Public debt fears watered down

What do you think of Vietnam’s rising public debt in the last few years?

In my view, we should not be too anxious about rising public debt since Vietnam’s usage of public debts was viewed as efficient by international donors as well as foreign financial organisations.

Of the public debt structure, foreign debt sharply rose in the past five years, from $15.641 billion in 2006 to $32.500 billion in 2010. Has the growth reached an alarming level?

Foreign debt more than doubled within the past five years and gave a warning that we must be more prudent when borrowing in the coming period. However, it needs cautious and comprehensive appraisals of capital usage efficiency when talking about foreign debt growth.
Of Vietnam’s total foreign debt, official development assistance (ODA) capital represents 75 per cent, other preferred loans 19 per cent and commercial loans 7 per cent.

ODA loans are often long-term with preferential interest rates. For instance, the World Bank offers 40-year term loans, including 10 grace years and a yearly interest of just 0.75 per cent, the Asian Development Bank (ADB) gives us 30-year loans with 10 grace years and 1 per cent per year interest rate, Japanese loans also have 30-year term including 10 grace years and 1-2 per cent per year interest rate.

What makes sense is how to generate maximum benefits from these loans.

Does slow capital disbursement pace show foreign loans are not effectively used?

In fact, some projects using ODA capital witnessed slow disbursement, lessening the effect of loans’ grace periods. From the Vietnamese side, land acquisition woes or complex investment procedures were to blame. However, sometimes the cause is on the part of donors’ complex disbursement procedures.

Making concrete appraisals of each project is important when reviewing the efficiency of foreign capital usage.  Overall, Vietnam’s usage efficiency of foreign loans is fairly high both economically and socially.

The Ministry of Finance (MoF) is scaling up local sources to gradually reduce Vietnam’s reliance on foreign capital. Is this feasible since there are divergences between fiscal and monetary policies?

In some recent years, the MoF failed with mobilising capital via issuing government bonds to offset overspending and source capital for important projects on the back of high interest rates in the monetary market. There are close links between fiscal and monetary markets. Hence, the fiscal and monetary policies must be handled on a flexible manner to avoid a big gap in these two markets’ rates.

Some improvements were witnessed in recent government bond issuances when monetary market rates have trended downward and bond coupon rates were more practical.