16:39 | 19/07/2016 Economy
In the last five years, Vietnam’s public debt has witnessed a rapid increase, according to the Ministry of Finance. Public debt has increased in terms of speed with an annual rise of 16.7% per year, with an increase of 31.5% in 2012 and decrease by 6.7% in 2015.
Illustrative image (Photo: VNA)
In addition, the scale of public debt has expanded. As of December 31, 2015, the country’s public debt made up 62.2% of its Gross Domestic Product (GDP), a twofold increase compared to 2010. Foreign debt was equal to 43.1% of GDP. However, both numbers are still within safety limits set by the National Assembly at 65% and 50%, respectively.
Loans have seen stricter and costlier conditions. The decrease of the ODA mobilisation rate from 87% in 2011 to 70% in 2015, and the increase of concessional lending from 10% in 2011 to 25% in 2015, meant the shortening of the repayment period and the increase of commercial interest.
Meanwhile, government debt reached 50.3% of GDP, which, surpassed the allowed 50% threshold by 0.3%, according to the Ministry of Finance.
Public debt increased primarily due to the demand for development investment, production and business expansion, and economic restructuring. The capital from public debt loans has basically met the demand for socio-economic development, contributing to macroeconomic stability. The repayment of the government has been implemented in a timely manner, contributing to enhancing national credit ratings.
High public debt is associated to limitations in the state budget collection due to economic difficulties and unstable economic growth due to tax cuts, tax arrears and tax evasion. Meanwhile, there is a rise in recurrent expenditures for more than 11 million people working in the entire political and management system at all levels. Recurrent expenditures accounted for 65% of the country’s total spending, up from 50% last year, according to the Ministry of Planning and Investment.
In order to keep the public debt under control, tough measure should be devised to stabilise recurrent spending, curtail spending and increase collection.
The government’s investment should be narrowed to key economic sectors, while conditions for government bailouts must be tightened.
It is also necessary to urgently restructure public debt towards increasing the proportion of long-term loans to reduce pressure on payment in the short-term. It should be coupled with stablising the macro-economy and ensuring national financial security as top priority.
A public-debt management institution should be built with improved forecasts and analysis capacity, and transparent operations./.