Public debts surge may jump because of multi billion US dollar projects

25-May-2010 Intellasia | Tien Phong | 6:06 PM Print This Post

It is not easy for a person or an enterprise in need of capital to borrow loans but specialists advised they should pay more attention to business efficiency.

As for multi billion US dollar projects, the rate of total loans over ownership capital used for one project is called the financial leverage ratio that affects to the ratio of profit (or loss) on ownership capital. If such a project brings in losses, the creditors can lose money because the debtors go under bankruptcy and lose debt affordability.

Factually, the effectiveness of multi billion US dollar projects is only known after it’s completed and put into business. Before it all are only predictions.

As for a nation, borrowing money for country construction is always embedded with that nation’s real ability (including administration and efficient spending capacity). If not having the high real debt affordability, that county could fall into debt jam.

The ratio between public debts on GDP is basically a general index similar to the financial leverage ratio, which can result in big risks. That nation is not safe if its ratio of public debts on GDP surpasses 40 percent.

According to finance ministry, on June 30, 2009, Vietnam’s foreign debts accounted for 29.8 percent GDP of $23.6 billion. After that, the government reported to the National Assembly on May 20 that the government debts still are in the safe limit. But a particular statistic on national debts was not announced.

Reportedly, Vietnam’s total state debts till last year end made up about 44.7 percent of GDP, in which the government debts were 35.4 percent of GDP, the government guaranteed debts at 7.9 percent and the debts of local governances at 1.4 percent of GDP.

Citing The World Fact book of a US based government organisation, Vietnam’s public debts in 2008 stood at 38.60 percent of GDP that increased dramatically in 2009 to 52.30 percent, ranking 44th among 129 nations in terms of government debts. Also, according to the book, the lowest public debt was 1.1 percent of a country’s GDP and the highest level was 304.3 percent. In which, 44 nations were recorded with the public debts of over 50 percent of GDP.

It is impossible to estimate how high will Vietnam’s government debts be if the country conducts investment in super (multi billion US dollar) projects such as $5 billion seaport system, over $10 billion nuclear power plant, Long Thanh airport project worth $12 billion, 18 expressway sections with total estimated expense of $48 billion, especially the $56 billion high-speed railway project, Hanoi capital construction project costing $60 billion.

For example, US is known as a big debtor with the public debt ratio accounting for 39.70 percent of GDP, only a bit higher than Vietnam’s 38.60 percent of GDP in 2008. In Asean, only Philippines’ public debts were higher than Vietnam’s.

In Europe, Greece really became bankrupt and had to call for the 12 billion euro rescue plan from International Monetary Fund (IMF) and the countries of euro Zone. By late 2009, the country’s public debts exceeded 108 percent of GDP.

More important thing is that Vietnam’s public debts are increasing very drastically and the spending and investment efficiency remains low while spreading corruption and the investment thirst of state agencies have not been eased yet. For instance, a lot of super projects like the $56 billion high speed railway project drawn by Ministry of Traffic and Transportation and Construction Ministry’s Hanoi general projection (with the huge cost of $60 billion set for technical infrastructure investment till 2030) are under the consideration of National Assembly.

Some governmental officials kept optimism on public debts. Few said that if higher, Vietnam’s public debts will still be in the allowable safety limit. But they did not unveil a detailed figure as well as safety limit. Even, it is said that the public debt at 80-100 percent of GDP is okay!?

If considering the public debts at 40 percent of GDP to be safety limit, Vietnam’s debts would exceed it already (excluding the future loans for to be-conducted super projects.

From 1993 to 2003, Vietnamese government had to manage to restructure its foreign debts, such as handling debts with IMF in 1993, official debts with Paris Club in the same year, commercial debts with London Club in 1998, and the debts with other bilateral parties. Total reduction in public debts of Vietnam after negotiations and financial support of international organisations and associations reached over $11 billion.


Category: Finance

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