In 2011, 4 billion is needed

by lynk2510 May 10th 2011, 10:52 am

Vietnam’s present state of finances

By David Koh, Institute of Southeast Asian Studies, 14 March 2011

Consider these figures, in US dollar terms, gathered from the BBC. The foreign debt of the government of Vietnam at the beginning of March 2011 was 29 billion, just over 42% of the annual gross domestic product. The country operates a twin deficit in trade and in government budget. Inferring from the figures below, however, it appears the government of Vietnam could go bankrupt. The government’s reserves, its savings, are less than 50% of debt. If all 29 billion of debt has to be repaid tomorrow, the government of Vietnam will not have enough money to pay all. If there were a call on loans by all creditors at the same time, the government’s finances would not be liquid. This may not happen, but the possibility exists, say, in a political crisis like Egypt 2011 or a severe national disaster like the Japan earthquake this month, or a sudden panic among foreign capital investors and lenders.

The situation is not likely to get better in the short term. The budget deficit is continuing and the government is budgeting for 5% deficit again for this financial year. The trade deficit also shows no signs of abating quickly, with the February figure just below 1 billion. The government plans to restrict the 2011 trade deficit to 18% of export revenues or 14.2 billion. But this would still be a slight increase over 2010. Therefore, given the twin deficits are continuing, continued borrowing may be necessary, after taking into consideration disbursed FDI and remittances from overseas Vietnamese. However, remittances go straight into people’s pockets rather than the government’s purse. The Vietnamese people have several billions of dollars of wealth held in various instruments of savings, chiefly US dollars and gold. The main reason for this is of course a lack of confidence in the Vietnamese dong, and in the government’s fight against inflation.

In 2011, 4 billion is needed to pay interests on the foreign debt of the government. This is about 12% of the government budget. More and more, lenders to the Vietnamese government would have to take future earnings and the ability of the governmen
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