Government bonds suck capital out of economy
Government bonds suck capital out of economy
The volume of government bonds issued by the State Treasury in the first five months of the year equaled the number issued for the entire year of 2013.
The Asian Development Bank’s (ADB) Asian bond report released on June 4 showed that Vietnam was the fastest-growing bond market in South East Asia in the first quarter of 2014.
The issuance of government bonds in large quantities has put Vietnam on the list of the fastest-growing newly emerging markets in East Asia with a growth rate of 23 percent compared to the previous quarter and 17.8 percent compared to last year, reaching a record-high of $35 billion, according to the report.
Analysts noted that government bonds had been selling well despite sharp falls in the bond yield.
In May, the Hanoi Exchange organised 19 bidding sessions, issuing VND15.749 trillion worth of bonds. Of this, the State Treasury issued VND15.549 trillion, while the Bank for Social Policies issued VND200 billion.
The two-year bond interest rates hovered around 5.58-5.7 percent per annum, while three-year bonds were at 6.07-6.2 percent per annum, three-year bonds at 7.1-7.6 percent, and 10 year bonds at 8.7 percent
According to the Hanoi Stock Exchange, the amount of bonds sold in the primary market in May increased by 19 percent over April, even though the interest rates of the three and five year bond term in May were lower.
The interest rates of the two- and 10-year bonds remained unchanged, but the amount of bonds sold was still higher.
The State Treasury has reported that VND96.704 trillion had been collected for the state coffers by the end of May, equal to the total bond value mobilized in the entire year of 2013.
The sharp increase in the volume of bonds issued, in the eyes of analysts, is ominous. This shows that the people’s idle money mobilized by commercial banks is flowing into state coffers. Instead, it should have been pumped into the economy to serve production and business.
Some analysts have warned that the national economy will fall into the “bond trap”. The capital is just “wandering around” while it does not serve economic development.
In account books, commercial banks mad profits from investments in bonds, while the government has fulfilled its bond issuance tasks.
But in fact, the national economy doesn’t have enough capital to develop.
Commercial banks have to inject their money into bonds because they cannot find capital lenders because of weak demand.
A report of the State Bank showed that credit had grown by 1.31 percent only by the end of May, despite the banks’ strong liquidity and low lending interest rates. Some commercial banks offer credit packages at very low interest rates of 4.8 percent only.
The growth rate is modest, far below the targeted 12-14 percent credit growth rate in 2014 set earlier this year by the State Bank.
Can Van Luc, a well known economist, noted that businesses do not want to borrow money now because they don’t intend to expand production as they still have to deal with high inventories.
vietnamnet
