Vietnam public debt forecast in the period of 2021 - 2025

Abstract

Vietnam's public debt has an important achievement in the years 2017-2019. Specifically, the public debt/GDP ratio was 61.4% of GDP in 2017. However, this ratio fell to 58.3% in 2018 and 55% in 2019. This improvement in public debt/GDP is due to the large scale of the economy and high economic growth rate. This fact implies there is a relationship between public debt and macroeconomic factors. Theoretical research shows that the macroeconomic factors affecting public debt include the State budget deficit, economic growth, real interest rates and exchange rates. This study will build a model to analyze the impact of those macroeconomic factors on public debt/GDP, period 2000 - 2020. The study has an important finding. That is, there exist two mechanisms, which have opposite effects on the evolution of public debt/GDP of Vietnam. Firstly, it is the trend of expanding investment to promote growth. This trend increases public debt/GDP. And second, it is the tendency to increase the real size of the economy, as measured by real GDP growth. This trend reduces public debt/GDP. The author relies on the above two trends to explain the evolution of Vietnam's public debt/GDP, period 2000 - 2020. Next, based on the analytical model, the author will forecast the trend of public debt in the period 2021 -2025. The forecast takes into account the impact of Covid-19 on public debt.