VietNamNet Bridge - The Ministry of Finance (MOF) last week submitted to the National Assembly’s Standing Committee a plan to issue government bonds to call for capital in the international market for domestic debt swap, though current laws do not allow this.

The National Assembly’s Resolution 78/2014 put the government and MOF into a dilemma. 

At the time when the resolution was released, in October 2014, there were problems with the government’s debt structure: the short-term government bonds issued accounted for 52 percent in 2014 and 80.3 percent in 2013 (which will mature in 2016). This led to the National Assembly’s decision to stop issuing short-term bonds. Only long-term bond issuance is allowed.

The implementation of the resolution immediately had impact on the government bond market. The State Treasury could only mobilize VND 127 trillion, or 51 percent of the yearly plan, in the first nine months of the year. This has raised concerns that VND90 trillion would be needed by the end of the year.

Because of the unsuccessful bond issuance, the government has to borrow VND30 trillion from the State Bank and borrow from other sources. However, the state budget remains low. 

The government has proposed to the government to amend the resolution to allow it to resume the short-term bond issuance. The idea has been advocated by the National Assembly’s Finance & Budget Committee.

The government’s debt had reached VND1,800 trillion by the end of 2014, with half from domestic sources, according to a report. Short-term domestic debts are mostly government bonds which account for 55 percent of total domestic debts and 30 percent of government’s debts.

What will happen in 2 years?

The government has asked for the National Assembly’s approval to issue $3 billion worth of government bonds in the international market which aims to restructure domestic debts.

The government has reassured the public that the public debt by 2020 will still be within the safety line if $3 billion worth of bonds are issued.

The issuance may be carried out in 2017, when the State Budget Law allows this.

In fact, the government once issued $1 billion international bonds to swap the debts to be due in 2016 and 2020, but this was for a foreign debt swap.

Meanwhile, the currently valid Public Debt Management Law does not allow the government to borrow money in foreign currencies to restructure the debts in Vietnam dong. 

As such, if the government insists on issuing government bonds for domestic debt swap, it will have to wait until the Public Debt Management Law is amended. 

In 2015-2016 alone, the government will have to pay VND365 trillion worth of debts.

TBKTSG