SOE debts too big to settle

SOE debts too big to settle

Debts owed by State-owned enterprises (SOEs) to both domestic and foreign creditors are too big for the Government to shoulder, especially at a time when public debts are posing a big headache.

This explains why the Government has just refrained from its earlier plan to seek the National Assembly’s approval for using part of the State budget to pay debts on behalf of SOEs.

The Ministry of Planning and Investment in a report on economic restructuring for submission to the NA had suggested that the State budget would cover part of the debts owed by SOEs. However, Deputy Prime Minister Vu Van Ninh last week issued a correspondence asking the ministry to drop that proposal.

The Government’s move is seen as an effort to soothe public concerns because the amount of public debts along has almost approached the upper limit of 65% approved by the lawmaking body.

Huge SOE debts

The Government in the past couple of years has had to lend a helping hand to several SOEs caught in bad debts. These include the US$600 million owed by the now-defunct Vinashin, tens of millions of U.S. dollars owed by Hanoi-based Housing and Urban Development Corp., and trillions of Vietnam dong owed by Dong Banh Cement.

A able proportion of debts is guaranteed by the Government, according to the Public Debt Bulletin No. 2.

In this newsletter, two economic experts Dinh Tuan Minh and Pham The Anh calculated that the total amount of debts underwritten by the Government as of the end of 2013 was VND342 trillion, equivalent to 11.6% of gross domestic product. Debts owed to foreign creditors with Government guarantees were equivalent to 5.1% of GDP, while the rest were debts owed to local lenders.

Meanwhile, as of end-2012, debts owed to foreign creditors without Government guarantees had been equivalent to 11.4% of GDP.

In another report submitted by the Government to the National Assembly in end-2013, the amount of debt owed by SOEs totaled nearly VND1,700 trillion, or over US$80 billion, as of the end of 2012. Of this amount, debts owed by wholly State-owned enterprises were nearly VND1,550 trillion, equivalent to 52.5% of GDP then.

Conglomerates the key debtors

Above-mentioned debts are for the most part owed by State conglomerates, according to the Ministry of Finance.

There are only 105 State groups and conglomerates, but these corporations face up to VND1,350 trillion of debts payable, accounting for 80% of the total amount of debts borne by the State sector, according to the ministry.

The Government also had to use as much as VND12 trillion to pay banks as compensation for interest rate subsidies. These banks are key lenders for SOEs.

Meanwhile, many State groups in previous years have been reluctant to fulfill their obligations to the State budget for profits and dividends from their investments.

In end-2013, the Government issued a decree, ordering SOEs to pay to the State budget financial obligations from profits and dividends. The amount collected in the January-September period of this year was VND32.5 trillion, but a big question mark remains as to who have benefited from such amounts in the years prior to the decree issuance.

Given the somber picture of debts owed by SOEs, many officials and experts have voiced concerns about any plan to use the State budget to pay such debts.

As covered in local media, the Ministry of Planning and Investment in a report signed by the minister proposed that the legislative body approve a sum from the State budget to help SOEs settle bad debts. However, the Government has responded swiftly, asking the ministry to drop the proposal.

vietnamnet