Foreign Debts still Controllable

The development of the strategy on foreign debt borrowing and payment is based on the 2006-2010 socio-economic development plan. For foreign donors and investors, when the programme of action is announced, it will be a ground for Vietnam’s debt payment ability. With the announced debt structure, it will help remove worries about debt burden on our descendants in the future. Under the strategy, estimated total foreign debts each year account for between 34 and 38 per cent of Vietnam’s GDP while the safe ratio according to the international practice is 50 per cent of GDP.

 

According to figures of the Ministry of Finance, total foreign debts of Vietnam are now between US$13 billion and 14 billion. As the Vietnamese Government has paid and is paying foreign debts, the absolute figure and the debt GDP ratio have reduced significantly since 2000. The Vietnamese Government has successfully settled debts of the London and Paris Clubs. Over 90 per cent of the debts the Government has borrowed come to ODA and commercial loans. In 2000, debts accounted for 39 per cent of GDP. The figure fell to 37.4 per cent in 2001, 34 per cent in 2002 and 2003. The figure was put at 35.8 per cent in 2005 and 36.6 per cent in 2006. On average in five years, 2001-2005, the ratio stood at 35.6 per cent.

 

Under the strategy, the figure may reach 37.5 per cent this year, 38 per cent in 2007 and 2008, and then may fall to 37 per cent in 2009 and 2010.

 

Many legal documents on foreign debt management have been amended or issued. In the strategy and orientation on foreign debt borrowing and payment, there are new contents, so it is necessary to develop a programme of action to implement properly. To ensure the effectiveness of foreign debt use, the programme develops five principles as follows: to promote industrialisation and modernisation, to boost external ties, and to take advantage of foreign resources, including ODA and FDI; to borrow for economic development and national construction, and to restructure debts in accordance with the envisaged economic orientations; to increase the effectiveness of capital use as the primary standard for making decision on borrowing foreign debts and to develop capital use based on concrete projects; to taken into account payment capability; and to ensure a good link and promote international economic integration.

 

Under the strategy on foreign debts, we will use foreign commercial debts when really necessary and the debts should be used effectively. At present, 85 per cent of foreign debts of Vietnam come in soft loans. Only ten per cent comes from commercial debts. Alongside Vietnam’s economic development and increased per capita GDP and foreign direct and domestic investment, soft loans and ODA loans may gradually reduce. Instead, normal debts, including Ordinary Capital Resources (OCR) of the Asian Development Bank (ADB), IBRRD of the World Bank or other official flows (OOF) of the Japan Bank for International Cooperation (JBIC), may increase.

The payment of debt is carefully calculated in the annual budget. At present, only a third of the budget expenditure for debt payment is used to pay foreign debts and two thirds, for domestic debts. This impresses little pressure on the State budget and Vietnam’s debt payment capability. Total debts borrowed annually under the strategy are planned and balanced in accordance with the need for investment and development as well as budget expenditures. I would like to note that the volume in the strategy is the maximum estimated figure. In fact, the figure may be lower. When the Vietnamese economy gains a high development, generating higher domestic capital, the volume of money we need to borrow from foreign countries will be reduced.