Public debt increasing rapidly, Vietnam under repayment pressure
If Vietnam becomes insolvent, this will have serious implications for the national economy, not just for several years, but for a few decades, economists have warned.
According to the Ministry of Finance, in 2015, the government’s direct debt payment accounted for 16.1% of the total budget revenue. In 2016, the accounts payable are estimated to account for 14.7% of the budget revenue. If including all obligations, such as the debt swap, the figure would be 24%.
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Dinh Trong Thinh, a lecturer of the Finance Academy, warned that the government’s debt has reached the “dangerous level’, especially foreign debt.
“Some people may think that Vietnam should borrow as much as possible to develop the economy. However, the problem is that Vietnam has borrowed too much in recent years,” Thinh said.
“Vietnam’s foreign debts have exceeded the threshold recommended by international institutions. Meanwhile, the repayment capability is uncertain,” he commented.
In the past, Vietnam did not have to reserve much money for repayment because 70-80 percent of its loans are from ODA (official development assistance) with preferential interest rates, and the ODA loans were still in a grace period.
However, commercial loans have increased in recent years, while the grace periods of ODA loans are nearly finishing.
Thinh urged to renovate the administrative procedures and tighten the budget spending, or it would become insolvent.
“If this happens, the consequences will be very heavy which will last not only for several years, but for several decades,” he said.
“If Vietnam declares insolvency, Vietnam will not be able to continue borrowing money, while inflation and other problems will arise,” he said.
International donors have warned that they would stop granting ODA to Vietnam in several years as Vietnam is becoming an average income economy.
However, Thinh commented that this might not be a bad thing for Vietnam. “Once the government and businesses have to borrow money at higher interest rates, they will have to think carefully before borrowing and try every possible means to use the loans in the most effective way,” he said.
Vuong Dinh Hue, during his term as Minister of Finance, asked enterprises to save 10% of expenses when implementing projects.
