The Ministry of Finance has delivered the Decision 65/2005/QD-BTC to halt the 2005 phase III of government bond issue on September 30 after two-months of retailing government bond to raise capital for irrigational and traffic works. Thus, the state just raised 1.35 trillion dong, under the target of 1.5 trillion dong.
Although the State Treasury has made its full effort, the result is not as expected because the task of raising capital this time is more difficult than expected, according to Pham Sy Danh general director of central State Treasury. Specifically, the government had to raise 2.8 trillion dong of education bonds on May 19 to upgrade schools. Under the 2005 plan, the state treasury had to raise 29 trillion dong to balance income and expenditure of the state budget.
In addition, the government had to raise tens of trillion dong of government bond to raise capital for the demand of investment and development. This is the first time the treasury has to raise unused capital two times in a year through retail such as education bond and government bond, so the lower result of the second issue is easy to understand, Danh added.
Moreover, the issue this time met many unfavourable conditions. Firstly, the consumer price index (CPI) continuously has increased since early this year, making a big flow of money in public run into goods market, resulting in the lower demand of buying government bond. Secondly, since early this year commercial banks, joint stock banks and state-owned banks has continuously increased the interest rate along with many promotions and prize-based programmes, making the unused capital flow into these banks instead of the state budget. In addition, the long-term (5 years) and the lower interest rate of government bond than the interest rate in the market are difficulties of the issue, Danh said.
Before fixing the interest rate, the finance ministry and the planning and investment ministry has thoroughly considered how to benefit government bond buyers, the state, and the whole population as the money raised is invested in important irrigational and traffic works.
In an interview with Dau Tu Chung Khoan on government bond interest rate, Pham Phan Dung, head of banking and finance department under the finance ministry said the government bond’s interest rate cannot follow the market’s. On the other hand, it’s a tool of controlling the currency market. Moreover, the interest rate also depends on the speed of disbursing capital raised as well as the effect of projects using state budget. The capital raised is the money that the government borrow its people, the fixing of interest rate depends on many factors but not only to follow the commercial interest rate, Dung said.
The unexpected result of the issue this time is partly because many localities, especially Hanoi and HCM City issue bond for the construction of infrastructure.
Specifically, Hanoi will raise one trillion dong of bonds of 5-year term with a coupon of 8.8%, 0.2% higher than the government bond coupon. In the phase III 2005, Hanoi was assigned to raise 251 billion dong, but it didn’t fulfil the task.