Overspending government should not issue more bonds: economist

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A miniature model of a Vietnam Airlines aircraft in a booking office in Ho Chi Minh City.
The privatization of state-owned enterprises, including Vietnam Airlines, will help the government raise money for development, instead of issuing more bonds, expert Bui Kien Thanh argues.

In the current situation, it is unreasonable to issue more bonds since the government's spending is already too large, and any increase in public spending on infrastructure will help create jobs only temporarily, economist Bui Kien Thanh tells Vietweek.

Vietweek: There have been calls for the government to issue more bonds to raise money for public spending as a means to revive the economy. What do you think about it?

Bui Kien Thanh: It is difficult to raise revenues this year. Though more than half the year has passed, we have reached only 40 percent of the year's revenue target. The revenues are not enough for spending, so there is an opinion that the government should more bonds. Meanwhile, we are facing a budget deficit estimated at 4.8 percent of the GDP. It is an alarming rate. If the government issues more bonds, it will increase the public debt. The government should do it for what purpose? Will it issue bonds to invest in works like road construction which will temporarily create jobs and help liquidate stocks of goods like cement and steel? The issue needs to be carefully considered.

In the current situation it is unreasonable to issue more bonds since the government's spending is too large. Now the government's budget is 45-50 percent of GDP. It is too large. So now is not the time to issue bonds to increase public spending.


 [The government] could sell more state-owned firms [to raise money for development]. It still holds more than a 50 percent stake in many state-owned enterprises. That's unnecessary. 

How do you assess the effectiveness of spending of money raised through government bonds?

The management of public spending is not efficient. Losses in public spending are high. Former prime minister Phan Van Khai used to say the losses could increase to 20-30 percent. Can we rein in the losses and corruption? Issuing bonds also raises other concerns since the buyers are mainly commercial banks, who are finding it hard to expand credit amid the stalled production and large stockpiles. They use deposits to buy bonds instead of lending to firms to develop their business and production.

Everyone knows that the government has invested plenty in state-owned enterprises, which are not very efficient. A private firm can create a product worth VND1 with an investment of VND5, but a state-owned firm needs VND15-16. The government has invested in state-owned groups for a long time. Thus, there are many problems related to the government's use of public money. The National Assembly should have strictly monitored the use.

How the government get money for development if not from bonds?

The government needs to review its organizations and firms to see if they have a capital surplus and how the capital is used. Government financial management agencies should use the surpluses to develop the economy.

For instance, we should check how the State Capital Investment Corporation (SCIC) manages funds? Does its management bring the government benefit? If it uses public funds to make deposits in banks, we should reconsider it. Why should the government borrow more because of capital shortage while the SCIC deposits its funds in banks for interest?

People have the right to ask the government to explain the issue. The SCIC's action is reasonable only if it plans to use the funds for a specific project and while waiting to invest, deposits them in banks.

Is there any other source of funds for the government?

We could sell more state-owned firms. The government still holds more than a 50 percent stake in many state-owned enterprises (SOEs). It is unnecessary. We should accelerate the privatization of SOEs. We should wholly privatize firms not operating in the fields of security and national defense and those that are inefficient. Why does the government have to invest in firms with prolonged losses?

The government could ask weak firms to announce bankruptcy and sell them to recover the capital. However, these measures are not taken since some people want to make use of them to enjoy benefits.


Issuing more bonds is for raising funds for production and business development, Cao Sy Kiem, former governor of the State Bank of Vietnam, said. People should not worry about the issuance increasing public debt because the debt was still at a safe level, besides which if the money was used effectively, the country could easily repay.

The government, however, should improve management of money raised from bond issues.

Monies raised from bonds had made a great contribution to the country's economic development, but their use had not been carefully monitored, causing big waste, and the mistakes had not been addressed.

The government therefore should issue bonds for specific projects based on clear economic parameters.

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