Government works on keeping public debt in check

Government works on keeping public debt in check, illustration photo

The Ministry of Finance (MoF) has reported to the government that after its thorough calculations on the plans for obtaining loans and payment from the government, localities, enterprises, and credit institutions under the self-borrowing, self-paying method, later this year it is projected that public debt will be 43-44 per cent of GDP, government’s debt will sit at 40-41 per cent of GDP, the nation’s foreign debt at 40-41 per cent of GDP, and the government’s direct debt service at nearly 23 per cent of the state budget revenue.

The figures are based on the premise that the Vietnamese economy grows 6.5-7 per cent this year.

Under the government’s estimations for public debt and foreign debt for 2022, in terms of the government’s capital mobilisation, the government plans to mobilise loans worth $24.82 billion, including $2.96 billion from official development assistance (ODA) and concessional loans that have been signed. The remaining $21.86 billion will likely come from local sources, largely via issuance of government bonds – with bonds having a term of five years upwards. Of the $2.96 billion, as much as $1.74 billion is planned for public investment, $48.82 million is likely earmarked for public activities related to agreements signed before 2017, and the remaining $1.17 billion may be used for refinancing.

Regarding the government’s debt payment, it is estimated to be $8.52 billion, including $2.44 billion for principal debt payment and $4.5 billion for loan interest payment, equal to 21.2 per cent of the state budget revenue of an expected $61.38 billion. About $1.58 billion will likely be used for loan payments for refinancing, including $1.18 billion for principal debt and $398.34 million for interest payments.

In addition, in 2022, it is estimated that the total loans of businesses and credit institutions under the self-borrowing and self-paying forms will still stand at a high level of $7.5 billion in the medium term. It is estimated that the short-term foreign debt will increase about 25 per cent compared to the end of 2021.

The MoF said that last year, despite big expenditures in assisting enterprises and those hit by the pandemic, Vietnam ensured its public debt at a safe level. Specifically, by late 2021, the country’s public debt sat at 43.7 per cent or $160.87 billion of GDP, and the government’s debt stood at 39.5 per cent or $145.65 billion, while the nation’s foreign debt reached 39 per cent of GDP, and the government’s direct debt service accounted for nearly 23 per cent of the state budget revenue.

“All of these rates have stayed within the permissible limit set out by the National Assembly (NA),” said an MoF report on the economy’s financial situation. “All debt safety norms have been closely controlled.”

Nearly 90 per cent of the debt is from domestic sources.

It is estimated that total capital mobilised by the government in 2021 is as much as $22.36 billion, including $20.13 billion from domestic loans – consisting of $16.21 billion from government bond issuance and the rest from the state coffers, and $2.23 billion from ODA and concessional loans. Also, the government’s domestic debt for 2021 was around 67.5 per cent of its total debt portfolio, up from 63.8 per cent.

According to the MoF, up to 94.7 per cent of the government’s debts are subject to fixed lending rates. All foreign loans had a low lending rate, averaging at only 1.6 per cent a year.

As for domestic loans, it is estimated that by late last year, the average lending rate was 4.7 per cent a year, down significantly from 6.6 per cent a year in 2016.

“This factor has helped maintain the country’s ability in debt payment, and prompted the International Monetary Fund and other rating organisations to offer positive assessments of Vietnam’s credit,” MoF Minister Ho Duc Phoc said.

Since last year, the government and the NA have offered tens of billions of US dollars to support individuals and firms hit by the global health crisis. The total value of all fiscal solutions by the NA Standing Committee and the government in 2021 will be about $6.08 billion.

The government has set a target of $61.37 billion in state budget revenue and $77.6 billion in state budget spending for this year. The respective figures reached $66.23 billion and $79.96 billion last year.