VND devaluation won’t affect public debt: economists
Contrary to all predictions, economists have reassured the public that the weaker dong will not worsen the public debt burden of the state.
Nguyen Tri Hieu, a renowned banking expert, though lauding the State Bank’s decision to devalue the dong, warned that the weaker dong will worsen the public debt, which is now at an alarming level.
“The government and business debts in foreign currency account for a relatively big proportion of the total public debt. Therefore, the debt duty will be heavier,” he said.
However, Dr. Nguyen Duc Thanh, head of the Vietnam Economics & Policy Research Center (VEPR), said the dong/dollar exchange rate adjustment would make the public debt increase.
Thanh said Vietnam’s foreign debts are not only in US dollar, but also in Japanese yen and euro. Meanwhile, yen and euro have depreciated rapidly in recent months.
This means only debts in US dollars will become bigger if they are calculated in dong.
Thanh, who repeatedly urged the State Bank of Vietnam to devalue the dong recently, said the weaker dong will even help the debt payment.
“As the exchange rate adjustment can help boost exports and foster the national economy, businesses will make bigger profits, which will help improve solvency,” he commented.
Dr. Nguyen Mai, a renowned analyst, also said the exchange rate adjustment would not seriously affect the public debt.
“The weaker dong may have an impact on Vietnam’s public debt, which is now relatively high. However, if noting that we have to pay US$1 billion in both principal and interest every year, we can see this is not a high figure,” Mai said.
Nevertheless, though affirming that the exchange rate adjustment will not have a big impact on public debt, he does not think Vietnam should devalue the dong further.
“In theory, a weak dong will help boost exports, but only some export companies can benefit from this. Meanwhile, Vietnam needs to import materials to make products for domestic consumption and export,” he explained.
Experts from JICA (Japan International Cooperation Agency) some days ago said that the pressure on the government’s debt payment obligations was not from loans from ODA, but budget overspending, especially high regular spending, and the high volumes of government bonds issued.
The value of the bonds issued in 2014 was four times higher than that of 2010, while 55% of the bonds issued in the year were short-term ones (which matured within three years), which put pressure on the government’s debt payment obligation.
The Ministry of Finance on August 12 also affirmed that the impact of the exchange rate adjustment on the public debt will be moderate.
“The government and business debts in foreign currency account for a relatively big proportion of the total public debt. Therefore, the debt duty will be heavier,” he said.
However, Dr. Nguyen Duc Thanh, head of the Vietnam Economics & Policy Research Center (VEPR), said the dong/dollar exchange rate adjustment would make the public debt increase.
Thanh said Vietnam’s foreign debts are not only in US dollar, but also in Japanese yen and euro. Meanwhile, yen and euro have depreciated rapidly in recent months.
This means only debts in US dollars will become bigger if they are calculated in dong.
Thanh, who repeatedly urged the State Bank of Vietnam to devalue the dong recently, said the weaker dong will even help the debt payment.
Dr. Nguyen Mai, a renowned analyst, also said the exchange rate adjustment would not seriously affect the public debt.
“The weaker dong may have an impact on Vietnam’s public debt, which is now relatively high. However, if noting that we have to pay US$1 billion in both principal and interest every year, we can see this is not a high figure,” Mai said.
Nevertheless, though affirming that the exchange rate adjustment will not have a big impact on public debt, he does not think Vietnam should devalue the dong further.
“In theory, a weak dong will help boost exports, but only some export companies can benefit from this. Meanwhile, Vietnam needs to import materials to make products for domestic consumption and export,” he explained.
Experts from JICA (Japan International Cooperation Agency) some days ago said that the pressure on the government’s debt payment obligations was not from loans from ODA, but budget overspending, especially high regular spending, and the high volumes of government bonds issued.
The value of the bonds issued in 2014 was four times higher than that of 2010, while 55% of the bonds issued in the year were short-term ones (which matured within three years), which put pressure on the government’s debt payment obligation.
The Ministry of Finance on August 12 also affirmed that the impact of the exchange rate adjustment on the public debt will be moderate.