Wednesday, 24 Jul 2019
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ECONOMY

Vietnam's servicing pressure remains high despite public debt at three-year low

Updated at Thursday, 23 May 2019, 14:25
The Hanoitimes - It is too early to say Vietnam’s public debt is at safe level, especially when the available fund could only cover the interest rate, not the principal amount, said Minister of Finance Dinh Tien Dung.
Vietnam’s public debt hit the lowest since 2015 at 58.4% of GDP as of the end of 2018, much lower than the ceiling of 65%, however, the government is not considering taking additional loans due to high repayment pressure, according to Deputy Prime Minister Vuong Dinh Hue. 
 
Illustrative photo.
Illustrative photo.
With the country’s nominal GDP in 2018 at VND5,500 trillion (US$235 billion) and public debt at VND3,200 trillion (US$136.72 billion), the public debt per capita stood at VND32 million (US$1,367), down VND700,000 (US$29.91) from VND31.3 million (US$1,337) in 2017. 

Government expenditures for both principal and interest payment accounted for 27.6% of the total budget revenue, but in 2018 the rate declined to 18.3%, Hue said at a discussing session at the National Assembly on May 22, but saying the pressure for repayment remains huge. 

Moreover, public investment in the 2016 – 2020 period is not allowed to exceed the threshold of VND2,000 trillion (US$85.44 billion), and until now has not reached this ceiling, he said. 

There remains room for the next government to use public fund for major infrastructure development projects, Hue said, but again reiterated the public-debt-to-GDP ratio of 58.4% is high. 

A decline in the country’s public debt was thanks to the government’s tightened grip on guaranteeing debt, Hue continued. 

In 2018, there was only a thermal power project receiving a government-guaranteed loan, while none has been recorded so far in 2019, Hue added. 

According to Hue, foreign debt previously accounted for 60% of total public debt, with the remaining 40% being domestic debt, but foreign debt now only makes up 40% of the total, thus relieving pressure on the exchange rate. 

Moreover, the average maturity period of foreign debt is seven years with low interest rates, compared to two- or three-year maturity period with high interest rates in years ago. 

There have been foreign debts with maturity period of over 15 years in 2018, Hue revealed. 

At the meeting, Minister of Finance Dinh Tien Dung said it is too early to say Vietnam’s public debt is at safe level, especially when the available fund could only cover the interest rate, not the principal amount. 

More importantly, the efficiency of projects financed by public investment fund, including state budget, government bonds or ODA, remains questionable, Dung continued. 

Dung suggested to reconsider loan policies, referring to the fact that the actual interest rate of foreign debt could raise to 6 – 7% from the original 2-3% per annum if taking into consideration the volatility of the exchange rate and devaluation of national currency. 
Hai Yen
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