A conference in Hanoi on Wednesday drew a bleak picture of Vietnam’s national debt, with experts urging that action be taken to stop the ‘mountain of government debt’ from piling up.
Vietnam’s public debt has been plagued by an average annual increase of 18.4 over the last five years, a pace three times faster than its economic growth, according to Dr. Vu Si Cuong from the Academy of Finance.
In 2016, government debt was estimated at around 64.3 percent of GDP, just shy of the 65 percent ceiling capped by the legislature.
Cuong elaborated that Vietnam mostly borrows from the World Bank, the Asian Development Bank, and the Japanese government.
As of the end of 2015, Vietnam’s debt to the World Bank had topped VND274.2 trillion (US$12.08 billion), an 11-fold climb from 2001.
Similarly, debt to the ADB surged to VND151 trillion ($6.65 billion) in 2015 from only VND7.5 trillion ($330.4 million) in 2001.
Loans from Japan, the country’s third-largest creditor, totaled VND35.9 trillion ($1.58 billion) in 2001 before skyrocketing to VND243.9 trillion ($10.74 billion) by the end of 2015.
As far as the public debt to GDP ratio is concerned, Vietnam’s national debt is one of the highest in the world, according to the International Monetary Fund.
The massive debt comes with high risks, including the need for the country to earmark an increasing proportion of its state revenue for debt repayment, Cuong underlined.
This has forced the government to adapt a ‘rollover’ technique of taking out new loans to repay old debts. The practice indicates that the government does not have enough resources to repay its original debts, Cuong said.
The expert added that countries with a high level of public debt are normally rich nations, but “it is a surprise that this happens to middle-income Vietnam.”
“Our population is aging steadily, accompanied by low average productivity, so Vietnam could become a country that is ‘not yet rich but already old’ and also carries an enormous debt,” Cuong said.
“Many countries with similar growth to Vietnam’s do not have such a high level of public debt.”
Dr. Le Dang Doanh, former head of the Central Institute for Economic Management, said tightening management on public spending is the only solution for Vietnam to rid itself of the ‘mountain of public debt.’
Vietnam’s government deficit has continued to build up over the last few years so the government is forced to borrow more in order to invest in development, according to Doanh.
“Vietnam has to earmark 71 percent of its state revenue for regular spending, and 24.5 percent for debt repayment, so there is not much left for investment and development spending,” he elaborated.
“At some point, we’ll need to borrow debt for both development and regular spending, which is worrying.”
Doanh advised that Vietnam consider international practices and create a policy on public spending management to resolve the problem.
He added that debts borrowed by state-run enterprises should also be counted as public debt, as “either way, the government will have to use the money from the state budget to repay when state companies default on loans.”
Cuong, from the Academy of Finance, said Vietnam would breach its ceiling on public debt if these state-run enterprises’ debts are counted as suggested by Dr. Doanh.