Government improves capital mobilization structure

10:39 | 23/10/2018 Finance - Banking

(VEN) - Vietnam’s public debt stood at 61.37 percent of the gross domestic product (GDP) at the end of 2017 and government debt hit 51.8 percent of GDP, according to a report by the Ministry of Planning and Investment on management and use of government loans.

government improves capital mobilization structure

In the 2011-2017 period, the Vietnamese government continued to raise capital from domestic sources, with a focus on government bonds. In addition, the government raised capital from foreign sources, including Overseas Development Assistance (ODA) and preferential loans. The government’s domestic loans increased rapidly from VND235 trillion in 2011 to VND342 trillion in 2017, while foreign borrowings declined. The structure of foreign borrowings changed with a drop in ODA loans and increase in preferential loans.

Government bonds were adjusted to extend maturity. As a result, average maturity increased from 3.9 years in 2011 to 12.74 years in 2017, and average interest rate dropped from 12.01 percent in 2011 to 5.98 percent in 2017. Extended maturity and declining interest rates have contributed to reducing the risk of refinancing for the government debt portfolio.

The government’s total foreign borrowings reached nearly US$9.2 billion in the 2016-2017 period. During the 2016-2017 period, the Ministry of Finance imposed stricter regulations on issuance and management of government guarantees. As a result, the growth rate of government guaranteed loans plunged from 27.5 percent in 2011 to 1.4 percent in 2016, ensuring public debt safety and national financial security.

According to the Ministry of Planning and Investment, the development of public debt scenarios should follow economic growth scenarios. Specifically, the Ministry of Planning and Investment has sketched two economic development scenarios for Vietnam in the 2018-2020 period, one of medium growth and one of high economic growth. The basic, medium growth scenario is more likely.

Under the basic scenario, investment in the public sector would help maintain a steady growth rate, playing an important role in regulating the economy. This economic model could see more restructuring, but capital and exports are expected to remain the backbone of economic development. The financial system is projected to maintain its stability, while financial and monetary management are expected to be flexible.

A higher GDP growth rate would be achieved under the high economic growth rate scenario if the economy can sustain the results expected in the basic scenario in addition to government economic reform and governance efforts aimed at removing bottlenecks in several sectors of the economy.

Vietnam’s public debt is expected to stand at 63.92 percent of GDP in 2018, 63.46 percent in 2019, and 62.58 percent

in 2020.

Hoang Chau