Abstract
The paper firstly provides an overview of the country’s public debt status before looking in more detail on its external borrowings. By reviewing the regional experiences in mobilizing external loans for their development when these neighboring countries reached the LMIC status, the paper argues the key role of Official Development Assistance (ODA) in such countries not as filling the savings gap. Instead, it is to reduce the burden of importing essential capital good and technology during industrialization, given that ODA flows are significant to the size of the economy and consistent over time. The paper concludes with key lessons and recommendations for Vietnam in formulating its new strategy on external borrowings, including using oversea aid to relax the balance of payment constraint; using ODA to finance growth-enhancing projects; directing ODA flows to viable projects to enhance the country’s productive capacity; and developing transparent, consistent and predictable project selection system.
Highlights
The paper firstly provides an overview of the country’s public debt status before looking in more detail on its external borrowings
The paper concludes with key lessons and recommendations for Vietnam in formulating its new strategy on external borrowings, including using oversea aid to relax the balance of payment constraint; using Official Development Assistance (ODA) to finance growth-enhancing projects; directing ODA flows to viable projects to enhance the country’s productive capacity; and developing transparent, consistent and predictable project selection system
Vietnam’s graduation to low middle-income country (LMIC) status has reduced access to concessional loans, which will likely drive up average interest rates on public debt over the medium term1
Summary
Interest payments on public and publicly guaranteed external debt were equal to just 0,5% of exports in 2016. As a country that has only recently acquired low middle-income country (LMIC) status, a large share of Vietnam’s external debt (40%) was acquired at concessional rates. Implicit guarantees on debt acquired by state-owned enterprises and local authorities are another important source of risk to debt sustainability In response to these concerns, the National Assembly introduced a series of thresholds for public debt and budgetary management for 2016– 2020 period, aiming at strengthening the fiscal discipline [5]. It urged the Government to develop new strategy for domestic and external borrowing to better mobilization and utilization of those funding sources for economic development of the country after graduating from low-income country (LIC) status. External borrowings in conjunction with other development financing sources As a result of strong growth in gross national income, Vietnam graduated from LIC status in 2008, moving to LMIC status. The state budget investment expenditure, though tending to slow down since Vietnam has become a LMIC, remained at 22% of total development investment and 7,2% of GDP for the entire 2010–2016 period
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