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VietNamNet Bridge - The Ministry if Finance’s (MOF) decision to reject eight foreign loans with high interest rates totaling $1.2 billion was highly applauded by economists.
Vietnam needs huge capital for investment & development
Le Dang Doanh, an economist, said interest rates must be calculated based on the effectiveness of investment projects. If the projects bring profits and take back the investment capital quickly, the ability to repay the loans will be high. If projects are ineffective, this will not only put pressure on repayment capability, but also lead to higher public debt.
Vietnam can access many capital sources with preferential interest rates, but it cannot use the capital effectively.
“Most of the projects guaranteed by the government for loans are developed by state-owned enterprises, such as Thai Nguyen steel plant, Dinh Vu polyester and Ninh Binh Fertilizer plants,” Doanh said.
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Vietnam can access many capital sources with preferential interest rates, but it cannot use the capital effectively. |
Doanh went on to say that with Vietnam’s public debt nearly hitting the ceiling level, if Vietnam has to borrow money at high interest rates and doesn’t control the use of loans effectively, this will threaten the national security and the macroeconomy.
“MOF made the right decision, which shows the ministry’s high responsibility in controlling the public debt,” Doanh said.
He predicted that MOF would meet big difficulties in arranging capital for investment and development. However, its decision shows the ministry was courageous by refusing huge loans instead of taking high risks.
Since July 2017, Vietnam no longer can get loans with preferential interest rates from the World Bank and it is more difficult to call for low-cost loans from foreign donors.
As a result, the government has to shift to borrow money from domestic sources, mostly through short-term high-interest rate bond issuance.
In many cases, the capital cannot be disbursed and projects are ineffective, but the government still has to pay interest on the bonds, thus leading to the increase in the government’s direct debt in the short term.
Doanh believes that the government should not act as a guarantee for enterprises to borrow money. Borrowers must pay debts themselves instead of putting a burden on the government.
Agreeing with Doanh, Bui Quang Tin, a banking expert, said the ineffective use of capital and mismanagement leading to capital losses are the major causes behind the increase in public debt. Therefore, the supervision method should be changed to increase the efficiency of capital use.
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