The public sector’s external short-term debts are under strict control, heard at a workshop in Hanoi on January 26. (Photo: VNA) Hanoi (VNA) – The public sector’s external short-term debts (government debts and government guarantee) are under strict control, with their share in Vietnam’s external debt structure declining rapidly, said Vo Huu Hien, Deputy Director of the Ministry of Finance's Debt Management and External Finance Department, at a workshop on January 26.
The “Workshop on the Management of National External Debts” was held by the Ministry of Finance (MoF), the Asian Development Bank (ADB), and the International Monetary Fund (IMF) in Hanoi, gathering policymakers, scholars and representatives from credit institutions and international organisations.
Over the past three decades, Vietnam has gained many achievements and innovations in debt management, especially external debt management, Hien said, citing the fact that the external debt of the public sector decreased from 73.6 percent in 2010 to 63.4 percent in 2015 and 43.7 percent in 2020.
The growth rate of the external debt balance within the public sector has also been strictly controlled, from an average of 13 percent a year in the period of 2011 – 2015 to about 3 percent in the 2016 – 2020 period, contributing to curbing direct debt obligations and State budget provisions.
The national external debt ceiling target compared to the GDP by the end of 2020 was maintained within safe limits approved by the National Assembly, ensuring national financial security.
In addition, the Government’s foreign loans are still mainly ODA and concessional loans (accounting for 98 percent of the total Government external debt).
Up to now, Vietnam has signed over 85 billion USD of ODA and preferential capital with relatively favourable conditions. The average maturity is 13.8 years with a weighted average interest rate of 1.35 percent. The government has so far issued guarantees for foreign loans worth 23.6 billion USD in total for over 120 projects.
“Government-guaranteed foreign loans remain an effective tool to provide funding for large projects in energy, transport infrastructure and aviation,” Hien said. “Project operators gaining access to major Government-guaranteed funding with preferential borrowing costs and streamlined procedures are a real advantage compared to normal credit packages.”
During the event, local and international financial experts delivered presentations with an overview of Vietnam’s foreign debts and experiences in an effective and sustainable management of foreign debts. They also discussed practices in accessing foreign loans in both public and private sectors in Vietnam and the possibility of applying new tools for managing foreign debts.
According to the Ministry of Finance, foreign capital sources had facilitated the opening of financial-credit relations with international organisations and foreign governments, greatly contributing to Vietnam’s socio-economic development.
As domestic resources are limited, foreign debts in all economic sectors have provided sufficient funding to public projects, encouraged domestic savings and sped up capital turnover. It has also helped unleash potential resources within the economy to achieve socio-economic development goals and stabilise the macro economy.
Vietnam has become a low-middle-income country. All economic sectors, including the Government and private sector, have the ability to access foreign loans according to market conditions.
In this context, management agencies need to continue to study and update international expertise and experience to develop national external debt management policies and tools that better suit the dynamics of public debts in new situations.
International organisations recommended Vietnam consider adjusting the country's foreign debt management policies and tools to better suit the risk characteristics of each debt component and the country's development conditions.
Gurnain Kaur Pasricha, a senior financial sector expert at the International Monetary Fund (IMF), said that Vietnam's current foreign debt management mechanism has not paid enough attention to sources of risk, for example, greater effort has been exerted in administering long-term loans rather than short-term ones, which are deemed riskier.
Little attention has also been given to building self-insurance requirements, as well as a clear regulatory change strategy in response to vulnerability risks, she said.
In addition, there is still a lack of basic conditions for Vietnam to safely liberalise external borrowings, especially accessing short-term loans; plus, the domestic bond market remains underdeveloped, she continued.
The official suggested the country accelerate reforms on foreign debt mechanisms, for instance, developing and announcing a plan for liberalising capital flows, thereby guiding the improvement of current related mechanisms./.
