(VNS) Nguyen Tri Dung, national manager of the Macro Economic Policy Project of the National Assembly's Economics Committee spoke with Thoi bao Ngan hang (Banking Times) newspaper about public debt in Viet Nam.
The restructuring of public investment is one of the three main components of the nation's restructuring process. However, the National Assembly Economics Committee says that public investment remains scattered and serves a certain interest group. How do you respond to that comment?
Prime Minister Nguyen Tan Dung has just approved the Master Plan on Economic Restructuring for the 2013-20 period, with a growth paradigm change towards higher growth quality, efficiency and competitiveness, which focuses on reorganising public investment, credit institutions and State-owned enterprises (SoEs). This is an indication that we have switched from the old policy ideology to a development ideology. And our public investment policy must be adjusted to make it more efficient and to reduce pressure on public debt.
The National Financial Monitoring Committee has warned about the stress caused by public debt with a plan to sell government bonds. Has our public debt reached a level of alarm?
I think if the selling of government bonds has turned out to be a campaign over one location, it will have negative effects on the process of restructuring public investment. Proceeds coming from the bond sales are likely to become a factor to the ballooning of short term investment projects in many localities.
Under the budget law, the term ‘national budget' refers to both the state and local budget, with Circular 81/2012 TT-BTC, issued by the Ministry of Finance, serving as a guiding document for local governments on their bond sales. This document requires local governments to bear full responsibility for the payment of bonds' principle and interest.
However, the local budget is part and parcel of the national budget. So in the worst case, if any local government cannot pay the bonds' principle and interest, the Government has to take full responsibility of that, which will result in risks incurred to the public debt and to the debt owed by the State-owned enterprises.
According to the Ministry of Finance, Viet Nam's public debt is still under control. Do you agree?
According to the first public debt newsletter issued on December 31, 2011 by the Ministry of Finance, Viet Nam's public debt was VND1,392 trillion ($66.6 billion), equivalent to 54.9 per cent of GDP in 2011. This figure signifies that our public debt is in the threshold of international standards.
With the release of the annual debt bulletin, the Ministry hopes that it will be able to provide full and timely data on public debt to the public.
What's more important is that the main contributor to the increase of public debt is the SoEs, including enterprises of which the government's ownership is over 50 per cent. Considering that quite a large number of SoEs are now on the verge of bankruptcy, we have to analyse what has caused their debt.
In one way or another, the government has to bear the brunt. In order to have to pay off such debts, the government has to issue government bonds - a reason leading to the hiking of the national public debt.
In 2011, our sovereign debt accounted for 41.5 per cent of the GDP - still within the safe threshold. But if the debt surpasses 50 per cent of the GDP- in order to cover the investment cost of major projects of the country, plus bad debts from the SoEs- then it is likely that the public debt will continue to climb up to 66.8 per cent. This has happened to Egypt, Bolivia, Peru and others.
In addition, non government-guaranteed sovereign debts from SoEs has already accounted for 10.6 per cent of the GDP while their debts owed to the domestic banking system stood at nearly 16.5 per cent. So all in all, our public debt might have reached 95 per cent, surpassing the standard threshold of 60 per cent of the GDP.
So in your opinion what should the government do to control the bad debt?
I think the Government should focus first on applying prudent and efficient monetary policies, particularly on public spending and investment. At present, our public investment is inefficiently scattered, leading to waste. I believe if a good disciplinary system is in place and high efficiency of the public investment is promoted, then we'll achieve the set objectives in the economic restructuring plan.
The restructuring scheme reflects a very basic ideology that Viet Nam must change the way it grows, develops and performs a drastic reform to create a new dynamic system and a new enforcement institution to ensure resources are well-allocated. — VNS