Vietnam’s public debt may rise to nearly 100% of GDP, experts warn

Speaking at the Spring Economic Forum which opened Monday, Dr. Tran Dinh Thien, Director of the Vietnam Economic Institute, said that the greatest risk lies not in numbers but in the wrong view of public debt. Currently, Vietnam's public debt does not include government-guaranteed debt and capital construction debt. This method of calculation, according to Thien, does not allow for a proper assessment of the real risk.

"If it is calculated properly, public debt must be nearly 100% of GDP. The ratio, according to the present report, is only 55.7% and appears acceptable. This fosters the risk of illusion about the safety of the situation," he said.

According to Thien, what is worrying is that the debt is increasing much faster than the increase of GDP, and that the government is borrowing not for production, but to pay its debts. In addition, short-term debt in the debt structure is large. As the economy weakens, the ability to repay is also impacted.

"Our chart shows that this year Vietnam’s debt is VND208 trillion, 26.7% more than the budget revenues for 2014. This ratio crosses the red line (25%) and will account for 30% of budget revenues in the coming years," added Thien.

Senior economist Le Dang Doanh said: "With the current pace, in a short period of time Vietnam will be unable to deal with the public debt. It is necessary to review the budget. The current budget collection is not enough for regular expenses of the machine".

Other experts, Dr. Pham Do Chi and Mr. Phan Thanh Ha, said that in the next three years, the debt burden will rise very quickly. Mr. Pham Do Chi said the recent issuance of large amounts of government bonds - a form of debt - creates enormous inflationary pressure.

In addition to public debt, many experts said that bad debts are the huge bottleneck in the economy, affecting the flow of capital. But the statistics are not clear.

Thien said the figures of bad debts are different, the error is too large and the government should recognize scholars’ debate of bad debts as good for the economy.

Bad debts by the end of February, according to data from the State Bank of Vietnam, accounted for approximately 9.7% of total loans. Handling bad debts, according to experts, is the definitive task that must be attended to in 2014 - 2015.

So far the Vietnam Assets Management Company (VAMC), which was formed to purchase bad debts, has handled more than VND45 trillion of bad debt. However, just over VND400 billion were revoked and the plan to sell bad debts is still idle because of the lack of mechanism.

$1 = VND21,000