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How to deal with sovereign debts: Mobilizing domestic or foreign sources?
Though the government’s officials have affirmed that the sovereign foreign debt is still within the safety line, worries still have been raised about the rapid increases of the debts.
* Vietnam foreign debt hit 42% of GDP in 2010
“The total foreign debts by December 31, 2010 had reached 42.2 percent of GDP. Though the debt ratio remains within the safety line, the sovereign foreign debts tend to increase relatively rapidly in recent years,” said Hoang Hai, Deputy Director of the Debt Management and Foreign Finance Department under the Ministry of Finance.
The official said that the foreign debts have increased rapidly because the commercial debts incurred by enterprises tend to increase rapidly. However, worries still have been raised about the figure of 32.5 billion dollars, which represents an increase of 4.6 billion dollars in comparison with that by the end of 2009.
In fact, regarding to the foreign debts or the sovereign debts in general, the index of the ceiling debt in comparison with GDP is just one of the criteria to assess the debt safety.
The Ministry of Finance, the agency which takes main responsibility for debt management, has also set up a series of criteria to assess the debt safety, including the indexes of sovereign foreign debt on GDP, the government’s commercial debts on GDP, the government debt obligations on the total budget collection, and the index on foreign debt payment of the nation in comparison with export revenue.
The existence of many indexes shows that sovereign debt can be controlled in accordance with strict regulations. However, the rapid debt increases still have raised doubts that the safety line may be broken one day.
Dr Tran Dinh Thien, Head of the Vietnam Economics Institute, said at a conference recently that the foreign debt ratio of 20 percent of GDP is considered “safe”, while the 40 percent ratio is also considered “safe”, therefore, it is necessary to define how “safety line” means.
If considering the foreign debts in comparison with GDP, in the last three years, in 2007-2010, the index has increased by nearly 10 percentage points and approached very closely to the ceiling debt level stipulated by the Prime Minister at 50 percent of GDP.
The noteworthy thing is that the figure would continue rising. A bulletin released by the Ministry of Finance said that the ratio of foreign debts on GDP would be about 44.5 percent by the end of 2011.
Analysts have every reason to believe that the figure would continue rising. The GDP growth rate has been kept at relatively high level. Meanwhile, 75 percent of the loans are ODA (Official development assistance) loans, while many other loans are preferential loans. Some sources say that the average interest rates of the foreign loans are 2.1-2.6 percent.
Besides, a viewpoint which has been existing for a long time in Vietnam is that it is cheaper to borrow from foreign sources than from domestic sources.
According to the department deputy director Hoang Hai, the gradual increases of the proportions of domestically sourced capital mobilization is the top priority in the debt strategy of Vietnam. However, Hai has stressed that Vietnam will not increase the proportion at any cost, especially when Vietnam still can receive ODA capital from donors and it needs to take full advantage of the preferences of the capital source.
Emphasizing the need for borrowing money from foreign sources, the Ministry of Finance cited a lot of big projects, including the road from HCM City to Moc Bai, the Hai Van tunnel, the Cai Lan deep water seaport, the Tan Son Nhat airport terminal or the bridges of My Thuan, Thanh Tri and Bai Chay to show how the foreign sources have supported the development.
However, analysts have pointed out that with the dong/dollar exchange rate, especially the sharp devaluation of the dong by 9.3 percent decided earlier this year, it is necessary to reconsider the loans with low interest rates. The depreciation of the local currency has obviously led to the higher value of the foreign debts.
Kim Chi
vietnamnet
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