Expert: with mismanagement, public debts will be a burden

Vietnam’s sovereign debts remain within the safety line. The most important thing for now is to control the debts, or the debts may become a heavy burden on the national economy and the whole society, Bui Kien Thanh, a well-known economist, told VietNamNet.

In the interview given to VietNamNet, Thanh said that he can see two noteworthy things. First, the public debts have increased from 33.8 percent to 58.7 percent. Secondly, the public debt has been increasing rapidly. If the current speed continues, the public debt ratio on GDP would hit the 100 percent of GDP threshold.

What do the rapid increases of the external debt and public debt in recent years show?

The quantity and the growth. However, the figures cannot show what we borrow money for.

As for external debts, the majority of external debts are ODA loans (official development assistance), and the government’s long term debts with the relatively low interest rates of 1-3 percent. As such, if considering the interest rates and terms, Vietnam has favorable conditions in interest rates and debt payment.

Vietnam borrows money to invest in infrastructure works, roads, hospitals, and the fields that the private sector is not interested in.

The reports released by some ministries and branches show that the public debt management is not really good, and the average capital loss may reach 20-30 percent.

The public debt has increased by 25 percent in the last four years, or five percent per annum. Is this increase too sharp?

The developing economies like Vietnam need huge capital to develop. Therefore, the five percent increase in the public debts in the last few years is not alarming.

It would be normal to borrow money to create national assets, good roads, good ports and good schools. However, it would be a big problem if Vietnam cannot manage the public debts well.

In other countries in the world, roads remain in good conditions after 20 years of they are put into operation. Meanwhile, in Vietnam, in many cases, the roads become degrading after just two or three years, while the life span of the roads is just 10 years. With the low life expectancy of roads, the prices for the infrastructure works are overly high. In the countries, the depreciation period could be 20 or 30 years, while in Vietnam, the period would be 10 or 15 years.

Do you think that the debt ratio on GDP of 56.7 percent in 2010 and 58.7 percent in 2011 should be considered alarming?

Whether the public debts are considered alarming still depends on the health of the national economy. If the economy develops well with high exports and high foreign currency reserves, public debts would be not a big concern. However, this would be a big problem, if we borrow too much, but the national economy performs badly with stagnant production and bad solvency.

There are two problems for Vietnam’s economy. First, the management is not really good, which causes the capital loss. And second, the economy does not perform well, so that the state can collect tax to pay debts.

Therefore, the figures themselves cannot show the overall picture of the debt situation. Vietnam’s foreign currency reserves are a little weak, which is really a worry. Vietnam owes 32.5 billion dollars to foreign creditors.

In 2010, Vietnam paid 1.67 billion dollars in principal, fee and interest rates. 1.67 billion dollar proves to be small if compared with the foreign currency reserves of 20 billion dollars. However, in 2011, it would be a bigger problem if we have to pay 1.33 billion dollars, while the foreign currency reserves are much lower than the previous year’s.

Generally, I think that the external debt burden is not too heavy for Vietnam. However, Vietnam needs to be cautious in controlling debts. The situation is not serious now, but it may become serious in the future.

Tags: Vietnam public debts