Debt weighing heavily on nation’s shoulders

At the end of 2010, global public debt was equivalent to 70 per cent of the world’s gross domestic product.

The sovereign debt of developing and emerging countries equalled only 37 per cent of GDP, while the ratio for developed economies was nearly 100 per cent, according to the International Monetary Fund (IMF).

While the Group-7 most developed economies remained relatively stable despite seeing very high public debt levels, some countries with similar scales of sovereign liability such as Greece, Ireland and Portugal have plunged into public debt crises because of their poor management of public debt. This indicates features of public debt and capability to manage public debt are top reasons behind defaults, not scale of debt.

Among developing and emerging economies Vietnam has a pretty large sovereign debt which is on an accelerated upward trend due to the budget deficit and borrowings for investment.

Vietnam’s budget deficit was less than VND10 trillion ($483 million) in 2006 or 0.9 per cent of GDP. It more than doubled in 2007 and saw an eight-fold increase in 2009. The budget deficit to GDP ratio in 2010 was 3.03 per cent, down from the 4.51 per cent of 2009.

To serve its spending surplus, Vietnam resorted to domestic and foreign loans. Since the majority of its debts are used for non-profit purposes, repayment of principal relies on new loans. Thus, Vietnam faces a national debt spiral.

The Ministry of Finance (MoF) reported that Vietnam’s total public debt was 33.8 per cent of GDP in 2007. It was 36.2 per cent in 2008, 41.9 per cent in 2009 and 56.7 per cent in 2010.

Of this total, foreign debt hit $32.5 billion by the end of 2010 or 42.2 per cent of GDP, up $4.6 billion against 2009. The figure included $27.9 billion woMarket liquidity also improved, indicating buyers were returning. On August 19, 30 million shares changed hands, compared to 15-20 million the previous week. 

rth of loans taken by the government and $4.6 billion worth of government-guaranteed loans taken by local companies.

The 2010 tally of foreign debt almost doubled the $15.64 billion recorded five years ago in 2006.

Estimates for the end of 2011 put Vietnam’s total public debt at VND1,375 trillion ($66.43 billion) or 58.7 per cent of GDP.

The MoF also reported that Vietnam’s foreign reserves in 2010 equalled only 187 per cent of its total outstanding short-term debt, far lower than the 290 per cent in 2009.

In 2010, the country repaid nearly $1.7 billion worth of principal, interest and commission to its creditors, up nearly 30 per cent against 2009.

Vietnam’s sovereign liabilities will peak in 2020 to hover at about $2.4 billion when the government’s $1 billion worth of overseas bonds issued in 2010 matures.

In brief, the sustainability of Vietnam’s public debt and foreign debt should not be gauged by scale only as is the current practice. From finance and debt management perspectives we need deeper assessment on associated risks like maturity mismatch risk, foreign exchange risk, interest rate risk, payment currency risk and liquidity risk as well as efficiency of debt usage.