Vietnam’s public debts are believed to have far exceeded the safety level of 60 percent of the country’s gross domestic product (GDP), according to the National Assembly Economic Committee.
In a study jointly conducted by the committee and the United Nations Development Programme (UNDP), it is said that the public debts reached 58.7 percent of GDP as of the end of 2011.
Findings of the study, titled “Vietnam’s public debts: past, present and future,” are to be unveiled in the near future.
The study warns that public debts – seen as unsafe when exceeding 60 percent as suggested by international financial institutions like the International Monetary Fund and the World Bank – will be made worse by bad debts in the State sector.
The study researchers note that the biggest risks lie not in the debts shown in book keepings, but rather the bad debts incurred by State-owned enterprises that one day the State budget will have to cover.
Foreign debts owed by the private sector and State-owned enterprises not underwritten by the government accounted for 11.1 percent of GDP. Meanwhile, domestic debts of State enterprises accounted for some 16.5 percent of GDP, as revealed in the Plan for Restructuring State-owned Enterprises prepared by the Ministry of Finance.
“By taking into account these figures, Vietnam’s public debts might have far exceeded the safety level of 60 percent as warned by international institutions like the WB and IMF,” says the study.
Drawing its comments from a bulletin of the Ministry of Finance on public debts, the study says the interest rate of sovereign debts owed by the government ranges between 1.5 percent and 3.7 percent, far lower than the average 10.98 percent on domestic debts. This indicates that the interest burden for foreign debts is not as heavy as domestic debts.
However, in the past few years, the proportion of commercial loans from foreign creditors for Vietnam has been on the uptrend. As of December 31, 2010, some 6.8 percent of the Vietnamese government’s foreign debts bore an annual interest rate of between 6 percent and 10 percent, while some 7 percent of all such debts carried floating interest rates.
Domestic debts are also exerting strong pressure on the country’s annual budget balance. The ratio of domestic debts to budget revenue has exceeded 220 percent while the domestic debts payable also make up as much as 21.6 percent of budget revenue.
It is estimated that between 2012 and 2014, the country needs to issue VND100-120 trillion worth of government bonds and government-backed bonds to pay principal sums and service current domestic loans.