Safe foreign debt level to fuel growth

Foreign loans help speed up infrastructure development

“The government debts have been maintained at 36 per cent of GDP and the majority of the government foreign debts are on concessional terms,” Tran Van Ta, vice minister of Finance said.
“Such a small rate will help in minimising the risks for national finance and ensure government debts are serviced fully and paid back in a timely manner from the state budget,” he added.
Figures released by the MoF showed that Vietnam’s GDP this year is estimated to reach around VND900 trillion ($58 billion), putting government debts at around $21 billion.
“That amount is rather small in comparison with the safe limit of less than 50 per cent stipulated by international financial institutions,” Ta said.
Vietnam started to borrow in the form of programme loans and budget support in 1994 from a World Bank programme for structural adjustment credit and an IMF programme for enhanced structural adjustment facilities. Analysts have said that the GDP of Vietnam has increased dramatically both in size and structure in recent years, up from $40 billion in the past two years alone, ensuring a sustainable growth rate of 8 per cent projected by the government for the next five years.
MoF figures also reveal that prudent fiscal policy and the adoption of appropriate incentives have encouraged domestic production and social investment resources.
Domestic savings have increased to 29.4 per cent of GDP, up from 26.8 per cent in 1996-2000, and gross investment in 2005 reached 35.5 per cent of GDP, exceeding the original target of 31-32 per cent.
Ta also revealed that high investment year after year had increased state budget revenue by 18.3 per cent per annum on average during 2001-2005, and revenues had reached 22.5 per cent of GDP, equivalent to around $12 billion.
“The continued and incremental donor support for Vietnam through sector-wide and general budget support demonstrates the higher donor confidence in the public finance management capacity of the government,” Ta said.
According to MoF, support from donors and foreign sources based on concessional loans have contributed to ensuring national financial security and overall macro-economic stability.
“Donor support has focussed on state-owned enterprises (SOEs) and banking system reforms, specifically financial instruments to support debt resolution for SOEs and the banking system,” Ta added.