Vietnam public debt more than half of GDP, but still 'safe'

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Workers repair electrical wires in Hanoi. As of the end of last year, the government had guaranteed loans worth US$5.5 billion for the electricity sector.

Vietnam's public debt is set to rise slightly to 55.4 percent of gross domestic output this year, which the government says is still a "safe" level compared to other countries.

The debt, including all central and local government debts and government-guaranteed loans, is projected to hit VND1,600 trillion (US$76.8 billion) by the end of the year.

Of the total amount, central government debts are estimated at VND1,200 trillion, while loans backed by the government total VND348.8 trillion, according to a government report sent to legislators this week.

Previous data showed that public debt in Vietnam was 54.6 percent of the country's GDP last year, down from 57.3 percent in 2010.

While debt is still rising, the government report maintained that the level is "safe." The goal is to keep it from exceeding 65 percent of GDP over the next three years.

Vietnam's external debt is projected to reach nearly VND1,300 trillion ($62.4 billion) this year, but the government said most of the debt is long-term loans carrying low interest rates.

Japan is now Vietnam's largest creditor, with 17 percent of the total foreign debt, followed by the World Bank and the Asian Development Bank.

But the government admitted that things are not going well with government-guranteed loans taken out by state-owned companies. At least five cement plants and two paper production projects financed by these loans are having difficulties paying foreign creditors, which means the obligation could be passed on to the government.

As of the end of last year, the government had guaranteed loans worth $5.5 billion for the electricity sector, $1.7 billion for aviation, $1.2 billion for cement projects, and more than $460 million for the oil and gas industry.

The Asian Development Bank said in a report last month that the outlook on public debt in the region is generally "benign." Public debt ratios rose by an average of 5 percent in 2009 due to ambitious stimulus packages in emerging Asia, but the region's indebtedness is projected to fall below pre-crisis levels in the near future, the bank said.

Public debt has become a concern for many economies amid the persistent sovereign debt crisis in Europe.

According to data from the International Monetary Fund, Japan has the highest public debt ratio in the world, with public debt worth 229 percent of its GDP. Greece is ranked second with a ratio of 163 percent.

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