National Focus

Public debt in Vietnam: Risks of “modest wealth, old age and high debt”

By Nga Vu October 19, 2017 | 04:17 PM GMT+7

Viet Nam has low average incomes, a rapidly aging population and low labor productivity, and it is running a risk of becoming a society defined by "modest wealth, old age and high debt”.

The rate of the Government’s debt service is high and increasing. Photo: cafef.vn

This is a conclusion reached at a seminar on October 18, 2017 in Ha Noi titled “Management of public debt in Vietnam: Current status and policy recommendations.The seminar was organized by the Budget Transparency, Accountability and Participation Alliance (BTAP) under Center for Development and Integratio, a Vietnamese non-government and non-profit organization to offer analysis and suggestions regarding the Draft Law on Public Debt Management (replacing the Debt Management Law 2009).

According to the Ministry of Finance’s figures, as of 2016, Vietnam's public debt reached to US$ 94.8 billion, equivalent to 64.73 per cent of GDP and close to the ceiling of 65 per cent of GDP.

Delivering speech at the seminar, Dr. Vu Sy Cuong indicated the main risks of public debt that Vietnam may faces. Specifically, the rate of the Government’s debt service is high and increasing relative to budget revenue, greatly affecting the public debt security.

Le Dang Doanh, a senior economist, said that the public debt was high due to high budget expenditures, loose fiscal discipline, wastefulness and ineffectiveness.

In addition, frequent expenditures and debt repayments amount to 70-71 and 24.5 per cent of total budget expenditures, respectively; Most of the investment expenditures are subject to loans that only afford to pay interest and part of the principal. Ineffective State-owned enterprises are also a heavy burden on the State’s budget.

Therefore, it is urgent and necessary to adjust the budget to avoid a possible financial crisis, Doanh said.

Doanh also made some suggestions on the Draft Law: Only one agency will be determined to be responsible for public debt before the National Assembly and the people, i.e. the Ministry of Finance; The Law should clearly define the personal responsibility and accountability of the individual making the budget expenditures. In case of violations, he/she will bear administrative, financial or criminal responsibilities; Budget expenditures which may increase public debt should be transparently declared…

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