11:34 | 28/07/2016 Finance - Banking
(VEN) - The current public debt has come closer to the upper limit, posing great challenges in ensuring debt safety.
Public investment projects need to be strictly controlled
A report on assessment of Vietnam’s public debt during the 2011-2015 period and solutions for the next five years announced by the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)’s Research Center outlined Vietnam’s current public debt. During the 2011-2015 period, public debt increased by 16.7 percent a year, amounting to VND2,608 trillion as of the end of 2015, a 1.9-fold increase compared to the end of 2011. In particular, the country’s public debt had reached 62.2 percent of gross domestic product (GDP) compared to the upper limit of 65 percent as set by the National Assembly.
Most of the public debt previously was foreign debts or ODA loans with interest rates ranging from one percent to three percent. Vietnam became a middle-income country in 2010, so it is enjoying less incentive by foreign lenders. Therefore, the country borrowed more from domestic sources that accounted for 40 percent of total public debt in 2011 and 57.1 percent in 2015.
The report also indicated inefficient public investments and poor performance of state-owned enterprises. According to the World Bank, Vietnam’s incremental capital output ratio (ICOR) reached 4.88 during the 2001-2005 period, 6.96 in the 2006-2010 period and 6.92 in the 2011-2014 period, showing low efficiency of investments. In addition, public debt management and allocation remained limited.
According to international and domestic organizations, the possibility of Vietnam’s default remained relatively low. However public debt is an urgent matter with these factors that can not be underestimated.
BIDV’s researchers proposed specific measures for strengthening public debt management during the 2016-2020 period. Vietnam should develop and announce the medium-term fiscal plan to improve budget and public debt management in a sustainable way, and consider the establishment of a commission to monitor and control public debt and the state budget. In addition, the Ministry of Finance should provide law enforcement guidelines on the public debt and build the national system of declaring loans.
Together with management policies, improving efficiency of public debt and investments needs to be implemented with more specific steps.
The government should assign the Ministry of Finance to act as a main player in developing projects on improving public debt management efficiency in the third quarter of the year.