VietNamNet Bridge - The credit default swap (CDS), the index that measures the risk of holding government bonds, increased in the last two months of the third quarter of 2015, showing foreign investors’ concern about Vietnam’s public debt.

The National Finance Supervision Council mentioned the CDS increase in its report about Vietnam’s economy at the September government meeting.

The report pointed out that the 5-year CDS index by mid-September had reached 260 points, which is even higher than the 200-point earlier this year and is the highest level since January 2014.

“This partially reflects foreign investors’ concern about Vietnam’s public debt,” the report said, In August 2015, foreign investors sold more than bought VND4.6 trillion worth of government bonds.

The drop in confidence will make it a challenge to implement the government’s bond plan issuance. Only 20.7 percent of the government bonds on offer were sold in September 2015.

While the sales of 15-year bonds were beyond all expectations with 133.8 percent of bonds sold, the sales of 5-year and 10-year bonds have been going slowly: only 29.4 percent and 12.8 percent of offered bonds were sold. 

The bond issuance success rate was 54 percent (for 5-year, 10-year and 15-year term bonds), while the average bond term was 7.6 years (it was 4.95 years in 2014; 3.21 years in 2013; 2.97 years in 2012).

If counting the 20-year bond terms issued so far this year, the State Treasury has issued VND156.48 trillion worth of government bonds, or 63 percent of bond value it plans to mobilize in 2015.

Regarding balancing the budget for 2016, the National Finance Supervision Council believes there would be improvement in comparison with 2015 thanks to the recovery of production and business activities and the expected oil price increase, but the improvement would be modest.

The modest improvement is attributed to a decrease in exports, as Vietnam has to cut tariffs to implement the trade agreements it has signed. Meanwhile, the crude oil price recovery in 2016 will not be strong.

Thus, the public debt management will still be a great challenge in 2016, especially as it will be difficult to issue government bonds. 

The scant budget was why the Ministry of Finance recently sent word intimating that it wanted to borrow VND30 trillion to offset the budget deficit.

ADB, in its updated outlook report, noted that the government of Vietnam has been increasing its spending since 2011 and has borrowed money to help the national economy recover.

The public debt, which includes debt guaranteed by the government, is forecast to reach 62 percent of GDP by the end of 2015.

Foreign debt, mostly long-term loans, has remained at 28 percent of GDP over the last three years.

TBKTSG