Strictly control the debt of local government

Provincial governments are allowed to borrow to cover provincial budget overspending and borrow to repay their loans. Photo: ST.

The thought of dependence is remaining

According to the Ministry of Finance, it is expected that by the end of 31/12/2017, the outstanding loans of localities would reach 66,654 billion VND, equaling 1.2% of GDP and 29.2% of the permitted loan balance under the State Budget Law. Meanwhile, the limit of localities allowed to borrow is quite large, about 162,064 billion, equivalent to 2.9% of GDP.

Over time, the management of local government debt has been tightened and clear, especially since the State Budget Law in 2015 took effect from 2017. However, the fact indicates that the responsibility of the agency assisting the provincial people's committees in carrying out loan functions as well as the responsibility for allocating local financial resources to repay debts under the Commitment to domestic and foreign lending agencies and organizations, especially, the local government's loans from the Government's foreign loans have not been clearly delineated.

It can be seen that the foreign loans of the Government from 2016 backward, mainly carried out the central mechanism that allocated to the local (21,563 billion VND in 2015; 19,380 billion VND in 2016, 23,000 billion VND in 2017 (estimated) and 26,198 billion VND in 2018 (estimated)), while the repayment obligation belongs to the central budget. This has led to the dependence of local authorities on the central budget and ineffective use of foreign loans.

In order to ensure the control of public debt within the allowable limits and the effective use of foreign loans, share the debt repayment obligations with the central budget, the Government issued the Decree No. 52/2017/ND-CP on re-lending of the Government's foreign loans to the People's Committees of the provinces and cities directly under the Central Government. It means that from that point on, instead of allocating foreign loans to the localities as before, the government will apply the method, in which the central budget partially allocates and partially lends to the local government. To legalize this content and to synchronize the legal framework, the Ministry of Finance submitted to the Government, and then the Government submitted to the National Assembly for approval of the Law on Public Debt Management No.20/2017/QH14, which was effective from July 1, 2018. This law assigns the Government to detail on debt management of local governments.

Up to now, the Ministry of Finance has also submitted documents to the Government for the issuance of the Decree No. 93/2018/ND-CP regulating the debt management of local authorities with many new regulations, ensuring the legal basis and meeting the requirements of reality.

Localities cannot directly borrow from foreign countries

The Decree states clearly that provincial governments are allowed to borrow to cover the provincial budget overspending and borrow to repay loans from local governments.

Borrowing by provincial authorities must be in accordance with the State Budget Law, the Law on Public Debt Management and the principles such as: The five-year loan plan, the three-year debt management program and the maximum annual borrowing plan within the limits announced by the competent authority (if any) and within the outstanding balance; Make maximum annual borrowing within the total loan amount already decided by the National Assembly and assigned by the Prime Minister to each locality; Borrow to offset the overspending of local budgets is only used for development investment to implement the program or project in the medium-term public investment plan which is decided by the provincial People's Council.

In addition, loans are only made and accounted in VND, except for loans from official development assistance (ODA), foreign preferential loans from the Government and local governments cannot directly borrow from foreign countries.

Particularly, local governments are not guaranteed to organizations or individuals to borrow capital or issue bonds inside and outside the country; Priority should be given to allocating local budgets or other lawful capital sources according to the provisions of law so as to fully repay debts in due time. Local government debts must be accounted accurately, adequately, publicly and transparently in debt management and associated with the responsibilities of agencies and individuals involved in the management of local government debt.

The local government loans are in the form of: issuance of local government bonds in the domestic capital market; Loans from official development assistance (ODA), preferential loans from the Government as stipulated in Chapter V of the Law on Public Debt Management, the Government’s Decree on re-lending of ODA capital, foreign preferential loans and this Decree; Loans directly from financial institutions, domestic credit institutions; Loans from the State budget; Loans from the financial reserve fund under the provisions of this Decree.

According to the Department of Debt Management and External Finance, Ministry of Finance, the provisions of the Decree aim to strictly control the local government debt from debt planning to the mobilization of loans; allocate, use loan and arrange local financial resources to repay loans; contribute to controlling the increasing rate of public debt, ensure safety, debt sustainability and national financial security; contribute to promoting the sustainable economic development.

In addition, the promotion of administrative reform, the implementation of public and transparent mechanisms on loans and repayment of loans are also included in the Decree; strengthening, improving discipline in debt management of local authorities.