Overspending, inefficient investment drive up Vietnam’s public debts

Overspending combined with inefficient investment has driven up Vietnam’s public debts dramatically, Dr Vu Thanh Tu Anh, director of the Fulbright Economics Teaching Programme was quoted as saying with reporters from Thanh Nien (Youth) Newspaper.
What do you think of the paradox that growth has decreased whereas public debts have kept climbing over the past years?

Over the past few years, Vietnam’s investment accounts for around 40pct-42pct of GDP, of which investment in public sector makes up 45pct. Increasingly massive investment on together with continuous budget deficit (of more than 5pct of GDP) has provoked government’s borrowing.

What do you think of the opinion that statistics of public debts have not yet been comprehensive?

Currently, the government’s debts are what public debts refer to while state-owned enterprises’ debts are included, according to the international practices.

The report of the Central Institute for Economic Management suggests that total investment capital of 22 out of 100 state-run corporations is anticipated to reach 350 trillion dong or 17pct of GDP this year.

Thus, all these 100 groups would mean extremely enormous investment, much of which could be financed by overseas creditors, which means publicised statistics lower than the actual figures.

Do you think that our public debts carry much risk should they be fully calculated?

Our public debts may carry a variety of risks including those resulted from inefficient public spending and investment, the exclusion of state-run enterprises’ debts from public debts and soaring public debts in the context of substantial budget deficit.

But don’t you think overseas loans are undeniably crucial for a developing country like Vietnam?

Borrowing is a normal practice for a developing country which is desperately thirsty for investment capital, yet of limited savings. What matters is to ensure investment efficiency and at the same time macro economy stabilisation.

However, the government has failed to cut down on public investment; rather they are pretty excited about the existing hectic investment, which has brought about economic downturn due to inadequate resources for growth stimulus.

Economic stimulation if available then could deepen the enormous budget deficit, thus result in domestic currency devaluation and potential inflation.

How do you assess the efforts to slash public investment to date?

The implemented investment capital funded by the state budget in the first nine month of 2011 is estimated to gain 131,364 billion dong, a year-on-year increase of 24pct, according to the general Statistic Office of Vietnam, which implies currently loose regulations on public investment. What is more, prospective fundamental projects have been scaled down.

So how to effectively trim down public investment as well as to devise fiscal policies to curb inflation?

First of all, austerity policies should be executed. Secondly, slashing budget deficit should be achieved by trimming down expenses and increasing public expenditure efficiency rather than scaling up revenue as currently.

Next, the amount of higher-thanexpected revenue should be the compensation for budget deficit. In addition, investment capital in areas other than state-run corporations’ core businesses must be retrieved.
Thanh Nien

Tags: Vietnam public debts