Minister of Planning and Investment Bui Quang Vinh explained to Vietnam Investment Review why the Government was seeking the National Assembly’s approval to raise the budget deficit cap to 5.3 percent and issue 8.1 billion USD in government bonds.

* If the National Assembly doesn’t go forward with easing the budget deficit cap and issuing government bonds, what will happen?

There will be a large budget deficit and it’s unlikely the Government will meet its deficit target. Moreover, it will also have to pare down expenditure in areas such as social security and development investment. At present, development investment is responsible for 57-60 percent of GDP growth and if this is reduced, growth is likely to stagnate, budget revenues will fall, and social security will be left with little funding.

* If the National Assembly agrees to the Government’s proposal, will the 5.8 percent growth target for 2014 be reached?

Lifting the budget deficit cap and issuing 8.1 billion USD in government bonds will support our efforts to achieve the growth target by overcoming budget limitations.

Government bonds can help in-progress projects be completed as thousands of projects are currently underway but stymied by capital shortages. If they fail, this would be a tragic waste.

National Highway 1A is a good example. We are currently upgrading the road to facilitate a larger volume of transport which will fuel growth. Also, we need to have sufficient reciprocal capital for international donors’ committed 20 billion USD in official development assistance over the next several years as most are essential to continued development.

To put it in a nutshell, the issue of government bonds is very important and can be used toward priority projects.

* But if the budget deficit cap is raised and more government bonds are issued, won’t the public debt limit be breached?

Obviously borrowing will lead to a rise in public debt. According to the Ministry of Finance, the proposed measures will not breach the debt cap. The most important thing is how the raised capital is used in spurring growth and paying off past debts.

Around the world, public debt caps vary. Countries are interested in keeping debts low, but they also have to maintain solvency. A small loan to an insolvent borrower is dangerous, but a big loan to a solvent borrower is no problem.

* How can state budget capital be managed more effectively?

We already have the necessary legal frameworks to manage and supervi se public investment. The problem is they are spread out in different documents and are not always clear. A directive passed by the prime minister in the middle of October 2011 on strengthening the management of budget-sourced investments should help curb disorganised public investment.

It is also important that during this session of the National Assembly the government submit the Law on Public Procurement. Although it may not cover every issue, it will very much help in managing public and bond-raised capital, if it is passed.-VNA