Public debt risk may exceed inflation and exchange rates: expert opinion

If Vietnam cannot control the public debts, this would be a big risk which is even bigger than the inflation rate or exchange rate problems in the next 5-7 years, according to Deputy Chair of the National Finance Supervision Council, Le Xuan Nghia.

The hottest topics on international media these days are the loosened financial management in the US, some European countries and powerful countries in Asia, and the lower credit rankings given to a lot of nations which have forced the economies to reconsider their spending balancing.

What is the most important issue for now, the high ratio of public debt on GDP, the unreasonable way of dealing with public debts, or the specific characteristics of Vietnam’s public debts?

“The increasing public debt is not a problem at all,” said Le Xuan Nghia on the sideline of the meeting between the Deputy Prime Minister, Vu Van Ninh and the National Finance Supervision Council, on the morning of August 29.

It is quite a normal thing that the debts keep increasing in comparison with GDP, according to Nghia. The most important thing in borrowing money is how the total assets would increase when borrowing money. The debt increases should be associated with the increasing total assets of the national economy.

“When you buy houses, you would have to borrow money to pay for them. If necessary, you have to sell a house, and you would have excessive money to pay debts. As for an economy which is getting richer, bonds are also a kind of saleable assets,” Nghia said.

In the mind of the deputy chair, with the total value of the Vietnamese economy which is triple GDP, the current ratio of public debt on GDP is not problematic at all.

According to the Ministry of Finance, by December 31, 2010, the total public debts of Vietnam had reached the level equal to 56.7 percent of GDP, while the figure would be 58.7 percent of GDP by the end of 2011.

However, Nghia stressed that there are specific characteristics in Vietnamese public debt situation. Of the total capital flowing to the Vietnamese economy, some 30 percent has not become assets, but have gone somewhere.

Regarding the issue, Deputy Minister of Planning and Investment, Cao Viet Sinh, said at a working session with Deputy Prime Minister, Vu Van Ninh last week, said that in a project on building road, 90 percent of capital was spent on compensation for site clearance, while only 10 percent has become the gross assets.

“Therefore, how to use the loans most effectively is the main thing that Vietnam needs to think about,” Nghia said. However, it is really not simple to measure the efficiency of using loans in Vietnam.

At the working session with the Ministry of Planning and Investment, Deputy Prime Minister, Vu Van Ninh, recalled the time when he worked as Minister of Finance, and said before the National Assembly that in the projects on building roads or electricity transmission grids in the Central Highlands, the ICOR (Incremental Capital Output Ratio) would certainly be high.

“Borrowing money is necessary, but how should we use the loans?” the Deputy Minister questioned.

“Previously, the government only made investments in some fields, the key production and business fields, but now…,” Ninh left the words unfinished.

Nghia also emphasized that it is necessary to control the public debt growth rate and the efficiency in using loans, especially when the Vietnamese public debt growth rate in the last 5-6 years has been double that in the previous period.

Nghia agrees that the public investment efficiency in the projects on infrastructure development in rural and remote areas, or welfare projects for is certainly low. However, he thinks that this should not be allowed to last for a long time, or this will badly affect the national economy in long term.

Source: TBKTVN

Tags: Vietnam public debt