Diversify the maturity of government bonds

On the morning of September 12, the National Assembly Standing Committee (NASC) began its 42nd session. Minister of Finance Dinh Tien Dung presented the Government's Report on the implementation of Resolution No. 78/2014/QH13 on the issuance of government bonds (G-bonds) and restructuring of government debt.

The Government's foreign debt must not exceed 50% of total debt.

According to Minister Dinh Tien Dung, the implementation of Resolution No. 78/2014/QH13 has initially achieved the goal of extending the maturity of the government bond debt portfolio, but has also affected the government bond market and the capital mobilization and liquidity of the state budget.

Minister of Finance Dinh Tien Dung presents plan to issue government bonds

Based on the implementation of Resolution No. 78/2014/QH13 and the current status of the Government debt portfolio, the Government proposes that in the coming time, it is necessary to focus on developing the Government bond market to increase capital mobilization for the State budget, while gradually restructuring the Government debt portfolio," the head of the Finance sector explained.

Specifically, the Government proposed to synchronously implement solutions to extend the maturity of the government bond debt portfolio, while creating favorable conditions for the sustainable development of the government bond market; in which an important solution is to diversify the maturity of government bond issuance in the domestic market.

The Government submitted to the National Assembly permission to issue Government bonds with all maturities as prescribed in the Law on Public Debt Management and guiding documents. Based on the policy approved by the National Assembly, in its operations, the Government will focus on issuing Government bonds with maturities of 5 years or more, expected to account for about 60%-70% of the total issuance volume depending on the market situation. Accordingly, with macroeconomic conditions, a stable market and the volume mobilized through the Government bond channel suitable to the market's absorption capacity, the Government expects the average issuance term of Government bonds to be 5.5 years in the period 2016-2020.

Minister Dinh Tien Dung said that to ensure public debt safety, the Government submitted to the National Assembly for permission to issue international bonds (IBs) to restructure domestic debt in the 2015-2016 period. From 2017, IBs will be issued to offset the budget deficit according to the provisions of the revised State Budget Law, continue to restructure the Government debt portfolio according to the provisions of the Law on Public Debt Management and offset the shortage of foreign capital when Vietnam "graduates" from IDA (the official loan source of the World Bank). This borrowing still ensures that the Government's foreign debt ratio remains at no more than 50% of total government debt according to the public debt management strategy for the 2011-2020 period and vision to 2030.

Basically does not increase government debt

According to the Government's Submission on this issue, diversifying the issuance terms of Government bonds and using capital from the issuance of international Government bonds to restructure the Government's debt portfolio basically does not increase the Government's outstanding debt. The public debt safety indicators by 2020 are still maintained within the prescribed limits, while still meeting the target of reasonable debt restructuring according to the set strategy (by 2020, the Government's foreign debt ratio will always be lower than 50% of total Government debt).

An important impact of this is to reduce the peak of the Government's short-term debt repayment obligations in the coming period, contributing to ensuring that the Government's direct debt repayment obligations are within the allowable limit (not exceeding 25% of the annual State budget revenue). In addition, setting a low standard interest rate creates pressure to reduce the Government's future foreign capital mobilization costs, loans guaranteed by the Government as well as those of other economic sectors.

“For international investors, Vietnam’s regular participation in the market will have a positive impact on the liquidity of existing bonds as well as create attractiveness for new bonds to reduce capital mobilization costs in the future,” Minister Dinh Tien Dung argued. Furthermore, the issuance of international bonds will contribute to reducing the pressure on foreign currency capital of domestic banks, maintaining low domestic interest rates to support lending to businesses that do not have the conditions to borrow foreign currency capital from abroad; improving the international balance of payments, reducing pressure on exchange rates and stabilizing the macro economy…

According to SGGP online