MPI suggests raising public debt ceiling to 68% of GDP

MPI suggests raising public debt ceiling to 68% of GDP

The Ministry of Planning and Investment (MPI) has suggested raising the the average public debt for 2014-2020 to 68 percent of GDP from the current level set by the National Assembly at 65 percent.

Official reports show the public debt has reached 64 percent of GDP, just under the threshold of 65 percent of GDP. This has raised concern among the public that the government debt is “in danger”.

However, if the ceiling public debt is lifted to 68 percent, the situation could be described in another way.

The Policy & Development Institute, an arm of MPI, has suggested a new ceiling for the public debt.

After analyzing the relationship between the public debt and Vietnam’s economic growth from 1995 to 2013 and realizing that the ratio of public debt of GDP is small or no more than 68 percent, the institute said the public debt has had a positive impact on economic development and the sustainability of the fiscal policy.

When the ratio was higher than 68 percent, the public debt hindered development, and threatened debt payment and the public debt’s safety.

Commenting about Vietnam’s government debt, Minister of MPI Bui Quang Thu said at a workshop on public debt management on November 13 in Hanoi that “the insolvency risk is low, but there are many latent risks, which indicates that it could be unsustainable”.

Thu cited several reasons to prove his point.

First, the domestic debt is bigger than the foreign debt, which accounts for 50.99 percent of the total public debt, while the proportion has tended to increase. Though the majority of the domestic debt is short term, solvency is within reach.

Second, foreign debt is on the decrease, while the debt has a very low risk if compared with the safety standards set by the International Monetary Policy (IMF) and the World Bank (WB).

Third, the ratio of public debt of GDP, if calculating in accordance with the Public Debt Management Law, was 54.2 percent in 2013 and 59.9 percent in 2014 (estimated).

The figures, if calculated in accordance with the principles suggested by the research team, would be 61.28 percent in 2013 and 65.2 percent in 2014. All the figures are within the safety line drawn up by the government – 65 percent of GDP.

And fourth, the national credit ratings on dong, foreign currency and debt ceiling given by Fitch Ratings, Moody’s and S&P are at BB- and B1 with stable outlook. This means that risks still exist, but the public debt is still “safe” and there is no sign of a public debt crisis.

Meanwhile, Dr. Le Xuan Nghia, a renowned economist, commented that the problem does not lie in the ratio of public debt of GDP, but in the efficiency of the public debt use.

“No need to worry about public debt if we borrow money at the interest rate of 3 percent and we can make a profit of 5 percent,” Nghia said.

vietnamnet