Factors support issue of Vietnam’s G-bonds to international capital market

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It is difficult for domestic capital to meet the large capital needs for investment in infrastructure. Photo: Internet.

Dr. Nguyen Duc Kien, Head of the Prime Minister's Economic Advisory Group, and members have proposed the issuance of G-bonds to the international capital market to attract capital for socio-economic investment projects, at the conference on reshaping the global financial system and Vietnam's strategy held by the University of Economics, Ho Chi Minh City, on April 27.

The average State budget deficit for 2016-2020 was 3.45% of GDP. The rate of public debt at the end of 2020 increased to 55.3% of GDP, national debt accounts for 49.1% of GDP, external debt accounts for 47.3% of GDP.

However, these rates are lower than the ceiling targets assigned by the National Assembly in the five-year financial plan for 2016-2020, according to the research team.

Therefore, compared to both current practice and the targets set out in the 13th National Party Congress document (public debt does not exceed 60% of GDP, national debt does not exceed 50% of GDP), the Government has space to issue bonds for socio-economic development, including bonds in the international capital market for socio-economic development.

The issuance of G-bonds to the international capital market has important supporting factors. Accordingly, the public debt ceiling (including national debt and international debt) is lower than the criteria assessed by international organizations. In the international financial market, Vietnam is considered a reputable partner.

Notably, interest rates are kept low in international capital markets. This will help the Vietnamese Government issue bonds with lower nominal interest rates, saving costs and reducing pressure on debt repayment.

These issues have helped strategic planners gain experience in G-bonds. At the same time, the bond swap has reduced more than US$5 million of interest payment on bonds in each interest payment term.

Dr. Nguyen Duc Kien said that the Government should plan to build a global medium-term bond issuance program. This is an international standard framework that is widely accepted by investors and applied by regular international bond issuers.

The medium-term bond issuance program allows the Government to issue diverse international bonds with different volumes at different times while using the same standard framework.

In addition, it is necessary to build a mechanism to mobilize, use and manage the revenue after the issue effectively. The revenue from international bond issuance should be associated with disbursements for investment projects to limit capital stagnation, resulting in wasted resources, and minimizing risks arising between the volume of issued bonds and the capital needs according to implementation progress and ensure the ability to create a debt repayment source.

However, experts also note the economic impacts of each bond issuance on international capital markets. The large amount of debt repayment poses a big challenge for the domestic foreign exchange market. Performing refinancing through a new issuance is the normal approach.

The Government may consider supplementing a plan for gradual payment of principal, an option to buy back before maturity, or creation of a sinking fund in the issue plan.