Public debt speedily approaching a red line

This announcement followed mid-year reports from the Ministry of Finance, which said that the ratio of public debt was close to the National Assembly-set ceiling of 65 % of the country’s gross domestic product (GDP).

In Vietnam, public debt includes Government debt, debts underwritten by the Government, and debts incurred by provincial and municipal authorities.

Government debt alone, which is domestically and internationally incurred by the Government and the finance ministry, exceeded a cap of 50 % of GDP.

The Voice of Vietnam (VOV) reported that the inefficient use of the State budget nationwide exposed the risk for public debt.

The VND12 trillion (US$533.33 million) Ninh Binh fertiliser plant of the Vietnam National Chemical Group in nothern Ninh Binh Province was struggling with annual losses of VND2 trillion.

Operations at the VND7 trillion Dinh Vu polyester factory, in which the Vietnam Oil and Gas Group held a controlling stake, halted more than a year after it went on stream in 2014. The facility remains idle now.

Hanoi’s VND8.77 trillion Cat Linh – Ha Dong elevated railway project was expected to be completed last year, yet it has not come into operation even with a hike of nearly VND7 trillion in investment capital.

Investment capital in a project to expand National Highway 5 in the capital city has nearly doubled from VND3.53 trillion to VND6.66 trillion, due to a delay of up to six years in implementation progress.

“Implementation costs doubling or trippling initially-estimated levels show inefficiency in public investments. Misspending has caused public investments less reliable,” economist Pham Chi Lan told VOV.

The finance ministry also said that there are about 7,000 unnecessary vehicles allocated for civil authorities nationwide. For example, there are some 170 redundant vehicles at the Ministry of Agriculture and Rural Development, and nearly 60 similar units at the Ministry of Industry and Trade.

Many ministries, sectors and localities still proposed new vehicle purchases, however.

State-invested enterprises

The State Audit Office of Vietnam reported last year that many enterprises with State capital still suffered business losses over the last few years.

Among them were the Vietnam National Shipping Lines, which lost on average VND3.4 trillion every year, and PetroVietnam Construction Corporation, whose annual losses averaged VND3.5 trillion.

Industry insiders said the Government still regularly assists these firms either with capital supplements, or debt wiping, or swap–moves that require it to issue bonds and cause public debt hikes.

Nguyễn Đức Kiên, Vice Chairman of the National Assembly’s Economic Committee told VOV: “In a normally operating economy, enterprises pay debts themselves. Still in the developing domestic economy where businesses need flexible conditions to develop, the Government must guarantee their loans while they are responsible for debt payment.”

The latest MPI data revealed that State budget revenues totaled VND603.70 trillion, while budget spending reached VND715.20 trillion in the first eight months of this year. This meant that overspending amounted to VND111.30 trillion in the period.

Economic uncertainty

Bui Ngoc Son, from the Institute for World Economics and Politics, told VOV that budget collection was likely to miss targets in a context that economic growth prospects remained uncertain.

He hinted at situations where the country had to use new loans to cover old debts in recent years.

Economist Ngo Tri Long said Vietnam must closely control borrowing sources while enhancing transparency in public investments. It will be vital for the country to crack down on corruption and misspending, he added. 

This issue has clearly been recognised at the highest levels, yet whether drastic actions will be taken remains “to be seen”, he reportedly said.

The Prime Minister said in a recent directive that Vietnam will temporarily halt granting Government guarantees for loans to new projects next year to ensure a secure level of public debt. Government-backed loans were gradually tightened this year.

National Assembly deputies speaking at a legislature session in Hanoi in July urged the strengthening of financial discipline in the wake of official reports showing a rise in the budget overspending as well as shortcomings in budget operations.

"The Government has made commitments to ensure public debt sustainability and to rebuild fiscal buffers. It is important that this commitment is now followed through with concrete actions to balance the budget over the medium term," said Sebastian Eckardt, lead economist for the World Bank in Vietnam at a July meeting.

"Efforts to rein in fiscal imbalances will have to be balanced with reforms to create fiscal space to maintain investments in critical infrastructure and public services,” he said.