The Development Policy Institute, Ministry of Planning and Investment, recently held a workshop on “Scoping the security debt ceiling point of Vietnam for the period 2014-2020″ to clarify the economic issue.The objective is to clarify theoretical issues and public debt practices, public debt scope, levels of debt and debt ceiling, the public debt assessment and the recommendations for the threshold of public debt and Vietnam’s debt ceiling in the reporting period.Public debt is out of security point
According to Dao Quang Thu, Deputy Minister of Planning and Investment, many economic experts and policy makers have different views on the controversial issue of calculating and assessing a safe public debt ceiling of Vietnam.Deputy Minister Thu said the public debt problem is not only a concern for Vietnam, but also for many countries around the world. The Public Debt Management under Law 29/2009/ QH12 was enacted by the National Assembly in 2009.According to this law, the public debt includes the Government’s debts, the debts that are guaranteed by the Government and the local governments’ debt.This law creates important legal basis for socio-economic development process and ensures social security.
As the advisory agency for the Party and the Government on this issue, the Ministry of Planning and Investment collaborated with the Development Policy Institute to implement the project “Scoping the security debt ceiling point of Vietnam for the period 2014-2020″. The objective of the project is to clarify theoretical issues and public debt practices, public debt scope, levels of debt and debt ceiling, the public debt assessment and the recommendations for the threshold of the public debt and the Vietnam’s debt ceiling in the period of 2014 to 2020.
In this regard, according to Dr Nguyen Thac Hoat, Head of the Finance and Monetary Department of the Development Policy Institute, the current level of public debt of Vietnam remains safe. However, Dr Hoat said that the public debt of Vietnam may be at the risk in the near future. Accordingly, if the Vietnam’s public debt is compared to other countries in the region, the debt ratio of Vietnam is lower than some countries like Indonesia (24.4 percent), Thailand (45.9 percent), the Philippines (50.2 percent), Laos (46.3 percent) and Malaysia (54.6 percent).Meanwhile, according to the international economists, Vietnam is facing low average income, pressures of the ageing population, and low average labour productivity.These obstacles have created enormous pressures to the public debt that is growing faster than the economic growth.Particularly, the labour productivity indicator was statistically decreased from 4.1 percent per year in the period of 2002 and 2007 to 3.2 percent per year in the period of 2008 and 2014.
A potential risk is that due to the government debt and the pressures to collect the state revenue and pay the public debt, the state budget revenues are at the high level and tend to rise, which affect the safety of the public debt. Dr Hoat has indicated that according to the budget estimates of 2014, there is an overspending of the budget than the investments for the development.Specifically, the deficit is expected to be VND224 trillion.But in fact, the spending on the development and the investment stands at only VND163 trillion that is VND61 trillion higher the investment costs.According to the evaluation, the spending has violated State Budget Law 2002 as under the provisions of this law, the deficit must be less than the spending on the investment and development.
Another problem is that Vietnam’s economy is still facing the overspending that is higher than the revenue collected from taxes and fees while the State Budget Law 2002 provides that the total revenue from taxes, fees and charges must be greater than the total recurrent expenditure.Based on the projected state budget in 2013, the recurrent expenditure was VND658,900 billion, the revenues from taxes and fees was VND545,500 billion and the difference is VND113,400 billion.According to Dr Hoat, such key figures reflect negative impacts on the management of the public debt of Vietnam at present and in the future.
So how much should be enough?
Dr Hoat said that the public debt ratio is an indicator to evaluate the size of the public debt, which is calculated as the ratio of total public debt above the GDP of a country in a given period.Accordingly, the optimal level of the public debt is the debt threshold at which the size of the public debt is considered the prudent debt levels to ensure the sustainability of the fiscal policy and optimization of the economic growth.When the threshold is exceeding, the total GDP of the country will be used to pay the debt. This does not create incentives for investment and development.The larger total liabilities are, the smaller the repayment capacity is. The optimal level of the public debt is also considered the basis to calculate targeted debt ceiling. Public debt managed by the debt ceiling and the debt threshold is an increasingly popular and superior trend of Vietnam and other countries.
However, according to many economists, it is hard to standardise optimal public debt threshold and the safe debt ceiling for the cost of the economic model of the countries in the world.Each country should build a safe own debt ceiling that is suitable to their economic traits.In addition, the optimal level of the public debt and the debt ceiling is one side to ensure the safety of the public debt while the quality of the debt is another side to ensure the safety of the public debt.The country also needs to proactively have a reserve for unexpected debts, including the hidden debts and unexpected debts to ensure national financial security and the safety of the public debt.
Thus, the lessons of the advanced economies for the Vietnamese economy indicate that the public debt to GDP ratio is greater than or equal to 68 percent at this point the public debt index has a positive impact on the economic growth and the sustainability of the fiscal policy.When the debt is greater than 68 percent, the economic indicators will reduce the investment and development dynamics, constraining economic growth and impairing the ability of the repayment as well as the safety of the public debt.Therefore, Dr Hoat gives two public debt scenarios in the period of 2014 and 2020; for the first one, there is none of the bond issue from 2017 to 2020 and for the second one, there is an increasing number of the bonds issued from 2016 to 2020. Accordingly, there are two outcomes for these two scenarios that will happen in the upcoming tome. For the first one, the economy is growing at 5.95 percent (2014), 6.3 percent (2015) and 7 percent on average per year (2016-2020) and for the second one, the overspending will happen and the economic growth will be 5.6 percent (2014), 6 percent (2015), and 4.8 percent on average per year (2016-2020) and 3.9 percent (2020).
But to create a good scenario for public debt that guarantees economic growth, and an under-control overspending as forecast, the government is required to come up with a special mechanism for solving problems in terms of legal and financial issues to handle the NPL to help the financial institutions to expand the credits and promote the economic growth. This is the keys to ensure the safety of the public debt. If the banks themselves handle with the bad debts by their risk management funds, it will take 5-6 years to clear the bad debts.This causes the bank to run out of capital and not to expand the lending to the economy.Another solution is also proposed that the government should establish the independent specialized agencies of the public debt management at the Government and ministry levels to focus on the management and supervision of the public debts to improve the accountability and the effective management and supervision of the public debt. At the same time, the national public debt council should established policy in order to improve the quality of supervision and management of the public debt.
Sharing with the same point of view, Dr Le Hai Mo, Deputy Director of the Institute for Policy and Strategic Finance, said that the indicators actually are only used for reference but the more important issues are the quality of the debt and the efficiency and quality of the public debt growth in the economy. In addition, it is necessary to proactively create a reserve for the unexpected debts prevention including hidden debts and the unexpected debt to ensure the national financial security and safety of the public debt.
Anh Phuong
Đăng ký: VietNam News
