Amid increasing capital demand for investment and development, the State Treasury (State Treasury) has always taken the initiative to meet the needs of balancing the state budget, affirming its role as an effective capital mobilisation channel for the State budget.

A project using government bonds capital disbursed through
Hai Duong State Treasury. Photo: Thuy Linh 

Bond issuance associated with restructuring of the government's debt portfolio

According to the State Treasury, to ensure the completion of the capital mobilisation plan in 2020, at the same time, to stop the interest rate of government bonds from increasing fluctuations and stabilise the market, the State Treasury has coordinated and proposed to Social Insurance of Vietnam and Deposit Insurance to participate in Government bond bidding. From the start of 2020 to the latest Government bond bidding session at the Hanoi Stock Exchange (August 12), the State Treasury mobilised VND 157,723 billion. Along with that, the Government bond interest rate has not increased dramatically and has closely followed the bond interest rate traded on secondary market and the State Treasury gradually increased the mobilised capital volume to meet the spending needs of the State budget.

The capital mobilisation for the State budget and for development and investment through the issuance of Government bonds has been increasingly modernised according to international practices, openness and transparency. Government bond issuance is associated with the restructuring of the Government's debt portfolio towards sustainability, safety and minimising the roller risk of the State budget. In fact, the volume of issued Government bonds has met the need of balancing the State budget; average term of government bond debt portfolio is extended from 1.84 years in 2011 to 7.38 years in 2019.

The State Treasury affirmed the State Treasury's capital mobilisation has contributed to reducing interest expenses for the State budgetand the investor structure has been improved, gradually reducing dependence on commercial banks. The market has initially had the participation of foreign investors with the proportion of foreign investors holding Government bonds 6.1% of outstanding debts in 2019. In general, fund management has been linked with the State budget management and debt management, contributing to reducing borrowing costs for the State budget.

Terms of government bonds diversified

According to the State Treasury, in the third quarter of 2020, the State Treasury aims to raise VND 130 trillion via Government bonds. However, during the implementation process, the State Treasury can adjust the issuance volume of bond terms in accordance with the market situation and the State budget’s needs forcapital.

From now to the end of the year, the State Treasury will continue to strictly, safely and effectively manage the State budget; fulfill the capital mobilisation task in 2020 assigned by the Ministry of Finance at reasonable interest rates, saving borrowing costs for the State budget and stabilising the market. At the same time, it will implement debt restructuring through the Government bond swap according to the approved plan.

The State Treasury will actively manage the volume of issued Government bonds in line with market conditions, meeting the needs of repayment of Government’s loan principals and complying with the disbursement schedule of investment capital construction. Specifically, the State Treasury will closely follow State budget revenue and expenditure, disbursement progress of investment capital, repayment plan of loan principals and market situation; continue to manage the budget, ensuring the payment and repayment needs of the State budget and transaction units with the State Treasury.

At the same time, the State Treasury will diversify bond terms, focusing on issuing bonds with a five-year term or more, and speeding up issuance of long-term bond (from 10 years or more) to restructure the Government bond debt portfolio. The State Treasury will manage bond interest rates flexibly and reasonably and closely with the market, and take advantage of favourable market conditions to issue long-term bonds at low interest rates. In case of unfavorable market conditions, the State Treasury will issue two Government bond with 2 - 3 year term under the guaranteed volume within allowed time limit by the National Assembly.

The State Treasury will also manage the bond interest rate reasonably in line with the direction of monetary policy to stabilise the market, save costs for the budget; conduct debt restructuring through government bond swap after the Prime Minister approves the 2020 debt repayment plan and domestic debt restructuring scheme for the period 2020-2021.

In the upcoming time, the State Treasury will develop and submit to the Ministry of Finance a plan on quarterly and annual management of the State budget in accordance with reality and legal regulations; continue to improve the quality of cash flow forecasting and state budget management safely and efficiently, fully and promptly meeting payment and repayment needs of all budget levels and units opening trading accounts at all times.

The interest rate of Government bond has closely followed market movements, gradually decreased and is the fourth lowest in Southeast Asia. The interest rate level has decreased from an average of about 10% per year in 2007-2011 to 4.51% per year in 2019. So far, the interest rate in the Government bond market has gradually become interest rate orientation in the capital market, the size of the Government bond market developed rapidly (12 times higher than in 2009); average growth rate reached 27% per year, the highest growth rate among emerging economies in East Asia and ASEAN +3.