Public debt remains under control

The government has recently sent a report on the national budget to the National Assembly (NA), stating that as of late 2020, the economy's public debt was equivalent to 55.3% of GDP, in which foreign debt held 47.3% of GDP, lower than the cap assigned by the NA in the financial plan for the 2016-2020 period.

In order to balance the public debt, last year the government took the initiative in monitoring the issuance of government bonds used for offsetting state budget overspending and principal payment.

In 2020 and the 2016-2020 period, positive changes have been witnessed in the mobilisation and usage of capital, debt payment, risk treatment, and public debt management, contributing to the reduction of public debt from a high level of 63.7% of GDP in 2016 to 55.3% of GDP by late 2020.

The government's debt decreased from 52.7% of GDP in 2016 to 49.6% of GDP by late last year, creating a greater room for the fiscal policy.

The speed of public debt increase went down from an average 18.1% per year in the 2011-2015 period to about 6.6% per year in the 2016-2020 period, with the government's direct debt payment hitting 22.4% of the state budget in 2020, and the average tenure for issuance of government bonds in last year was 13.94 years, ensuring the maintenance of the limit on public debt set by the NA and also ensuring national financial security.

International assessments

Commenting on Vietnam's fiscal situation, the Asian Development Bank (ADB) stated that the fiscal deficit in 2020 widened to an estimated 5.8% of GDP. Budget revenue fell by 9.2% due to the shortfall in international trade, lower value-added tax receipts, and losses from the drop in global crude oil prices.

"Total budget expenditure rose by only 1.2%, as the bulk of government spending on social security programmes and infrastructure development, estimated at about 11.5% of GDP, was sourced from unspent revenue from previous years, contingencies, and off-budget funds," said an ADB report. "Public debt is estimated to have inched up to 55.4% of GDP in 2020 from 55% in 2019."

Meanwhile, according to the International Monetary Fund (IMF), Vietnamese authorities' effective fiscal management has helped to contain public debt at around 55.8% of GDP as of the end of 2020.

"The authorities are committed to prudent and effective public debt management strategy. These have been done through issuance of longer maturities of government bonds to finance fiscal deficits and debt repayment, leading to the lengthened average maturity of government bonds from 3.9 years in 2011 to 13.9 years in 2020," the IMF stated in a recent report on Vietnam's economy. "The longer maturity profile of government bonds reflects the successful strategy of the authorities in diversifying bond maturities over the past 10 years, which has also been supported by the recent development of ample liquidity in the banking system, low interbank interest rates and investors' confidence in the economic recovery."

When it comes to public debt sustainability, the IMF said that under the baseline scenario, the publicly guaranteed debt (PPG)-to-GDP ratio is projected to increase by around 3 percentage points to 46.6% of GDP in 2020, with privatisation receipts and a drawdown of government deposits partially compensating for the primary deficit (1% percent of GDP). With Vietnam's shortest maturities of bonds at five years, rollover risks are limited. PPG debt is projected at about 45% of GDP by 2025, comfortably below the government's ceiling of 65% of GDP. The share of foreign currency-denominated debt is projected to decrease from 40% of total debt in 2019 to about 30% by 2025.

"A combined macro-fiscal shock in 2021 (incorporating the largest effect of individual shocks on all relevant variables) would increase PPG debt to about 52% of GDP by 2025, which remains below Vietnam's public debt ceiling of 65% of GDP (although close to the authorities' envisaged revised debt ceiling of 55 percent of GDP)," read the IMF report.

Continued success

In fact, since 2017, thanks to tightened management in loans and government guarantees, the economy's public debt has been gradually shrinking.

By late 2019, the public debt was 55% of GDP, with the government debt standing at around 48% of GDP and the foreign debt hitting some 47.1% of GDP. These rates stayed within the respective permissible limits of about 65, 54, and 50%.

Earlier the Ministry of Finance (MoF) was grilled by a number of NA deputies about how the government has worked on ensuring national public debt, amid raising worries about the state budget deficit and reduced revenues for the state budget caused by numerous difficulties in recent years.

The MoF reported that the public debt increased 18.1% in the 2011-2015 period, tripling the economic growth rate. However, it dropped to 6.8% in the 2016-2019 period, tantamount to the economic growth rate. In 2020 alone, it rose by about 10% against 2019, standing at about 56.8-57.4% of GDP, due to a big rise in state budget spending for supporting enterprises out of difficulties and fighting against COVID-19.

"The structure of domestic and foreign loans has become more sustainable, meaning that a climb in domestic loans has been demonstrated, for example, by an ascension in the tenors of the government bonds, while lending rates have fallen strongly, contributing to ensuring national security," said former MoF Minister Dinh Tien Dung.

In 2021, the government's direct debt service will likely be about VND368.276 trillion (over US$16 billion) and the public debt will exceed VND4 quadrillion (US$173.91 billion), with an increasing debt service, though it is forecasted that the public debt will be about 46.1% of GDP by late 2021 in case that the GDP is reassessed, and be about 58.6% of GDP in case that the GDP is not reassessed.

"In either scenario - reassessing GDP in 2021 or not, the public debt will not be hit the permissible limit of 65% of GDP," Dung said.

By 2025, the public debt is forecast to be 47.5% of GDP if the GDP is reassessed, and 60.4% of the GDP is reassessed.

Vietnam is set to reassess its GDP scale, which is an important macro-economic index. The reassessment of the GDP, expected to be applied as from this year, is aimed to more accurately mirror the scale and capacity of the economy, thus enhancing the country's economic status both regionally and internationally.

According to the General Statistics Office, the reassessment will have significant impacts on the economy.

Specifically, it will create a big rise in the GDP value and per capita GDP, which will help lead to changes in socio-economic development orientations and consumption models of the public. This also means that Vietnam may sooner reach its status of becoming a high middle-income nation.

In addition, the reassessment will help change the GDP structure, with a rise in the contribution of the industrial, construction, and service sectors, and a reduction in the agro-forestry-fishery sector.

According to The Economist's Global Debt Clock, on May 14, 2021, Vietnam's public debt in GDP stood at 45.6% and per capita public debt was US$1,039.67, while total public debt was US$94.85 billion.