Seeking goal of fiscal consolidation, strict management of provision debt obligations

scene of the online conference

Since the National Assembly of Vietnam passed the Law on Public Debt Management in 2017, until now, the legal document system on public debt management in Vietnam from laws, decrees and guidance circulars has basically been completed.

In the past period, public debt management has been concentrated and has achieved many important results. For example, the determination for seeking the goal of fiscal consolidation, strictly managing the provision debt obligations from activities of government guarantees and borrowing from foreign for lending.

Public debt safety ratios have been strictly controlled, within the debt ceiling approved by the National Assembly and gradually decreased over the years, contributing to building fiscal policy space to respond effectively to the macro shocks Vietnam faced in 2020.

The problem is that how debt management needs to be reformed to meet the requirement of management in the development conditions in Vietnam, on the other hand, to gradually move towards good international practices.

In the coming period, Vietnam will face increasing macro risks compared to the past, such as the risk of economic growth slowing down, the increase in interest rates and the risk of provision debt obligations as well as increase costs due to the aging population.

Meanwhile, foreign donors have adjusted development cooperation policies with Vietnam toward gradually shifting from providing ODA to loans with less favourable conditions and the cost of capital mobilisation of some loans which increase doubled compared to the previous period, increasing the government's foreign debt repayment obligation.

According to Truong Hung Long - Director of the Debt Management and External Finance Department, in the next five years, ODA loans will gradually decrease and come to an end, leading to a shortage of long-term loans and preferential treatment for investment.

The Government needs to mobilise new loans with much less favourable conditions, close to the market to compensate for the shortfall in budget balance, medium-term public investment, as well as re-lending to localities, enterprises and public non-business units.

"For government guaranteed loans, in the coming time, Vietnam will continue to implement a policy of restricting on provision of Government guarantees for new loans. However, we are aware that the amount of Government guarantees plays a very important role in helping corporations and enterprises implementing essential national projects to access to large-scale commercial capital and more preferential loan costs," Long said.

The requirement is set that it needs to have a reasonable debt structure, balance between costs and risks, between direct debt obligations and the provision of debt obligation of the Government in accordance with development requirements as well as management capacity of Vietnam.

In that context, strengthening the capacity of debt management officials, especially in mastering credit risk assessment methods and applying quantitative models to advise policies related to levels and the management of on-lending and Government guarantees effectively are the top priority.

The Ministry of Finance highly appreciates the support from the International Monetary Fund in this area for the goal of ensuring debt sustainability in the medium and long term.