Vietnam's Foreign Debt Remains Safe Limit

 

After more than 10 years of active restructuring and repayment, Vietnam’s foreign debts now amount to 34 per cent of GDP, though at the moment, Vietnam is attracting tens of billions of USD in foreign loans. Figures released by the Ministry of Finance showed that the Vietnam’s total foreign debts amounted to US$16.8 billion by the end of 2005.

 

The confidence of international financial community in Vietnam’s effective utilisation of foreign loan and debt management resulted in ever increasing commitments from ODA loans every fiscal year. Most recently, at the CG conference in 2005, international organisations pledged to further provide Vietnam with US$3.7 billion, an increase of 10 per cent compared with the last year’s commitment. The confidence of the international financial community in Vietnam’s borrowing and repayment capacity also showed in their purchase of US$750 million of Vietnam’s bonds issued last November, said Ms Truong Thai Phuong, Head of Department of External Finance, Ministry of Finance.

 

One of the core tasks of the ministry in the 2006-2010 period is to continue increasing national foreign currency reserves, maintaining it at a reasonable level, ensuring the repayment capacity of foreign loans and restructuring prior debts, applying means such as buying, selling and exchanging debt in order to reduce national loan repayments.

 

A forecast by the Ministry of Finance said that the national total foreign debts (including public and private debts) will reach about US$24-25 billion by 2010, up from the current 34 per cent because Vietnam will borrow a further US$14-15 billion while the national foreign loan repayment is about US$10-11 billion. The total investment of the 2006-2010 period is estimated to be approximately 36 to 40 per cent of GDP, which is 1.5 times higher than the 2001-2005 period.

 

Predictably, 35 per cent of investment capital will come from the outside including loans. Therefore, in the medium-term debt management programme, the Ministry of Finance is paying special attention to maximum attraction and effective utilisation of external debts to serve national economic and social development. The Ministry of Finance said borrowing should ensure the lowest cost and effective repayment capacity, without allowing the country to fall into serious debt, a situation that would have a negative impact on macroeconomic figures and the international balance of payments.

 

According to the Ministry of Finance, to maintain safe levels, the total foreign loans must be put under 50 per cent of GDP of which the Government’s repayment is not more than 12 per cent of State budget revenue. To obtain this target, it is necessary to control the over-expenditure of the state budget under 3-3.5 per cent of GDP. In addition, we should develop borrowing plans, ensuring reasonable debts and better risk management. To maintain foreign debts within safe limits and national financial security, according to the Ministry of Finance, we should boost export and foreign currency revenue for repayment to avoid overdue debts and continue restructuring national and Government foreign debts.

 

According to the 2006-2010 medium-term debt management programme, loans will directed at investment to create revenue and increase accumulation rather than just spending. The Government will not seek commercial loans or loans without high preference and others with high-risk exchange rates to invest in infrastructure projects. Apart from borrowing, Government agencies must manage risks emerging from domestic and foreign economic changes to minimise the long-term cost of repayment such as risks of exchange rates, interest rates and the repayment capacity of state budget and credit.