Bonds funds diverted from new projects

Phung Quoc Hien, chairman of the National Assembly (NA)’s Finance and Budget Committee said it was vital to avoid pumping money from the sale of government bonds into new projects in 2011.

It was also critical that the government did not provide capital for projects which did not meet investment criteria, he said.

“In 2011, the NA will allow the issue of VND45 trillion ($2.3 billion) in government bonds. This is down 20 per cent year-on-year, and priority will now be given to transportation, irrigation, education and health care projects, especially in poor and difficult areas. We will also place a high value on projects likely to be finished in 2011-2012,” Hien noted.

The NA’s Finance and Budget Committee also stressed the government should not use proceeds from bonds to invest in 40 new infrastructure projects. The government earlier asked the NA to invest VND29 trillion ($1.48 billion) from government bonds in 35 transportation projects and 5 irrigation projects.

“However, with the total cost of approved projects and the current annual bond issuance level of VND45 trillion over the next five years, proceeds from government bonds will only meet 60 per cent of  demand for these future projects,” said Hien.

“Therefore, investment in new projects will only lead to an increase in the number of unfinished projects and this will have a negative impact on the capital usage efficiency,” he added.

“I totally agree with the NA’s Finance and Budget Committee’s decision to limit expenditure from government bonds,” said Le Dang Doanh, former director of the Central Institute for Economic Management (CIEM).

Doanh said that although Vietnam now enjoyed middle-income country status, with average per capita annual income coming in at roughly $1000 per capita, the public spending to gross domestic product (GDP) ratio was much higher than in other high-income countries.

“Currently, the government is spending more than it receives from government bonds and this has put a lot of pressure on the local capital market with enterprises having to work even harder to mobilize public capital,” Doanh told VIR.

A recent report by the NA’s Finance and Budget Committee showed the adjusted investment capital of projects using capital sourced from government bonds rose to VND558.6 trillion ($28.6 billion) in the period 2003-2010. This was a 226 per cent rise against the initially approved VND246.4 trillion ($12.6 billion).

Most projects adjusted total investment capital to higher than approved levels. Some tripled or quadrupled their capital while others multiplying the figure by up to 10 times, said the report.

“Projects like Thang Long Boulevard and Le Van Luong Road extension where costs increased many times due to repairs are prime examples of state budget waste,” Doanh said.