VietNamNet Bridge - The Ministry of Finance (MOF) fulfilled only one-fourth of the yearly government bond issuance plan by the end of April, raising concerns that the state budget would not have money to spend this year.

An MOF report showed that it had raised VND64.515 trillion worth of funds by the end of April, fulfilling 25 percent of this year’s plan on mobilizing VND250 trillion through government bond issue.

The interest rate of the issued bonds is 7.92 percent per annum on average. Sixty-six percent of the bonds were 5-year ones, while 10-year bonds accounted for 9.6 percent and 15-year bonds 24.4 percent of the total bonds issued so far.

The slow bond sale has occurred over the last two months. In April alone, the State Treasury invited investors to seven bond bidding sessions, through which it could raise VND8.523 trillion worth of funds, just equal to 54 percent of March 2015 and 63.2 percent of the same period of the last year.

The State Treasury on April 13 could sell only VND30 billion out of the VND4 trillion worth of bonds it offered. No 10-year bond was sold. 

The slow sales were foreseeable. MOF earlier this year warned that the state budget would lack VND32 trillion this year because of the anticipated low demand from commercial banks. 

The problem is that the State Bank of Vietnam (SBV) has set a cap on the amount of government bonds commercial banks can buy. Banks currently can use 15-35 percent of their short-term capital to buy government bonds.

Meanwhile, commercial banks have always been major government bond buyers. A report shows that 80 percent of issued government bonds were sold to commercial banks, and two-thirds of the bonds were short-term ones with high interest rates.

MOF requested SBV to lift the cap to pave the way for banks to be able to buy more government bonds. However, in reply, SBV told MOF not to rely on commercial banks to implement government bond issuance plans.

SBV’s Governor Binh said bank capital should be used to fund business production rather than real estate projects and government bonds.

Analysts noted that in such conditions, MOF will have to try to mobilize capital through other channels, or ask the National Assembly to adjust the current mechanism on government bond issuance.

MOF has estimated a budget deficit of VND48.550 trillion, or 21.5 percent of the yearly estimate.

“Though the national economy has showed positive signs of recovery, big difficulties still exist, challenging the capital mobilization plan,” the MOF’s report said.

In related news, Vietnam, following a successful international bond issuance campaign last November, is planning to continue issuing bonds in the international market in 2016-2020 to restructure its debts.

TBKTSG