Ensure capital mobilization for the state budget at reasonable costs

(Baonghean) - In the first months of the year, the work of mobilizing capital for the state budget (NSNN) and for development investment (DTPT) through the issuance of government bonds (TPCP) was carried out in a context of mixed advantages and difficulties. In the remaining time of the year, how to continue mobilizing capital sources for the state budget and DTPT is a heavy task for the State Treasury system (KBNN). Nghe An Newspaper respectfully introduces the Newspaper's discussion with General Director of the KBNN Nguyen Hong Ha on this content.

Road construction through Ha Son commune, Quy Hop (Chau Thon - Tan Xuan project). Photo: TL

PV:Dear Comrade Nguyen Hong Ha, in the first months of the year, the task of mobilizing capital for the State budget and for investment and development has achieved positive results. What are the reasons?

General Director Nguyen Hong Ha:In the first months of the year, with the stability of the macro economy, good control of inflation, basic macroeconomic indicators such as industrial production index, total retail sales of goods and service revenue, credit supply speed for the economy, ODA capital disbursement... all tend to increase and increase compared to the same period last year... are favorable fundamental factors for the development of the financial market (TTTC) in general and the government bond market in particular. Not only that, the financial market continues to be restructured, especially the restructuring of credit institutions, thereby helping the market to be more liquid than in previous years. Those are favorable points. Taking advantage of that advantage, in the first 6 months of the year, the State Treasury mobilized over 100 trillion VND in capital, of which nearly 80 trillion VND was auctioned for bonds through the Hanoi Stock Exchange (HNX), mainly for 5-year terms. The amount of bonds purchased by the Vietnam Social Insurance Fund is VND5,000 billion, 10-year term, 6.39%/year interest rate; issued US$1 billion (equivalent to VND21,458 billion), 10-year term, 4.80%/year interest rate and auctioned Treasury bills through the State Bank of Vietnam reached nearly VND10,000 billion.

However, capital mobilization also faces many difficulties. According to the National Assembly's regulations on the 2015 budget estimate, the State Treasury is only allowed to issue government bonds with a term of 5 years or more. Members of the bond market have the opinion that this term is too long compared to the capital supply capacity, while bond investors are mainly commercial banks (CBs), the nature of the capital source is short-term. The reality is that in the current CP market, nearly 80% are CBs, so to ensure liquidity safety, the rate of investment in long-term instruments of 5 years or more is very limited.

In addition, the State Bank of Vietnam (SBV) regulates the safety ratio limit in the operations of credit institutions (CIs) and foreign banks, in which it stipulates that CIs are allowed to invest in purchasing Government bonds at a maximum ratio compared to short-term capital sources of 15% for State-owned commercial banks, 35% for joint-stock commercial banks and 15% for foreign bank branches. This regulation directly affects the ability of commercial banks, especially foreign banks, to invest in Government bonds.

In addition, the currency and foreign exchange markets have had many strong fluctuations since mid-March 2015, directly affecting liquidity and interest rates in the government bond market. In the first 5 months of the year, credit increased by more than 5%, a sharp increase compared to the same period in 2014 of 1.5%. Therefore, the capital sources of banks for investment in government bonds have decreased sharply. Meanwhile, the task of mobilizing capital for the State budget and development investment in 2015 through the issuance of government bonds has been assigned to be 250 trillion VND.

PV:Given this situation, what solutions has the State Treasury implemented, and which is the most effective solution, sir?

General Director Nguyen Hong Ha:To carry out the assigned tasks, the State Treasury has implemented many synchronous solutions. First, based on the capital mobilization plan for 2015 and the quarters, the State Treasury has developed a detailed issuance schedule for the whole year, an issuance plan for each maturity type and publicly announced it on the websites of the Ministry of Finance, HNX, and the Vietnam Bond Market Association (VBMA) so that investors can proactively arrange capital to participate in the market. Second: organize the issuance of bonds with a maturity of 5 years or more according to Resolution 78/2014/QH13 of the National Assembly to extend the average loan term of the Government bond debt portfolio, reducing the pressure on principal repayment for the State budget in the short term. Third: closely follow the market situation to decide on the maturity, volume and interest rate of each auction, ensuring capital mobilization at a reasonable cost.

Fourthly: at times when the issuance of Government bonds was not favorable, the State Treasury closely coordinated with relevant units to implement measures to enhance the ability to mobilize capital for the State budget and meet the spending needs of key projects according to the Resolution of the National Assembly such as: increasing the bidding frequency to 2 sessions/week; mobilizing the Vietnam Social Security to buy Government bonds; issuing bonds in foreign currencies. In June 2015, due to the need to pay large debts due, the revenue source was not concentrated in time, the State Treasury issued short-term Treasury bills to offset the temporary deficit of the State budget (borrowed during the year, paid during the year, not included in the State budget deficit). Fifthly: maintaining close contact with market members in many forms, grasping difficulties and obstacles to have a basis to propose and report to the Ministry appropriate solutions to develop the Government bond market.

PV:So, the journey from now until the end of the year is forecast to be quite difficult, and what solutions will the State Treasury continue to implement to complete this very important task of mobilizing capital from the financial market, sir?

General Director Nguyen Hong Ha:It can be said that the remaining capital mobilization task in the last months of 2015 is quite heavy. With 173 trillion VND to be mobilized, on average each month will have to successfully mobilize about 27 trillion VND. This is a large supply pressure on the market, which is likely to push up bond interest rates. In addition, regulations on bond terms and regulations on the ratio of government bond investment to short-term capital for commercial banks will continue to impact the issuance of government bonds in the coming time. In addition, commercial banks will continue to boost credit activities from 8-10% to achieve the credit growth target of 13-15% in 2015 set by the State Bank, greater than the credit growth rate in the first 6 months of the year. Therefore, the demand for government bonds for commercial banks is likely to decrease.

In that situation, the State Treasury has determined solutions to implement the task of capital mobilization for the State budget in the last 6 months of 2015, including: continuing to drastically implement capital mobilization solutions deployed since the beginning of the year to mobilize maximum financial resources in the market to meet the spending needs of the State budget, especially the spending needs for key national projects according to the Resolution of the National Assembly. Maintaining bidding rounds of Government bonds with terms of 5 years or more through HNX with a frequency of 2 sessions/week. Closely monitoring the market situation, State budget funds, and Treasury balances to determine the appropriate volume, term and interest rate for each issuance. Closely coordinating with relevant agencies in organizing capital mobilization tasks to have measures to maintain the stability of the Government bond market. Making full and timely payments of principal and interest of Government bonds due to ensure the prestige of the Government and the Ministry of Finance to investors.

Regarding the group of solutions to support the development of the government bond market, thereby affecting the ability to mobilize capital for the State budget and investment, after the Ministry of Finance amends the regulations on guidelines for issuing government bonds in the domestic market (expected in the third quarter of 2015), the State Treasury will coordinate with units to immediately implement new regulations in the organization of issuing government bonds, and at the same time continue to study and reduce the time from bidding to when bonds are traded on the secondary market from 3 working days to 2 working days to increase liquidity for government bonds. We will also study and pilot the issuance of new products of bonds without periodic interest payments (expected in the fourth quarter of 2015) to diversify products for the market.

In addition, the State Treasury will coordinate with relevant units to approach foreign investors to promote the Vietnamese Government bond market in order to attract the interest of these organizations in domestic Government bonds, realizing the goal of expanding the investor base of the Government bond market. At the same time, it will recommend to the State Bank to assess the impact of Circular No. 36/2014/TT-NHNN on the investment activities of Government bonds of banks and consider amending it in the direction of creating conditions for commercial banks to participate in purchasing Government bonds equally, conveniently, in accordance with the current market situation.

Finally, since the capital mobilization for the State budget and for investment and development through the issuance of Government bonds in 2015 as planned is extremely difficult, the State Treasury recommends that the Ministry of Finance needs to manage State budget expenditures closely, economically, and effectively, minimizing additional expenditures outside the budget; increase the concentration of revenue sources, strive to exceed the assigned budget targets to ensure the State budget's expenditure sources; review the ability to borrow from financial funds under the management scope to provide maximum support for the State budget, reducing the pressure of borrowing from Government bonds. In case the capital mobilization results are not as expected, we recommend that the competent authority allow the diversification of bond terms under 5 years and the issuance of bonds in foreign currencies.

PV:Thank you comrade!

Red River(Perform)