Vietnam should reduce the level of debt it owes to foreign lenders and increase domestic debt in order to avoid foreign exchange rate-related risks, said the vice chairman of the National Financial Supervisory Committee, Le Xuan Nghia.
"In each industry and locality, we need to clearly calculate how much investment we can mobilise from the State budget and other domestic sources, and how much we need to borrow from foreigners," agreed Dang Van Thanh of the National Assembly's Economic and Budget Committee.
Thanh also urged the development of a system for better monitoring and evaluating public debt.
The nation's foreign debt is overwhelmingly held by the Japanese, making the debt susceptible to foreign exchange rate risks, said Central Institute for Economic Management deputy director Vo Tri Thanh, noting large fluctuating range of the Japanese yen.
Japan held nearly 42 percent of Vietnam's total foreign debt at the end of 2009, followed by Singapore at 27 percent. Although the US dollar is the key trading currency, it accounts for only 16.6 percent of Vietnam's debt currency structure.
Foreign debt was equal to 39 percent of the nation's gross domestic product (GDP) at the end of 2009, and a new Ministry of Finance report has estimated that this would reach 44.6 percent this year – very close to its set maximum threshold of 50 percent.
However, Goverment and foreign debt indicators are currently within safe zones, reassured the head of the finance ministry's public debt management and foreign finance department, Nguyen Thanh Do.
Official development assistance – often given in the form of loans with favorable interest rates – accounted for nearly 75 percent of the Government's foreign debt structure, Do noted.
The average interest rate for all government loans in 2010 was 2.1 percent, according to ministry computations made at the end of 2009.
Nghia said the key factor in managing foreign debt was the maintenance and improvement of sovereign credit worthiness – an index that reflects national financial prestige.
"If we manage debt ineffectively, reducing national credibility, the consequences would be multiplied because creditors would turn their back to us," he said.
"Even the long-term loans are in risk then."
The secured debt threshold varied among countries depending on various factors, including national financial prestige, foreign currency reserves and the Incremental Capital Output Ratio (ICOR) Index, Do added.
Detailed information on the national debt and debt repayment will be periodically made public, under a new decree issued this month and taking effect on August 30.
The new decree sets out secured indicators in managing public debt, including domestic and foreign debt as a proportion of GDP and debt burdens in comparison with trade revenues.
The decree requires the development of a long-term strategy to include better assessment and management in the period before loans are taken. The national socio-economic development strategy would serve as the key basis for working out public debt strategy, along with industrial and regional development plans and Government guidelines on capital sources and loan usage.
A three-year public debt management programme to guarantee secured debt-related indicators and ensure that debt management follows Government guidelines will also be established, along with the formulation of a detailed annual borrowing and repayment plan that includes domestic and foreign loan structures and interest.
The decree is one of several documents promulgated under the new Law on Management of the Public Debt, which was issued last year and took effect this year, along with a decree on Government-underwritten debt and a decree on Government and municipal bond issues./.
"In each industry and locality, we need to clearly calculate how much investment we can mobilise from the State budget and other domestic sources, and how much we need to borrow from foreigners," agreed Dang Van Thanh of the National Assembly's Economic and Budget Committee.
Thanh also urged the development of a system for better monitoring and evaluating public debt.
The nation's foreign debt is overwhelmingly held by the Japanese, making the debt susceptible to foreign exchange rate risks, said Central Institute for Economic Management deputy director Vo Tri Thanh, noting large fluctuating range of the Japanese yen.
Japan held nearly 42 percent of Vietnam's total foreign debt at the end of 2009, followed by Singapore at 27 percent. Although the US dollar is the key trading currency, it accounts for only 16.6 percent of Vietnam's debt currency structure.
Foreign debt was equal to 39 percent of the nation's gross domestic product (GDP) at the end of 2009, and a new Ministry of Finance report has estimated that this would reach 44.6 percent this year – very close to its set maximum threshold of 50 percent.
However, Goverment and foreign debt indicators are currently within safe zones, reassured the head of the finance ministry's public debt management and foreign finance department, Nguyen Thanh Do.
Official development assistance – often given in the form of loans with favorable interest rates – accounted for nearly 75 percent of the Government's foreign debt structure, Do noted.
The average interest rate for all government loans in 2010 was 2.1 percent, according to ministry computations made at the end of 2009.
Nghia said the key factor in managing foreign debt was the maintenance and improvement of sovereign credit worthiness – an index that reflects national financial prestige.
"If we manage debt ineffectively, reducing national credibility, the consequences would be multiplied because creditors would turn their back to us," he said.
"Even the long-term loans are in risk then."
The secured debt threshold varied among countries depending on various factors, including national financial prestige, foreign currency reserves and the Incremental Capital Output Ratio (ICOR) Index, Do added.
Detailed information on the national debt and debt repayment will be periodically made public, under a new decree issued this month and taking effect on August 30.
The new decree sets out secured indicators in managing public debt, including domestic and foreign debt as a proportion of GDP and debt burdens in comparison with trade revenues.
The decree requires the development of a long-term strategy to include better assessment and management in the period before loans are taken. The national socio-economic development strategy would serve as the key basis for working out public debt strategy, along with industrial and regional development plans and Government guidelines on capital sources and loan usage.
A three-year public debt management programme to guarantee secured debt-related indicators and ensure that debt management follows Government guidelines will also be established, along with the formulation of a detailed annual borrowing and repayment plan that includes domestic and foreign loan structures and interest.
The decree is one of several documents promulgated under the new Law on Management of the Public Debt, which was issued last year and took effect this year, along with a decree on Government-underwritten debt and a decree on Government and municipal bond issues./.
