Rising public debt risky for Vietnam: economist

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Vietnam's public debt is rising too fast and poses a severe risk to the economy, an economist says, suggesting that the total debt might be even higher than assumed if calculated more properly.

The biggest of many risks concerning the public debt comes from ineffective spending and investment, said Vu Thanh Tu Anh, research director at Fulbright Economics Teaching Program.

Another risk is that a large portion of the debt at state-owned enterprises (SOEs) has not been factored into the national public debt figure.

"Until this hidden part of the iceberg is measured and understood, the potential risks that it brings along can't be managed," Anh told Thanh Nien.

The economist said public debt, by international standards, includes the accumulated debt of both the government and the SOE sector. In many other countries, whose SOE sectors are small, public debt and government debt are nearly the same.

The situation is different in Vietnam because its SOE debt is almost equal to government debt and thus should be included in the statistics, he said.

"After all, if state companies are unable to clear their debts, the state budget will have to cover them."

Vietnam's government debt grew from US$11.5 billion in 2001 to $55.2 billion last year, or around 20 percent a year on average during the period, official statistics showed.

Anh said the country has nearly 100 state-owned companies. A group of 22 SOEs alone have planned a total investment of VND350 trillion ($16.7 billion) for 2011, equivalent to 17 percent of the country's GDP, he said, citing the Central Institute for Economic Management.

"If all the companies are taken into account, the investment will be huge and a large proportion of that is financed by loans," he said.

According to the International Monetary Fund, Vietnam's public and publicly guaranteed debt stood at 52.8 percent of GDP last year. The Fund said the ratio could fall slightly to 51.5 and 51 percent in 2011 and 2012.

The IMF Executive Board said in June that in view of Vietnam's high public and publicly guaranteed debt and sizable contingent liabilities, it recommended the acceleration of fiscal consolidation by saving the bulk of anticipated revenue over-performance in 2011.

"Over the medium term, fiscal deficits need to be reduced further to close to pre-crisis levels," the board said.

Economist Anh said it was normal for a developing country to borrow money for investment purposes. "The key is to invest in a way that can maximize effectiveness and leave no negative impacts on the macro-economy," he said.

The problem is that Vietnam's investment continues to grow at a fast pace while it maintains a budget deficit of more than 5 percent of GDP, he said.

Vietnam plans to slash 10 percent, or VND97 trillion (US$4.65 billion), of development investment this year as one of the measures taken by the government to restore economic stability. The Ministry of Planning and Investment, however, said many cities and provinces have not been committed enough to cutting their investment.

Anh said investment from the sate budget in the first nine months actually rose nearly 24 percent from the same period last year. "This shows that the discipline is too lax."

So the first thing to do is to restore fiscal discipline, he said.

The government should also reduce budget deficits, not by trying to raise revenues but by cutting back on spending, Anh said, adding that it should be tougher with state companies investing beyond their main business scope. 

In the long run, the whole economy has to be restructured, Anh said.

The Ministry of Finance has recently worked with a group of World Bank experts in an attempt to improve the country's debt management. The mission, between September 27 and October 6, focused on the management of public debt and foreign debt in Vietnam, with findings and recommendations due in eight to ten weeks.

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