Vietnam faces pressure to repay its short-term loans

By Ngan Anh, Thanh Nien News

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Public debts, in term of absolute figure, have had a trend of increase in recent years. However, the public debt-to-GDP ratio has not changed much. It is under the safe limit of 65 percent approved by the National Assembly. Photo: Ngoc Thang Public debts, in term of absolute figure, have had a trend of increase in recent years. However, the public debt-to-GDP ratio has not changed much. It is under the safe limit of 65 percent approved by the National Assembly. Photo: Ngoc Thang

Despite keeping public debts at safe levels, Vietnam faces major pressure in seeking new loans to repay old ones in the coming years, said Minister of Finance Dinh Tien Dung.

Public debts have risen in recent years. However, the public debt-to-GDP ratio has not changed much, rising to 53.4 percent in 2013, from 50.8 percent in 2012, 50.1 percent in 2011, and 51.7 percent in 2010, Dung said during the assembly's Q&A session on Tuesday.

The ratio remains below a safe limit of 65 percent approved by the National Assembly (NA), he said.


Central government debt now is 44 percent of the country’s GDP, lower than the safe threshold of 55 percent approved by the NA.

Haft of the public debts, which include all central and local government debts and government-guaranteed loans, are overseas loans, mainly ODA (official development assistance) contracts with tenors of 14-15 years; the rest are domestic. 

Most were mobilized through the issuance of government bonds with tenors of 2-5 years, he said.

Up to 30 percent of domestic loans have tenors of 1-3 years. Explaining the issuance of short-term government bonds, the minister said that the domestic capital market has not yet developed, so most buyers of government bonds are commercial banks, whose deposits are mainly non-term or short-term.

"Thus, pressure in seeking new loans to repay old short-term domestic loans is rather big," he said.

According to a report sent to NA delegates prior to the current session, Dung said the main reason for the public debt increase is the rising capital demand for the country’s development, especially infrastructure expansion amid limited state funds for the activity.

To guarantee Vietnam's public debt repayment capacity, the government should increase its state budget collection by 12-14 percent each year, maintain a stable state budget balance, and spend 20 percent of its annual budget paying off loans, he said.

The use of public debt should be strictly managed, Dung said.

Vietnam should not seek overseas commercial loans with high interest rates and short tenors, he said. The minister also stressed the importance of periodic assessment of risks of public debts to ensure the timely settlement and effective restructuring of debts, he said.

Risks to national financial security

NA delegate Tran Van Minh said the state's annual budget overages will be kept at some 4.5 percent of GDP by 2015--under the 2020 financial strategy -- but they have exceeded 5 percent over the past few years. He is concerned about the use of these excessive expenditures (not simply to fund development projects, but to repay debts) and asked the ministry about its budget overages and Vietnam's ability to implement its repayment strategy by 2020.

Answering him, minister Dung attributed the recent increase in over-spending to difficulties in tax collection and high demand for spending on infrastructure development, social welfare, and poverty reduction.

In 2013, over-spending hit 5.3 percent of GDP, he said.

The urgent tasks in the coming years is to tighten spending and improve business efficiency to ensure funds for development, poverty reduction and national defense, Dung said.

This year, the government expects economic growth to hit 5.8 percent.

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