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Friday,  Nov 24,2017,03:37 (GMT+7)

Vietnam debt-to-GDP ratio remains high

Tu Hoang
Friday,  Jul 14,2017,14:26 (GMT+7)
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Vietnam debt-to-GDP ratio remains high

Tu Hoang

HANOI – Vietnam is among countries having the fastest-growing debt-to-GDP ratio in the world with an annual growth rate of about 10% in the last five years although the country has gained outstanding economic growth, according to the World Bank’s report on Vietnam economic update released yesterday.

The total State expenditures in the 2011-2015 period accounted for 29.2% of gross domestic product (GDP). The ratio is considered high compared to other countries with similar development in the region.

The ratio of regular expenditure to investment in the 2011-2015 period was 70:30 while this ratio in the 2006-2010 period was 63:37. The increase of regular expenditure resulted from a rise in spending for the implementation of new social security policies, salary and allowance payments, and repayment of debts.

The protracted budget deficit over the years has resulted in high public debt-to-GDP ratio, which jumped from 51.7% in 2010 to 62.2% in 2015. Government debt accounted for 50.3% of total public debt.

Due to limited access to foreign assistance, the Government had to rely on domestic borrowing. The ratio of domestic debt to total public debt jumped from 45% in 2010 to 55.4% in 2015.

The G-bond market has seen positive changes. In 2015, commercial banks held 77% of the country’s total bonds while long-term investors such as insurance companies held 8.42% and about 14% belonged to other institutions.

The Government has made strong efforts to expand bond terms. The average term of the bonds sold in 2015 was 4.44 years, or 1.51 years longer than in 2013.

According to the World Bank, huge budget deficit can make public debt unstable and make the country prone to even slight economic shocks.

In the context of huge public debt, Vietnam should take drastic measures to reinforce the fiscal situation and speed up structural reform.

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