CHAPTER 4: VIETNAM PUBLIC DEBT AND LESSON FROM LATIN AMERICAN PUBLIC DEBT CRISIS TO VIETNAM
4.4. Policy recommendation for Public debt management in Vietnam
The main objective of the public debt management is to consider strategy and debt structure-related risks, thereby making policy orientation adjustments to maintain public debt sustainability in medium and long term. Thus, in this section, we are trying to suggest some policies for further discussion so as to find out appropriate methods of managing current public debt and budget deficit in Vietnam.
*Establishing the Public debt Monitoring Committee under the Finance and Budget Committee of the National Assembly
The establishment of the Public debt Monitoring Committee allows close, subjective and independent public debt monitoring and management. The Public debt Monitoring Committee is empowered to access to all information about public and external debt of other Ministries in public sector, including Ministry of Finance, SBV, SOEs, etc. The information must include details of the scales, maturities, interest rates, currencies, strategies, etc. of all domestic as well as external debts. This will be the basis for public debt supervisors and managers can monitor, analyze and supervise the total debt of the public sector and then give appropriate policy advice to the National Assembly. The Public debt Monitoring Committee has to carry out and support the Finance and Budget Committee to quarterly propose the Overall report on public debt monitoring and management to the National Assembly. This report must summarize the latest updated information and cover discussions about policy and market developments. Also, the Public debt Monitoring Committee has the authority to coordinate and collaborate with stakeholders; and right to implement essential processes of administration, auditing, accounting and reporting.
*Establishing a system of debt safety indicators
To strengthen the fiscal discipline, it is necessary to set up a system of indicators regulating on debt limit in terms of quantity and flows of repayment. These limits can be presented in both nominal value and in percentage of important macroeconomic variables.
The scope of limitation applied is divided by each type of debt: total public debt, external public debt, domestic public debt, and total external debt. Normally, the limit to the total debt is expressed as a percentage of GDP and export, and limit to the debt service is expressed as a percentage of total tax revenue and foreign reserves or limit of annual debt to capital expenditure ratio. However, the important thing is that the National Assembly must provide reasonable limits. If too low, they can hinder the Government in implementing necessary reactions during the crisis because the adjustment or approval of new regulations takes time. Conversely, if the limit is set at too high level, they are pointless. Once issued, the fiscal disciplines of the government need closely monitoring by the Public debt Monitoring Committee.
*Debt accounting according to international standards
In order to exactly assess the practice and then propose appropriate strategies of debt management, the accounting of budget and public debt must be performed transparently following international standards. The off-balance sheet expenditure accounts must be absolutely avoided. The budget deficit measures, except for unsustainable revenues and revenues from sale of property, need further calculations for accurateassessment of current fiscal situation. In addition, the budget burdens arising in the future, such as pension payments or health insurance, should also be included in the forecasts of the budget deficit to get a more accurate picture of public debt outlook in the medium and long term.
Due to its potential risks to public debt, the SOEs’ debt should also be sufficiently calculated, analyzed and reported in the current definition of the public debt in Vietnam.
The analysis and assessment of the SOEs’ debt should be considered as an inseparable part of the report on Vietnam's public debt.
*Enhancing domestic debt market
Enhancing, both primary and secondary, domestic government bond market is very important. In short-term, the Government may have to accept high domestic borrowing cost for the development of the Government bond market. However, time by time, once this market develops and has higher liquidity, the Government can mobilize capital at a low cost. The development of the market will help the Government to mobilize capital with long maturities, fixed interests and especially in domestic currency. Therefore, the risks related to interest rates, exchange rates and rollovers will be minimized. In addition, the growth of the secondary Government bond market will also be followed by the development of the corporate bond market, as the Government bonds is the standard for determining the risk of other debt instruments.
*Tax system reform
Finally, tax system should be reformed to ensure criteria for sustainable, efficient, fair and transparent revenue. The tax burden needs properly reducing adjustment.
However, this level of reasonability depends very much on the process of public spending cut. Thetoo high tax burden will make the tax system less effective because it encourages tax evasion and distort the resource allocation. Tax and fee system should be reviewed to avoid overlapping. The taxes should be adjusted to ensure social security for low-income people, to encourage savings and limit consumption, especially imported luxury consumer goods.