A report by National Assembly’s Economics Committee released on November 22, titled “Thach thuc con o phia truoc” (Challenges are still ahead) showed that by the end of 2012, Vietnam’s total public debt had reached 55.4 per cent of GDP, of which the foreign public debt and domestic public debt had been 29.6 per cent and 25.8 per cent, respectively. The figures were 54.9 per cent, 30.9 per cent and 24.0 per cent in 2011.

However, if counting on the foreign debts of enterprises, mostly SOEs, not guaranteed by the government, the SOEs’ bank debts, the debts in bonds, the total public debt of Vietnam would be 95 percent of GDP, which is really a threat to the Vietnam’s public debt sustainability.

Under the Public Debt Law, the above said debts are not counting on as the national public debts. However, the fact that the government comes forward and guarantees for Vinashin to issue $600 million worth of international rollover bonds and VND12 trillion worth of bonds in Vietnam (Vinashion’s loans were not guaranteed in the past) shows that experts have every reason to give the warning.

While the public debt has been increasing, the cash flow from credit institutions has been running within the finance system when banks spend money on government bonds instead of flowing out to the production sector.

The report has pointed out that the cash flow that got stuck in the system has been used by commercial banks to buy other valuable assets, such as government bonds or state bank bonds. Though the assets bring lower profits, but they are safer.

The primary government bond market’s scale has been expanding rapidly. The total value of bonds issued and guaranteed by the government in 2012 was roughly $10 billion. The government issued bonds was equal to 85 per cent of that in 2011.

As a result, the capital flow has been allocated in ineffective way. The capital has been flowing to the public sector through the government bond issuance, instead of the private economic sector through the lending to fund production.

This may bring high risks to the public debts, lead to the dominance of the public investment over the private investment and may lead to the ineffective allocation of resources. All analysis works have pointed out that the quality and the productivity of the private investment deals are far higher than that of public investments.

The state budget expenditure has been increasing, which explains why the budget deficit in 2012 was still at 4.8 per cent (it was 4.7 per cent in 2011). The budget deficit ceiling has been raised to 5.3 per cent for 2013.

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Reading Time: 2 minutes

If counting on the state owned enterprises’ (SOEs) loans not guaranteed by the government, the total public debt of Vietnam would be 95 percent of GDP, far exceeding the safety line of 60 percent of GDP, VietnamNet reported.

Reading Time: 2 minutes

vietnam dongIf counting on the state owned enterprises’ (SOEs) loans not guaranteed by the government, the total public debt of Vietnam would be 95 percent of GDP, far exceeding the safety line of 60 percent of GDP, VietnamNet reported.

A report by National Assembly’s Economics Committee released on November 22, titled “Thach thuc con o phia truoc” (Challenges are still ahead) showed that by the end of 2012, Vietnam’s total public debt had reached 55.4 per cent of GDP, of which the foreign public debt and domestic public debt had been 29.6 per cent and 25.8 per cent, respectively. The figures were 54.9 per cent, 30.9 per cent and 24.0 per cent in 2011.

However, if counting on the foreign debts of enterprises, mostly SOEs, not guaranteed by the government, the SOEs’ bank debts, the debts in bonds, the total public debt of Vietnam would be 95 percent of GDP, which is really a threat to the Vietnam’s public debt sustainability.

Under the Public Debt Law, the above said debts are not counting on as the national public debts. However, the fact that the government comes forward and guarantees for Vinashin to issue $600 million worth of international rollover bonds and VND12 trillion worth of bonds in Vietnam (Vinashion’s loans were not guaranteed in the past) shows that experts have every reason to give the warning.

While the public debt has been increasing, the cash flow from credit institutions has been running within the finance system when banks spend money on government bonds instead of flowing out to the production sector.

The report has pointed out that the cash flow that got stuck in the system has been used by commercial banks to buy other valuable assets, such as government bonds or state bank bonds. Though the assets bring lower profits, but they are safer.

The primary government bond market’s scale has been expanding rapidly. The total value of bonds issued and guaranteed by the government in 2012 was roughly $10 billion. The government issued bonds was equal to 85 per cent of that in 2011.

As a result, the capital flow has been allocated in ineffective way. The capital has been flowing to the public sector through the government bond issuance, instead of the private economic sector through the lending to fund production.

This may bring high risks to the public debts, lead to the dominance of the public investment over the private investment and may lead to the ineffective allocation of resources. All analysis works have pointed out that the quality and the productivity of the private investment deals are far higher than that of public investments.

The state budget expenditure has been increasing, which explains why the budget deficit in 2012 was still at 4.8 per cent (it was 4.7 per cent in 2011). The budget deficit ceiling has been raised to 5.3 per cent for 2013.

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