Alarm at SOEs’ debt levels

Hanoi National Economics University’s Institute of Public Policy and Management Institute acting director Pham The Anh sheds some light to the issue.

Like businesses from other economic sectors SOEs can take loans and must repay the loans, hence their debt situation would not affect government public debt. True?

Pursuant to the Law on Public Debt Management, public debt only covers debts of the government, of local authorities and those debts guaranteed by the government.

However, the government very often has to support SOEs when they incurred losses and faced default, meaning that part of the state budget is used to pay for SOE debts. Let’s look at the case of Vinashin or several firms under the Construction Mechanical Engineering Corporation.

Consequently, easy lending, particularly bank loans, led to SOEs investing massively into non-core businesses. In many cases these investments were ineffective and bit back into state capital.

Therefore, in the study ‘Vietnam public debt: Past- present- and future’ we are carrying out under ‘order’ from National Assembly’s Economic Committee, we have proposed tighten control over SOEs’ debts to rein in public debt.

Local capital sources are finite whereas SOEs are starved of capital. Should the government stand to guarantee SOEs to raise capital in the international capital market?

Ministry of Finance figures show that government-guaranteed foreign debts of SOEs mounted to $4.642 billion in 2010, tantamount to 14.3 per cent of Vietnam’s total foreign debts against 6.6 per cent tantamount to $1.031 billion in 2006, meaning that public debt had grown at a break-neck pace in this five-year period.

The question is whether these loans have been effectively utilised and whether investment projects sourcing loans were in a position for debt repayment. If not, we must mull should we continue guaranteeing since this would make us hard to achieve the set targets of keeping public debt at less than 65 per cent of the GDP, government debts not more than 55 per cent and national foreign debts not more than 50 per cent of the GDP in recent prime ministerial Decision 958/QD-TTg.

Is Vietnam’s current public debt in the safety range?

By the end of 2010 Vietnam’s public debt equalled 57.3 per cent of the GDP, slightly falling to 54.6 per cent one year later but it was much more than 36 per cent level in 2001 and 44 per cent level in 2005.

The World Bank and International Monetary Fund assumed in the medium term Vietnam’s current public debt was still in the safety range. However, our studies reflect the safety threshold to Vietnam’s public debt is very sensitive and would break if some new adventurous and less effective investment projects were taken into account. Hence, we should be vigilant.

Would you shed some light on the proposal on setting up a specific public debt supervision body?

Parallel to the government’s body on public debt governance the MoF’s Department of Debt Management and External Finance, we propose the government establish a Committee on Public Debt Supervision belonging to the National Assembly’s Economic or Finance-Budgetary committee to effectively control public debt situation.

The committee will be liable to source all sorts of information relevant to public debt and foreign debts of ministries, sectors, localities and enterprises to render timely advices to the National Assembly.