VietNamNet Bridge – The Government is seeking approval from the National Assembly (NA) for a plan to issue US$3 billion in sovereign bonds on international capital markets to raise money for settling mature bonds on the domestic market in 2015-2016.

Bui Duc Thu, permanent member of the NA’s Financial and Budgetary Committee, told The Saigon Times Daily about the reason for the committee’s support for the plan. Excerpts:

What do you comment on the Government’s international bond sale plan?

It is necessary to allow the Government to proceed with the international bond issue plan as Government bond sales on the domestic market have been lackluster this year. According to an already-approved borrowing plan for this year, the Government needs to mobilize VND436 trillion (US$19.6 billion) to finance a budget deficit of VND226 trillion, development investments of VND85 trillion and debt settlements of VND125 trillion.

Bui Duc Thu, permanent member of the NA’s Financial and Budgetary Committee – Photo: National Assembly

The Government wants to mobilize VND226 trillion from G-bond sales on the domestic market this year but the target was only 51% complete in the first nine months.

Vietnam’s gross domestic product (GDP) remains small, at an estimated US$204 billion this year, and capital sources in Vietnam are limited. If the Government tries to sell bonds locally by offering higher coupons, credit for manufacturing and business would be affected. Therefore, it is important to sell bonds on international markets to diversify funding sources. Bonds offered for sale in foreign capital markets often come with longer tenors but lower yields. The average annual coupon for G-bonds on the domestic market was 6.6% in the January-September period.

But the Law on Public Debt Management does not allow issuing bonds in foreign currency abroad for rescheduling internal debts and the revised Law on State Budget will allow this from 2017. How can the Government execute the international bond issue plan in compliance with the existing regulations?

The revised Law on State Budget with effect from 2017 allows sovereign bond sales abroad to raise funds for settling debts and financing budget deficit. However, Article 28 of the Law on Public Debt Management does not permit bond sales in foreign markets for rescheduling internal debts. I think this is inconsistent as public debt settlements are aimed to ease debt payment pressure and help balance State budget revenue and spending, so the international bond issue plan is necessary. The Government is allowed to move on with the plan if the legislative body gives approval in a resolution for the State budget projections in 2016 if the Law on Public Debt Management is not revised.

Is it difficult for the Government to raise money to pay mature G-bonds in 2015-2016 if the international bond issue plan is only allowed to go ahead in 2017?

Regulation amendments are necessary at a time when borrowing at home is getting tough and the debt servicing cost is running high. So, the NA needs to issue a resolution approving the plan for implementation in 2015-2016 as this is urgent. If the plan is delayed, Vietnam would have to offer higher coupons for bonds to be issued on international capital markets if the U.S. Federal Reserve (Fed) hikes interest rates in the coming time.

It is not cost-effective if the Government borrows from abroad to settle debts. What would be the conditions if the Government wants to move ahead with the international bond sale?

Many regulations have been in place to ensure financial security for the nation. For instance, public debt should not be higher than 65% of GDP, Government debt should be kept at 55% and external debt should not exceed 50%. We have to control annual debt payments at no more than 25% of annual State budget collections. These are among the criteria for a borrowing plan to be passed.

At present, public debt is still at safe levels but has spiked fast and approached the upper limit (of 65% of GDP set by the NA). Therefore, pressure on debt payments has mounted in recent years due to short-term loans accounting for a big proportion of total debts and ineffective debt management. Short-term loans used for big-ticket and long-term projects are one of the reasons for rising pressure from debt settlements. We have suggested the Government restructure debt by limiting short-term loans and increasing long-term borrowing.

The NA’s Resolution 78/2014/QH requires the Government to issue bonds with tenors of at least five years to mobilize money for financing budget deficit and reduce issuing bonds for debt rescheduling. Do you think the legislature should share responsibility for budget constraints?

The legislature’s responsibility is to consider and approve viable plans for borrowing and debt settlements to ensure financial security for the nation. In reality, problems have arisen for the borrowing structure as short-term loans make up a big proportion and the NA should review and adjust this structure and bond tenors to help enhance the management of public finance and debt settlement issues. Resolution 78 is proper but should be executed in line with a roadmap. It is not reasonable when the Government is only allowed to issue G-bonds with tenors of five years or longer at a time when the domestic market is still in difficulty. Therefore, adjustments are necessary.    

SGT