14.08.2020, 14:31

Take public debt ceiling increase into account to ensure goal of national financial security and stability

 VCN - Before the impact of the Covid-19 pandemic, the Prime Minister had a policy to take the public debt rate increase of 2-3% of GDP into account to have more resources to support the economy.

Take public debt ceiling increase into account to ensure goal of national financial security and stability

Mr. Vo Huu Hien

Mr. Vo Huu Hien, Deputy Director of the Department of Debt Management and External Finance, Ministry of Finance spoke to the press aboutthis issue.

How will the consideration of increasing public debt rate by 2-3% of GDP to have more resources to support the economy affect the repayment ability for foreign loans and national financial security, sir?

According to the public debt borrowing and repayment plan 2020 endorsed by the Prime Minister, the Government’s loan plan in 2020 is VND501 trillion, of which domestic loans are VND394 trillion and foreign loans are VND107 billion.

In case of increasing loans by 2-3% of GDP to supplement resources for development investment and to support the economy to respond to the Covid-19 pandemic, according to our calculations, the public debt and government debt indicators are still in the rate allowed by the National Assembly.

However, the additionalborrowing plan of 2-3% of GDP in 2020 equivalent to VND180-240 trillion (on the basis of re-evaluated GDP) compared to the plan approved by the Prime Minister will also be a remarkable challenge.

On the one hand, the disbursement of public investment capital, including ODA loans and foreign concessional loans, has been very slow since the beginning of the year. The implementation of 100% of the year’s capital plan assigned by the National Assembly and the Government requires a great effort. Currently, more than US$10 billion of signed ODA loans, foreign concessional loans are prioritized to be disbursed in this year as well as in the next period as committed with sponsors.

The mobilization of foreign loans for new projects requires a long preparation time, possibly up to 2-3 years, because it requires many procedures to be carried out before finishing negotiations, signing and disbursement. Meanwhile, the mobilization of foreign loans to directly support the budget can be implemented faster, but usually these loans are small in scale and have policy constraints.

On the other hand, the capital absorption of the government bond market is limited. The additional issuance of a large amount of capital will lead to the risk of increasing pressure on the Government’s borrowing costs or leadto the risk of refinancing in the following years when the Government has to issue short-term bonds to meet rising borrowing demand.

In addition, research on other countries shows that overspending; the rebound of public debt and the participation in debt relief initiatives of some international organizations have directly and negatively affected the credit rating of some countries.

This will affect the prestige and image of Vietnam in the international arena and increase the borrowing costs for the entire economy.

From the lessons of some countries around the world, the mobilization of new loans, including Covid-19 aid, should be evaluated and selectedcarefully, compared between cost and benefit to ensure the repayment ability in the medium and long term before deciding to borrow.

If the National Assembly approves the adjustment to increase the state budget deficit rate in 2020, it is necessary to take into account mobilization from domestic financial reserve funds, from the state budget, and may also have to consider the plan of issuing government bonds in the international capital market. At the same time, it is also necessary to diversify other resources such as aid sources and foreign direct investment to reduce pressure on public debt.

How will the above consideration of public debt ceiling increase be done, sir?

The public debt ceiling rate allowed by the National Assembly for the 2016-2020 period is 65% of GDP. The authority to decide and adjust the public debt ceiling for each 5-year period belongs to the National Assembly.

By the end of 2019, public debt was about 55% of GDP. For 2020, with economic growth and state budget revenues being negatively affected by the pandemic, public debt may increase to 57-58% of GDP, but there is stillroom left before considering the plan to raise the public debt ceiling.

In the context that the world and the country have many challenges, a bright spot since the beginning of the year is that Vietnam’s national credit rating has been maintained by all three credit rating agencies. Meanwhile, in the first seven months of 2020, up to 40 countries in the world and in the region had their credit ratings downgraded, there were 104 rounds of national credit rating downgrades by three crediting rating agencies S&P, Moody’s and Fitch, mainly due to the anti-pandemic fiscal support packages leading to a sharp increase in public debt burden in these countries.

In order to maintain the credit rating, first of all, it is the Vietnamese Government’s success in curbing the domestic Covid-19 pandemic, thereby confirming the strong recovery potential of our country’s economy after the pandemic.

In addition, it must be mentioned the very important contribution of the achievement of consolidating the financial – budget situation, sharply reducing overspending and public debt rate, creating room for main provisions to respond to macro risks as we are facing in 2020.

For the public debt safety indicators in the 2021-2025 period, the National Assembly will consider and approve in 2021. The Politburo’s directions in Resolution 07-NQ / TW are: the restructure the State budget and public debt management must ensure efficiency and sustainability, “only spending within the economy’s capacity and borrowing only within debt repayment ability”; gradually reducing the public debt ratio by 2030 not exceeding 60% of GDP (on an unadjusted basis),proceeding to reduce the budget deficit rate and the public debt to GDP ratio, towards the balance of State budget revenue and expenditure.

Thus, the calculation and proposal of the public debt ceiling to submit to the National Assembly for consideration and approval will be carefully considered to ensure the goal of national financial security and debt sustainability. It is suitable for the borrowing ability in the market to meet the need of investment and development; on the other handit is suitable with the repayment ability of the budget and does not affect the national credit rating as well as the Vietnam’s image in the international arena.

Thank you, Sir!

Recorded by Hong Van / Huyen Trang