Covid-19 is a problem for all sectors of the economy, including public debt management. In 2020, the "good" indicators in public debt management as a result after a period of right direction, are facing many challenges.

At the end of June 2020, the Ministry of Finance held an online conference
with ministries, agencies and localities to listen to problems and discuss solutions
to promote the disbursement of foreign investment capital to accelerate growth.
Photo: H. Van 

Under the bad scenario, public debt could increase to 56.4% of GDP

Under the drastic direction of the Government, in the first months of 2020, the Ministry of Finance still focuses on carrying out the objective of public debt management and the task of credit mobilization and debt repayment in accordance with the National Assembly’s Resolution with low fees associated with a reasonable risk level for socio-economic development, contributing to promoting the development of the domestic capital and bond market.

As of June 2020, the Government’s domestic loans through the issuance of Government bonds totaled VND76,783 billion, equivalent to 25% of the whole year’s plan. Foreignconcessional loans through signing of five ODA loan agreements totaled US$533.2 million (1.6 times higher than the same period in 2019). Accumulated disbursement of ODA loans and foreign concessional loans in the first six months was US$768 million, equivalent to VND17,821 billion, accounting for about 16.6% of the whole year’s plan.

At the beginning of the third quarter of 2020, the Ministry of Finance will preside over aconference to promote the disbursement of foreign public investment capital with the participation of central, local agencies and owners of projects using ODA capital and concessional loans to solve problems to accelerate disbursement.

The debt repayment was organized strictly and punctually as committed by the Government. In the first six months of the year, the Government's debt repayment was about VND171,474 billion (equal to 46.8% of the plan), of which domestic debt payment was VND129,938 billion, foreign debt payment VND41,536 billion.

It is estimated that the Government's outstanding debt in the first half of 2020 is about VND2,882.2 trillion, of which, the Government's domestic debt is about VND1,793.9 trillion, foreign debt VND1,088.2 trillion.

In the context of the Covid-19 pandemic, the Government proposed an economic growth scenario with the highest target of 5-5.2%. The second scenario is about 4.5% and the lower level is 3.6%.Thereby, the Ministry of Finance has developed corresponding budget and public debt scenarios to ensure the objectives of social security, national defense and security and pandemic prevention. According to the Ministry of Finance, if the growth is 5-5.2%, the public debt will increase to 54.6% of GDP. In the bad case, public debt will increase to about 56.4% of GDP (the level permitted by the Government is 65% of GDP).

Although the forecast indicators are not too "stressful", the challenge from now to the end of the year is significant which can still lead to unpredictable changes. The first thing to mention is that the Government's disbursement of ODA loans and foreign concessional loans continues to be slow and lower than the yearly plan (about 16.6% of the plan for the first six months of the year). According to the analysis of the Department of Debt Management and External Finance, Ministry of Finance, the main reason is that there are still many problems in the allocation and implementation of the medium-term public investment plan, problems in completing the investment procedures, site clearance, arrangement of reciprocal capital as well as completing the procedures for disbursement of payment and budget accounting.

Objectively, the adverse impact of the Covid-19 pandemic on the global economy is likely to affect the goal of fulfilling the domestic socio-economic development targets. Negative macroeconomic indicators will put pressure on the budget balance, overspending and increase the ratio of public debt and government debt over GDP. In addition, the Government's credit mobilization plan may also be affected, especially the issuance of government bonds for Social Insurance, which is likely to adjust the Government bond investment plan due to the policy of stopping and extending social insurance premium collection of enterprises affected by the pandemic.

The pressure of the Covid-19 pandemic and the difficult domestic economic situation affected State budget collection and the fulfillment of the set targets; at the same time, the risk of domestic lending interest ratio (via government bonds) increased as investors turned to be cautious. That will put pressure on the debt repayment ratio compared to the state budget revenue in 2020 and the 2020-2022 period, which has been increasing in recent years.

Closely follow pandemic developments

To contribute to realizing the Party's goals, policies and solutions on public debt management, National Assembly’s Resolutions and tasks assigned by the Government, Mr. Truong Hung Long, Director of Department of Debt Management and External Finance said that the current focus is to closely follow the Covid-19 pandemic, the domestic and international socio-economic situation to proactively analyze, evaluate and update the budget indicators, overspending, debt repayment plans, debt safety indicators in order to promptly report to the National Assembly and the Government for appropriate measures and ensuring debt safety and sustainability.

In the context of unfavorable and unpredictable fluctuations in both domestic and international capital markets, and difficulties in disbursement of public investment capital, capital mobilization of a large amount as planned is a big challenge. Therefore, the calculation of active plans is necessary to maximize resources from financial reserve funds, off-budget state financial funds, foreign exchange reserve funds and other lawful sources to reduce pressure on government borrowing, public debt and debt repayment liability. At the same time, diversify debt tools (such as issuing government bonds with short terms of less than five years, diversifying forms of loans with foreign sponsors), to manage volume and mobilization interest rates flexibly in line with the balanced needs of the state budget, the schedule of loan use and the state budget balance.

Also, according to Mr. Long, regarding domestic capital mobilization, in the second half of 2020, the Ministry of Finance will continue to strive so that the issuance will reach the mobilization plan of Government bond capital from the beginning of the year (VND309,090 billion).

However, in order to achieve the capital mobilization goal, it is likely to have to issue short-term bonds (less than five years) and it is expected that the average Government bond interest rate may increase compared to 2019. In addition, to proactively and closely monitor the government bond market, progress of investment capital disbursement and the debt repayment plan of the central budget to organize appropriate capital mobilization, focusing on bidding method of Government bonds with a term of five years or more.

At the same time, to access a number of low-cost loans from international organizations such as the Asian Development Bank, the World Bank, the French Development Agency, the Japan International Cooperation Agency to study, contributing to reducing domestic borrowing pressure.

“While the Covid-19 pandemic is still complicated worldwide, over 90 countries have been downgraded or considered to be downgraded by the credit rating agencies or adjust their outlooks.The Ministry of Finance has actively worked with relevant agencies under the Government to provide sufficient information and data for the evaluation of national credit rating. As a result, on April 8, 2020, Fitch announced the decision to keep Vietnam's national credit rating at BB, and adjust the outlook from "Positive" to "Stable". On May 21, 2020, the S&P released a press release to affirm that Vietnam's credit rating continues at BB, with a stable outlook. Moody’s in May 2020 also said that it would maintain Vietnam's credit rating after working with Vietnamese agencies in April 2020. Vietnam's maintaining of credit rating is considered an optimistic indicator in the current context of instability, reflecting the positive views of the credit rating agencies for Vietnam's credit profile not only this year but also it have a solid foundation to continue promoting in the long term.