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External debt service obligations beyond limit
Lan Nhi
Tuesday,  Nov 7, 2017,23:43 (GMT+7)

External debt service obligations beyond limit

Lan Nhi

Vietnam’s external debt service obligations have gone beyond the permissible limit - PHOTO: UYEN VIEN

HANOI – The Government had not provided guarantees for company projects to borrow loans at home and abroad in the year to September but the nation’s external debt service obligations had gone beyond the permissible limit.

The country’s outstanding foreign loans have snowballed since 2016, resulting in heavier external debt service obligations. The ratio of external debt service obligations to total revenue from merchandise and services exports has now reached 29.7%, compared to the 25% limit.

In a report on the Government’s debts sent to the National Assembly, the country’s outstanding foreign debts including all Government’s foreign debts, Government-guaranteed loans, and debts owed by enterprises and credit institutions have increased substantially.

The figure last year grew 14.5% compared to 2015, with the Government’s foreign debts rising 8.6%, Government-guaranteed loans edging up 3%, and company debts soaring a staggering 26.8%. Therefore, the Government’s total foreign debt service obligations made up 29.7% of total goods and services export revenue.

The Government has strictly managed foreign debts and loan guarantees to keep public debt at safe levels. However, it is more difficult to control foreign debts owed by companies. If no strict measures are taken to put these company debts under control, the Government would eventually shoulder this burden.

As of end-2016, Vietnam’s outstanding foreign debts amounted to VND2,013 trillion (US$88 billion), representing 44.7% of gross domestic product (GDP). As a result, the nation’s external debt index is higher than in the previous year.

Domestic enterprises have boosted borrowings from foreign institutions. As of end-September 2017, the Government paid debts worth VND213.3 trillion for donors.

The Government will restrict guarantees for fresh loans in the years to come. The Vietnam Bank for Social Policies and Vietnam Development Bank have been told to guarantee new loans through the annual principal repayment obligation.

The limit on foreign commercial loans for enterprises and credit institutions is around US$5.5 billion a year. Besides, controls on the country’s short-term external debt should be further tightened, with maximum annual growth of 8-10%, according to the report.

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