Govt sets up borrowing guidelines
Govt sets up borrowing guidelines
The government has set up borrowing guidelines amid rising concerns over increasing public debt and its impact on macro-economic stability.
According to a report by the Minister of Finance Mr Phouphet Kha mphounvong at a national conference recently, the government has set up four guidelines for borrowing money from local and international sources to ensure sustainable management of the pub lic debt.
According to the report, the government has set restrictions for central and local administrations on borrowing money for state investment projects which cannot generate revenue; for example, public road construction projects, public park development projects and public school construction projects.
The government will never borrow money for this type of state investment project if the amount required exceeds 25 percent of domestic revenue, while interest rates for such projects should not exceed 3 percent annually. The debt repayment period for the project should be more than 15 years, according to the report.
The report shows that the government has not set up any restrictions on borrowing money for state investment projects which can generate revenue; for example hydropower projects and the high speed railway as these projects can generate income to pay off their debts.
The report says that local and central administrations should never borrow money without approval from the Ministry of Finance. The ministry will play a central role in coordinating with the sectors concerned to establish borrowing for projects and submit the plans to the cabinet to consider and approve.
The government has assigned the Ministry of Finance to play a central role in developing legal documents on money borrowing and debt management to ensure that the public debt level stays below the international standard.
The value of public debt has seen a rapid increase over the past five years due to rising development demand. At present, public debt value is about 30 percent of GDP.
Despite this being below the international standard of 40 percent, it will exceed the acceptable level if the government does not introduce concrete measures to keep it under control.
The government has banned local authorities from proceeding with unapproved investment projects as one of the ways to keep debt under control, as economists expressed concern that uncontrolled debt would have a big impact on the macro economy.
The economists said that if the Lao debt exceeds international standards, the Lao macro economy will suffer a negative impact as the government would have difficulty in paying the debt off. The move would also cause problems for the government in managing inflation.
If the government cannot pay off the public debt, the private firms to which the government owes the money will find it difficult to survive as they will have no resources with which to run their businesses, and closures of large enterprises will result in major unemployment problems.
vientiane times
