Public Debt: Growing Pressure

Bad debt is the hot topic last year as it threatened the stability of the banking system and the macro economy. This year, public debt and bad debt become “buddies.” Public debt is no longer a far-fetched story for most people as in previous years. Now, what Vietnam has done, how much it has borrowed and how much it has spent have become very familiar to them.

 

According to official figures released at the National Assembly, outstanding public debt was 54.2 percent as of the end of 2013; outstanding government debt was 42.3 percent, and foreign debt of the country was 37.3 percent of GDP. The respective figures were forecast at 60.3 percent, 46.9 percent and 39.9 percent at the end of 2014.

 

In the report to the National Assembly, the Government assessed that "Public debt, government debt and national foreign debt are still in the safety zone defined by Resolution 10 of the National Assembly.” The report also showed that debt repayments accounted for 14.2 percent of the country’s budget revenue. But, if swapped loans had been counted, the ratio would have been 26.2 percent. The Prime Minister also admitted that budget deficit remained high and public debt increased rapidly.

The Ministry of Finance said the State Budget collected over VND636 trillion in the first nine months of 2014 but it spent nearly VND640 trillion for recurrent expenses and debt repayments. National Assembly Chairman Nguyen Sinh Hung remarked that the budget spending structure was now very bad because up to 72 percent of total budget spending was used for recurrent expenditures and nearly 30 percent was used for debt repayment and development investment.

 

These data showed the budget is very tight. We almost have no money for development investment.

 

According to the Government’s Report to the 32nd meeting session of the Standing Committee of the 13^th National Assembly, the State budget will be much difficult in 2015. Debt repayment value surges while sources for adjusting base salaries have not been sought out. In 2015, the budget will give priority to national defence and debt repayment. Public debt will balloon, estimated at 64 percent of GDP at the end of 2015.

 

Direct debt repayment to budget revenue was projected at 25.9 percent in 2014 and 31.9 percent into 2015, said Phung Quoc Hien, Chairman of the National Assembly’s Commission for Financial - Budgetary Affairs. As debt increases sharply, the government’s direct debt repayment has exceeded the limit of 25 percent.

 

Budget deficit is not a new issue as Vietnam is now in the stage development investment. But, prolonged and unimproved deficit has weakened the national financial health.

 

Planning and Investment Minister Bui Quang Vinh said "The money for development investment has never been that low. Development investment accounts just 17 percent of total spending.” According to the "Law on State Budget, overspending is only used for development investment. Of VND226 trillion of budget deficit by 2015, only VND195 trillion was allocated to this field. It means that a big amount of overspending money was used for recurrent expenses. In illustrating the status of tight budget, Minister Vinh pointed out that the Central Budget had only VND47 trillion but it still had to pay two banks and balance the budget for the Ministry of Transport in 2014. The ministry got VND2 trillion but it in fact needed at least VND20 trillion for counterpart pooling.

 

Of course, Vietnam has a low economic starting point. As the country is still poor, budget deficit and increased public debt is normal. But, the wastefulness is alarming in the face of poverty. The public frustrated at useless investment made from borrowed money. A typical example is a dormitory project in Lam Dong province, which cost VND227.8 billion, of which government bonds were VND215.1 billion and local funds were VND12.7 billion. After the two modern hostel blocks were completed and put into use, only one student resided although it had 2,000 places. At lot of reasons have been cited to explain for the uselessness of this dormitory, like low housing demand of students, poor infrastructure and inconvenient traffic system.

 

At the Autumn Economic Forum 2014, Dr Tran Du Lich attributed improper investment decentralisation to the wasteful and ineffective public investment.

 

Although the Government affirmed that public debt is within the limit, the National Assembly’s Commission for Financial - Budgetary Affairs thought that the State budget is in difficulty. The commission asked the National Assembly to have plans and solutions to reduce public debt.