Concerns about public debts

13-Sep-2018 Intellasia | Nhip Cau Dau Tu | 6:00 AM Print This Post

In the world, countries with high public debts are often rich countries with aging population, but Vietnam a poor country with young population has borrowed a lot.

When the poor borrow loans, they must make a lot of efforts to generate money in order to live on and pay the loans on time. That is the most ideal scenario. However, if the loans are only used for the expansion of a house or payment of tuition fees for children, which means to make assets become liabilities, the only choice for borrowers is to sell land to pay off the debts.

Double trouble

The borrowing story of a country can also be envisioned in such way. Thus, it is not surprising when the public debt level of 35 million dong per person in 2018 and 40 million dong per person in 2020, according to calculations of the Ministry of Planning and Investment, is not considered a big concern. Prof Dr Ngo Tri Long, former director of the Price and Market Research Institute, when the public debts are within limit, the more important thing to discuss is the ability to repay.

This question is not easy to answer. In terms of the debt size, according to the Financial Newsletter no.4/2016, the public debts of Vietnam tripled in the period of 2010-2015. The report announced in 2017 of the Ministry of Finance (MOF) and the World Bank showed that Vietnam was among countries with the fastest growth of the ratio of debts to Gross Domestic Product (GDP), reaching about 10 percent in five years. As expected, the public debts of Vietnam in 2026 will be twice as high as two quadrillion dong in 2016. Thus, the public debts of Vietnam are higher than all average level of middle-income countries, Asean, Latin American and African countries.

It can be seen that Vietnam is facing a double trouble as it has to prepare the plan for the ODA reduction, and is under the pressure of repaying large debts when 50 percent of the domestic loans will expire in over three years. The scenario of borrowing to roll over and repay debt principals as what has been done over the past years will recur and the debt burden will be even more burdensome.

The hopes do not come from the ability that Vietnam balance spending to create more sources of repayment. Firstly, tightening spending seems to be an impossible mission for the country for many years. The annual budget overspending of three to four percent of GDP has been considered normal and the current efforts are only to not expand the overspending ceiling limit.

According to the MOF, the total state budget revenue in the first six months of 2018 reached 651.700 trillion dong, and the state budget had to spend 59.300 trillion dong to repay for the interests of debts. Thus, each day the state budget spent 330 billion dong on paying interests. The fact that Vietnam has to borrow hundreds of trillion dong each year for spending while the efforts to cut staff and lower recurrent spending remains inefficient is considered a paradox difficult to understand.

Reconsidering the red carpet rolled for Foreign Direct Investment (FDI) businesses

The second solution which is to expand revenues is also said to be impossible. According to the MOF’s report, the state budget revenue excess in 2016 was from the fields of industry and trade non-state (9.4 percent), income from home and land (97.5 percent), and registration fee (19.8 percent).

The situation is gloomier as this increase in budget revenue does not come from the internal growth of the economy. The Incremental Capital Output Ratio (ICOR) of the entire economy in the period of 2011-2015 doubled the 2.8 ratio recorded in the period of 1996-2000, showing a clear reduction of production capacity.

The GDP growth of less than half of the credit growth in 2016-2017 period not only confirms the modest effect of capital but also raises concerns about the rise of new bad debts. In such context, the excessive budget revenue from private sectors came from the tax adjustments, which is a taboo if the long-term goal is to raise revenue. The obvious proof is that the number of enterprises completing dissolution procedures in the first seven months of the year reached 7,714 units, up by 16.7 percent compared to the same period of 2017. Those will be the long-term difficulties.

The most worrying issue is that although exports contribute mainly to GDP growth, the revenue from import-export activities only increased by 0.5 percent against the estimates. We have to admit that the GDP growth achievement can only contribute to curb the public debt ratio below 65 percent of GDP set by the National Assembly. The red carpet generously rolled for the group of FDI businesses cannot help improve the internal forces of the economy, nor contribute to ease the debt burden.

The internal forces of the economy can only become stronger when the administrative apparatus works effectively, directing the national resources to the right trach and the FDI businesses must bring values that match the incentives they enjoy.


Category: Economy, Vietnam

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