Efficient use of public borrowing key to staving off debt crisis

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A farmer waters his Malabar nightshade field outside Hanoi. Public investment should be increased in agricultural research to boost productivity, economist Tran Hoang Ngan said.

Vietnam's public debt is considered to be at a safe level, but things could deteriorate if the economy enters a recession. The country should closely monitor the use of loans from now to avoid a public debt crisis like in Europe, Tran Hoang Ngan, a member of the National Financial and Monetary Policy Advisory Council, tells Vietweek.

Vietweek: The Ministry of Finance said public debt reached US$68.8 billion in 2011, or nearly 55 percent of GDP that year. But it was 106 percent of GDP if calculated based on international norms. Why is there this difference? 

Tran Hoang Ngan: Organizations had included the debts of state-owned enterprises in the public debt figures, so it was so high. Their way of calculating Vietnam's public debt is not quite right. According to our calculation, public debt comprises [only] central and local government debts and government-guaranteed loans. 

But the government, which is the owner of state-owned firms, would have to repay their debts if the firms become insolvent"¦

Both private and state-owned firms should take responsibility for their debts. The government should take responsibility only for loans it guarantees. Thus, Vietnam's current public debt estimation is logical. Some international organizations, including the IMF, even estimated Vietnam's public debts to be lower than the figure reported by us.

Should Vietnam, with its budget deficit and an inefficient use of loans, worry about a debt crisis?

The debt is still at safe levels, but I do not say it is safe. The safety is unstable. Your loan may be small, but it could also become a burden if you are jobless. The debt is at a safe level. If the economy sees growth, we do not have to worry about the debt. However, it would become a big concern if our economy faces a recession.

We should closely monitor the use of loans from now on to avoid a public debt crisis like the one in Europe.

Vietnam's goal is to keep the public debt at 65 percent of GDP by 2015. Now, the debt is estimated at 55 percent of GDP. So we can borrow more. The important thing is not whether the debt is big or small, but whether the use of loans is efficient. We still need to increase public spending to boost economic growth. That is impossible without public debts. The issue is that we have to improve investment effectiveness. For this, we should improve assessment of public projects. It is the most important task.

The waste that takes place when works like hospitals, roads, and bridges are not finished due to shortage of funds is more serious than the impact of increased debt. So we need to continue to increase public spending, which would increase public debt. But, we have to strengthen oversight to ensure it is used effectively. If we stop public spending now, the economy cannot recover.

However, we see budget deficits every year. Do we use new loans to invest in new projects or merely to repay old debts?

We have debts maturing every year. For example, we had to repay debts of some VND100 trillion ($4.8 billion) in 2012. We continue to borrow to either repay old debts or for new projects. The interest rates on public debts are low. So it would be very good if [they can] serve economic development.

It will not be a problem if the public debt is large but the economy sees high growth rates. The important thing is that the loan is used efficiently, not how much the debt is.

But since the efficiency of public spending is not high, isn't continued borrowing a concern?

Before 2011 the use of loans was very wasteful because [the use] was inefficient and spread too thin. The government and the Party realized the mistake.

The use of loans has been more closely monitored since the government's resolution No. 11 on economic restructure and the prime minister's instruction No. 1792 on restructure of public investment were issued in 2011.

What are the sectors in which we should invest more?

We should be more careful in project assessment. Projects that have long-term and broad-based benefits should be prioritized for public investment. The projects should have national impact. For example, we should prioritize construction of a road if it boosts economic development of a locality and its neighboring areas.

We should also increase public investment in agricultural research to boost productivity, and in food warehouses and processing firms.

It is also necessary to increase public investment in tourism. The sector has not yet realized its potential. Higher public investment in the sector could help attract more foreign visitors to Vietnam.

How are we preparing to service public debt?

We have drafted plans for servicing the debts. Every year we have to pay around VND100 trillion. Since we have made plans to use government funds to service the debts, we need not worry about the repayment in the near future. We should be concerned only about what we should do to ensure loans are used efficiently. If they are, our debt repayment capability will improve.

The National Assembly should closely monitor the government's use of credit.

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