Legislation gives government flexibility for loan guarantees

Legislation gives government flexibility for loan guarantees

Vietnam's revised Law on Public Debt Management gives the government greater flexibility in granting loan guarantees, allowing the ceiling to rise above annual GDP growth and widening access to official development assistance (ODA) and concessional financing.

The government may flexibly administer the annual ceiling for government guarantees, allowing it to exceed the previous year's GDP growth rate. There are no restrictions on the type of economic actor, enterprise model, investment form, or investment sector eligible to receive government-guaranteed loans. This is one of the new provisions in the amended Law on Public Debt Management, which was passed by the National Assembly on the afternoon of December 10.

The revised law revises 24 out of 63 articles of the current Law on Public Debt Management. The draft law submitted for approval had been comprehensively reviewed to ensure consistency with related legislation, including the Law on State Budget, the Law on Treaties, the Law on Public Investment, the Law on Credit Institutions, and the Law on Corporate Income Tax.

These revisions aim to improve clarity in public debt management, unify the legal drafting format, refine definitions of treaties, loan agreements, and guarantee ceilings, and enhance transparency and usability.

One of the latest amendments authorises the government to flexibly determine the administration of the guarantee ceiling, in cases where the government guarantee limit may exceed the previous year's GDP growth rate.

The draft law also assigns the government to detail the process for formulating, approving, and publishing the annual public debt borrowing and repayment plan. At the same time, it streamlines administrative procedures for ODA-funded and concessional loan-funded projects by simplifying loan proposal requirements to accelerate access to these capital sources.

The process has been shortened by merging one step, the consultation and evaluation by the Ministry of Foreign Affairs and the Ministry of Justice, with consultations from relevant ministries and agencies for proposals to include treaties on ODA loans and foreign concessional loans.

Notably, the scope of eligible borrowers has been expanded to include central ministries, provincial people's committees, and state-owned enterprises. Compared with the original draft, the new provision is broader, allowing enterprises with more than 50 per cent state ownership to apply for loans. This is intended to enhance access to ODA and concessional financing.

To strengthen public debt data transparency, the Ministry of Finance will build a unified public debt database applying technological and digital transformation solutions, and issue monthly reports on public debt.

The draft law also clarifies transitional provisions to ensure continuity in implementing projects previously approved by the National Assembly under special mechanisms. In addition, it stipulates that income from government bond interest will be tax-exempt, applied uniformly to both domestic and foreign investors.

A government guarantee for a loan or bond issuance represents the government's commitment to the lender to fulfil debt obligations should the borrower fail to do so. In essence, the government bears the final and sole credit risk in the event of guarantee activation.

Therefore, the Law on Public Debt Management has increasingly refined the criteria for granting guarantees, strengthening credit-risk control, and ensuring public debt and national financial security.

The law does not restrict eligibility based on economic sector, enterprise type, investment form, or investment area. The condition that enterprises must not incur losses in the three most recent consecutive years according to audited financial statements, except for losses arising from State-mandated policies approved by authorities, is one of the fundamental criteria for assessing financial health and controlling credit risk to ensure public debt safety.

The law will take effect on January 1, 2026.

VIR