April 25, 2019 07:13

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Public debt control is on the right track

16:49 | 06/11/2018

VCN - Under the drastic management of the Government, the management, mobilization and use of loans and repayment of public debt, the Government debt in the period 2016-2018 has achieved many positive results, tying with the objectives and tasks of public debt management in accordance with the resolutions of the National Assembly, the Government on socio-economic development, the financial plan and the state budget estimates.

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In the period 2016-2018, 88 ODA loan agreements, foreign incentives have been signed. Photo: ST.

Tightening debt targets

According to the Department of Debt Management and External Finance, since 2016, the Ministry of Finance has developed and implemented debt management tools actively, has submitted to the Prime Minister for issuance of approval decisions on Government's debt repayment plan and debt limits in 2016, 2017 and 2018 on the basis of Resolutions of the National Assembly on annual state budget estimates.

In addition, the Ministry of Finance has been in charge of coordinating with relevant agencies to develop and submit to the Prime Minister for issuing the Decision No. 544/QD-TTg which is approving the medium-term debt management program in the period 2016-2018 to continue to focus on debt management, implement the objective of mobilizing capital at low cost associated with a reasonable level of risk, ensure the ability to pay debts and promote the development of capital markets, continue to restructure public debt, secure public debt and national financial security.

Debt repayment is strictly implemented, ensuring full and timely payment. Debt liabilities guaranteed by the Government and local government debt has been used by the units using the loan funds to repay directly to domestic and foreign creditors. Debt targets are strictly controlled and are basically within the limits set by the National Assembly’s Resolution.

On the basis of the plan for borrowing and repaying of the Government and debt limits in 2018 which is approved by the Prime Minister with the 2018 GDP which is estimated at 5.555 trillion VND, the public debt ratio is expected at 61.4% of GDP by the end of 2018; the Government debt at 52.1% of GDP and the country's foreign debt at 49.7% of GDP. Regarding the public debt structure, it is expected that by the end of 2018, the government debt will account for 84.8%; Government-guaranteed debt accounted for 14.2% and local government debt accounted for nearly 1%.

Among the 6 basic targets for debt approved by the National Assembly for the period 2016-2020, five of them have been implemented. The national debt repayment obligation of 2017 alone, compared with the total export turnover of goods and services at 36%, it increased sharply compared to 2016 (up 6.3%), exceeding the permitted limit (less than 25%) mainly due to sharp increase in capital withdrawal and repayment of short-term foreign loans of enterprises and credit institutions. The increase of short-term foreign borrowing by credit institutions is to support short-term credit capital and regulate foreign currency liquidity in the system.

Boosting the domestic bond market

In the period of 2016-2018, one of the successes of public debt management is that the Government borrowing structure will continue to be implemented in the direction of gradually increasing the proportion of domestic borrowing, gradually reducing the level of foreign loans.

Sharing on the National Assembly meeting, Minister of Finance Dinh Tien Dung said that in this period, the Government mobilized 1,143.3 trillion VND of loans to offset the deficit and development investment, averaging 381.1 trillion VND/year, a slight increase compared to the average level in the period 2011-2015 (about 376.4 trillion VND), mainly through the issuance of Government bonds in the domestic market, ODA loans and preferential loans of the foreign financiers.

Mobilization of domestic loans continues to play a key role. The average domestic borrowing rate for 2016-2018 accounts for about 76% of the Government’s borrowing demand (compared to 73% in 2011-2015). In the Government debt structure, the domestic debt accounted for about 60% and foreign debt was estimated at 40% at the end of 2018 (the proportion of domestic debt accounted for 40% of the Government debt in 2011, rising to 55 % by 2015).

Looking more specifically at the mobilization of foreign loans, we can see that, in the period 2016 to end June 30, 2018, the relevant agencies have negotiated and signed 88 ODA loan agreements, with foreign donors totaling $US 10,056.4 million. In which, the three major donors, including the World Bank, the Asian Development Bank and the Japan International Cooperation Agency (JICA), account for 30%, the rest are other donors.

Regarding the situation of disbursement of ODA loans, the Government's preferential loans for the period 2016-2018, the total disbursement of foreign loans for medium-term public investment for the period 2016-2018 is 171.6 trillion VND, accounting for 63% of the Government's total mobilized capital. The rest of the period 2019-2020 is 128.4 trillion VND, including the general reserve, the rest is nearly 16 trillion VND and the reserve of 10% of the capital allocated by the agencies in charge. Although the proportion of disbursement of ODA loans and preferential loans in public investment and state budget’s investment has tended to decrease (from 36.6% of investment from the state budget in 2010 to 32% in 2016 and 27.8% in 2017), this is still an important source of funds in the context of state budget for development investment is still limited, while the demand for infrastructure development is very large.

Notably, implementing the policy of the National Assembly on restricting the issuance of international bonds under the National 5-Year Financial Plan 2016-2020, since 2016, the Government does not deploy the broadcasting business. Issuing government bonds on the international capital market.

Domestically, the mobilization of capital is also quite positive. According to the Minister Dinh Tien Dung, the long-term structure of Government bonds from 10-30 years is gradually accounting for a high proportion of the total volume released annually and higher than the previous period (about 16% in the 2011-2015, about 86.4% in the first nine months of 2018, over 55% in the period 2016-2018).

The remaining term of Government bond portfolio is gradually rising and higher than in the previous period, 3.2 years in 2011, 6 years in 2016 and 6.7 years in the first 9 months of 2018. The average issuance interest rate decreased gradually and is lower than in the previous period, in 2011 is 12%/ year, 2016 is 6.7%/ year, in the first 9 months of 2018 is 4.5%/ year, contributing to save cost of mobilization for state budget. The structure of investors continued to diversify, the proportion of holding Government bonds of commercial banks decreased. Specifically, by the end of 2017, the proportion of Government bonds held by commercial banks is 53.1% (formerly 90%); The securities and insurance business is 46%.

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The focus of capital mobilization through the issuance of Government bonds has contributed to boosting the development of the Government bond market, serving as a channel for effective mobilization of capital for the state budget, contributing to the restructuring of the Government's debt.

According to the Government's Decree No. 219/2013/ND-CP on the management of foreign borrowing and repayment of enterprises that were not guaranteed by the Government, the State Bank will have to monitor the implementation of the limit on self-borrowed of foreign loans; develop and submit to the Prime Minister for approval and organize the application of measures to manage the borrowing and self-repaying of foreign loans.

Therefore, the Ministry of Finance has asked the State Bank to explain about the target of foreign debt repayment of the country that exceeded the target allowed by the National Assembly in 2017 and the target of repayment of foreign debt of enterprises that is not guaranteed by the Government in the period 2018-2020.

By Hong Van/ Kieu Oanh