Increasingly high public debts put hard pressure on fiscal policies

Aug 16th at 12:36

16-08-2012 12:36:35+07:00

Domestic and international experts have both affirmed that the current public debt of Vietnam is still within the safety line. However, experts believe that the public debt is marching close towards to the ceiling public debt threshold allowed.

The National Assembly has decided that the public debt must be lower than 65 percent of GDP by 2015. One would sigh with relief when realizing that the current public debt ratio is still below the ceiling.

However, he should be informed that the public debt has been increasing, which would threaten the national economy development in medium and long terms, and put a hard pressure on the fiscal policies the Government plans to implement to push up the economic growth.

Budget deficit worryingly high

According to the Ministry of Finance, the trade deficit has been hovering around 4-6 percent of GDP over the last 10 years.

Experts believe that the situation would not be improved in 2012, because the income sources of the state budget are getting limited, while the budget spending would not decrease.

Under the government initiated programs to support businesses, some kinds of taxes and fees would be exempted or reduced. Meanwhile, there are many unprofitable businesses in 2012 would not have to pay tax.

In the first seven months of the year, the State collected 363 trillion dong in tax, or 49 percent of the yearly estimates, which was even lower than the 386,800 billion dong of the same period of the last year.

Meanwhile, the budget spending had reached 50.3 percent of the yearly plan by mid-July. Especially, the disbursement for the public investment projects in the last six months of the year is expected to be 50 percent higher than that in the first six months.

If the situation cannot be improved, and if the GDP grows by 5-5.5 percent as predicted by many economists, it would be impossible to curb the budget deficit at less than 4.8 percent as targeted.

The seeds of public debts

Though Vietnam’s public debt remains safe, it has been increasing steadily year after year due to the prolonged budget deficit. In 2009, Vietnam’s total public debt was equal to 52.6 percent of GDP. Meanwhile, the figure soared to 58.7 percent in 2011.

However, the biggest latent risk for Vietnam is not the debts written down in books. It is the bad debt incurred by state owned enterprises (SOEs), which should be seen as the germ, threatening the public debt security. The SOEs may not be able to pay debts, which means that the State would have to come forward and pay the debts for the enterprises.

The SOE restructuring plan drafted by the Ministry of Finance in 2012 showed that the domestic debts of SOEs have nearly reached 16.5 percent of GDP. As such, if counting on the figure when calculating Vietnam’s total public debts, one would see that the total public debts have far exceeded the safety line of 65 percent of GDP.

The second threat comes from the debt payment deadline of domestic loans. It is estimated that 88.7 percent of the government bond debts and the government-guaranteed bonds have the terms of 2-5 years.

This means that Vietnam would have the responsibility of paying big domestic debts within a short time in the near future (roughly 4-5 billion dollars a year in the next four years).

In 2013, about 65,400 billion dong worth of bonds would become matured, which have the average interest rate of 11.12 percent per annum. The figures would be 67,700 billion dong and 10.93 percent per annum, respectively for 2014, and 68,800 billion dong and 10.72 percent for 2015.