Do not let the public debt ceiling "break"

(Baonghean) - The Ministry of Finance said that although the public debt index is still under control, the important issue in the current conditions is that the public debt rate is increasing rapidly (from 50.7% in 2010 to 62.2% in 2015) and approaching the allowable limit. Although it mainly comes from the pressure to mobilize loans for investment in socio-economic development and the rapid expansion of production and business activities of enterprises, specific solutions are also needed to avoid "breaking the ceiling" of public debt.

Rapidly increasing mobilization volume

With the disbursement volume of ODA loans and preferential loans from foreign donors being boosted, in the period of 2011 - 2015, the loan capital reached 27.8 billion USD, 3.5 times higher than the period of 2001 - 2005 and 2 times higher than the period of 2006 - 2010. However, the volume of domestic capital mobilization increased rapidly compared to the previous period, averaging 34%/year, exceeding the supply capacity of medium and long-term capital in the domestic capital market, leading to the need to mobilize short-term capital for long-term investment.

Construction of a regulating lake using WB funding. Photo: Chau Lan

The Ministry of Finance said that in case the demand for capital mobilization through the issuance of medium- and long-term government bonds exceeds the capital supply capacity of this market, the Government may have to switch to short-term mobilization or other mobilization channels with higher mobilization costs.

The scale of government guarantees also increased sharply when the total loans guaranteed by the government in the period of 2011 - 2015 reached more than 488 trillion VND, 2.3 times higher than in the period of 2006 - 2010. In addition, the economic context was not favorable, the average economic growth rate in the period reached 5.9%/year, not reaching the target of 6.5 - 7%/year.

In addition, the cost of capital mobilization tends to increase when Vietnam becomes a middle-income country. Since Vietnam became a lower-middle-income country in 2009, there has been a significant change in foreign borrowing conditions, reducing the term from 10 to 15 years, and the cost of capital mobilization has doubled compared to before.

Many ODA loans and preferential loans with external constraints cause high input costs, affecting investment efficiency and debt repayment capacity in cases where projects are re-borrowed from ODA loans from the Government. The mobilization and use of loans are still scattered, the mindset of relying on State subsidies is still present, so too many projects are approved, the situation of adjusting the total investment amount compared to the initial approval, adjusting contracts is quite common, the organization of implementation of some projects is still inadequate, especially in the stages of investment preparation, appraisal, approval of contractor selection, compensation, resettlement and site clearance. Some investment projects cannot repay their debts, have to restructure their finances or switch to the State investment mechanism, increasing the Government's direct debt repayment obligation.

In addition to the above situations, the lack of debt management tools, which do not ensure proactiveness; the construction and implementation of debt tools are still passive and not closely linked to the medium-term financial - budget and public investment plans are also "black spots" in public debt management.

At the same time, the lack of sanctions to ensure compliance has led to many cases of capital mobilization that deviates from the approved plan, leading to low efficiency and effectiveness of debt management tools; the lack of appropriate regulations on authority and tools to control and prevent debt risks (such as derivative products) but only regulating borrowing to restructure the debt portfolio, which is a narrow scope compared to professional debt management practices in the world... is also worth noting.

Furthermore, there are also some regulations that limit the initiative and flexibility of the Government and the Ministry of Finance in managing public debt to achieve long-term efficiency goals, especially in handling refinancing risks. The lack of risk prevention and control tools leads to passive debt risk handling, which is not suitable for the ever-changing capital market, losing the opportunity to perform risk handling operations that can bring significant benefits to the country.

Public debt management is still fragmented and lacks coordination among ministries, sectors, and localities, making it difficult to unify public debt management, proactively repay debt, and monitor and control risks of public debt safety indicators according to the law.

Many policies to manage public debt and limit risks

In the coming time, the pressure on investment capital for socio-economic development is very large, public debt is at a high level, and debt repayment obligations tend to increase. Therefore, it is necessary to have groups of solutions aimed at meeting the capital needs of the Government, ensuring debt repayment capacity, achieving low costs associated with reasonable levels of risk, while promoting the development of the domestic capital market, gradually restructuring public debt and ensuring public debt safety and national financial security.

Thanks to ODA capital, Vinh City has completed the project to upgrade Vinh Water Plant with a capacity of 60,000 m3 per day and put it into effect. Photo: Hoang Vinh

Accordingly, focusing on controlling debt indicators within the allowable limits must be given top priority, ensuring public debt safety and national financial security. To do so, there are many specific solutions, including implementing a roadmap to gradually reduce the budget deficit, striving to maintain the average state budget deficit in the 2016-2020 period at about 4% of GDP.

Strengthen close coordination between fiscal policy, public investment and public debt management; reduce the proportion of State investment capital towards focusing on key areas of the economy, with spillover effects. Continue to tighten government guarantees, switch to a borrowing and repayment mechanism based on market principles.

Strengthen the development of the domestic capital market in both breadth and depth to diversify issuance terms, focus on issuing government bonds with terms of 5 years or more, strive to extend the average term of the government bond debt portfolio in 2016 - 2020 to 6 - 8 years, ensuring capital mobilization in line with the absorption capacity and market demand.

Continue to accelerate the disbursement of signed ODA capital for transitional programs and projects, and step up the preparation of new ODA projects. Improve the efficiency of public debt use, limit scattered investment, focus on economically effective programs and projects and prioritize projects with debt repayment capacity. Strictly manage public debt, especially new loans. Attach responsibility to ministries, branches and localities in using loan capital in the direction of promoting the re-lending mechanism, gradually reducing the rate of allocation and debt collection for government loans for re-lending.

For investment expenditure, allocate centrally, prioritize investment in key national infrastructure. Strongly promote and call for cooperation in the form of public-private partnership (PPP) and investment forms that do not use state budget capital. For regular expenditure, arrange in the spirit of thorough thrift, ensure implementation of social security policies decided by competent authorities; save expenditures for state management apparatus and public service. Develop risk management tools; proactively and flexibly choose from a variety of debt instruments associated with different cost-risk characteristics to suit the ever-changing market developments...

Red River