The sovereign debt report by the end of 2010 released by the Ministry of Finance (MOF), which shows the rapid increase of the debts, has raised worries among the public. However, Nguyen Thanh Do, Director of the External Finance Department under MOF, has affirmed that no need to get rattled over it.

Do you think is it a worrying thing that the debt indexes have been increasing continuously year after year?

If you want to develop economy and foster the GDP growth, you have to borrow money. How can we develop our economy and build more highways, harbors or airports, if we don’t borrow money?

You will be able to borrow money if the lenders have confidence in you and believe in your development potentials. You should feel happy if lenders advocate your economic policies and provide financial resources for development. If you have problems, you will not be able to borrow money. Greece, for example, which is facing the serious crisis, finds it very difficult to borrow from international sources.

Are the Vietnamese sovereign debts overly high? In the financial development strategy, we want to keep the debts at below 50 percent of GDP. Meanwhile, by the end of 2010, the ratio of sovereign debt on GDP had reached 42.2 percent, which means that the ratio remains within the safety line.

However, I have to say that in order to have an accurate outlook on the issue, we need to analyze a lot of other indexes, not only the debt on GDP ratio.

To date, there has been no common standard applied to all countries, while every economy sets up a limit for itself. For example, the EU’s countries stipulate that the total public debts must not be higher than 60 percent of GDP.

It is more important to consider the efficiency of the capital use than the borrowed volume. If we borrow money and can create growth from the money, it would be not a problem even if the debt is equal to 60 percent of GDP or higher.

Meanwhile, the World Bank recommends that the external debts should be lower than 50 percent. However, a lot of economies have “broken” the thresholds. Some European countries have the debts of up to 80-90 percent of GDP, or over 100 percent of GDP.

How is the Vietnamese sovereign debt if comparing with the economies with the same credit ratings?

If comparing with the Philippines, the economy which has the same credit ratings like Vietnam’s, or some other countries like Turkey, Vietnam’s debt is nearly equal theirs. Other countries have the ratios of debts on GDP of between 38 and 47 percent. Vietnam is not the country which has overly high debt ratio.

However, we should keep a comprehensive outlook on the issue. Don’t get in a panic when the ratio of debt on GDP reaches 42 percent. Of course, the index can show something about the debt situation, but don’t be too anxious and urge to stop borrowing

At a workshop on public debts one or two years ago, you informed that the average interest rate of external debts was 2.1 percent. Why have the interest rates been increasing so rapidly?

The loans are getting more and more expensive. In the past, we borrowed from ODA (official development assistance) sources at 1-2 percent. But the World Bank and the Asian Development Bank both have raised the lending interest rates. As Vietnam has entered the group of economies with middle income level, the interest rates applied to it have become less attractive.

Also, the proportions of commercial loans in the sovereign debts have increased; therefore, it is understandable why the average interest rate of external loans has increased.

Do you think that the lower credit ratings given by some international institutions recently will affect the borrowing?

Of course they will have influences in three ways. First, the lending interest rates will be different. Second, the fees will be different. And third, the lending conditions will be stricter. Experts have estimated that the US’ credit rating downgrading may cause the loss of hundreds of billions of dollars.

Some economists think that it would be better for Vietnam to borrow money from foreign sources rather than domestic sources because foreign lenders offer lower interest rates. However, the dong/dollar exchange rate had reached by 10 percent by the end of 2010 over 2009. So, are the external debts really cheaper?

It is true that the exchange rate adjustment has made the external debts in Vietnam dong increase by several percents more in comparison with GDP. If the exchange rate had not been adjusted, the ratio of external debts on GDP in 2010 would increase more slowly in 2010, less than 40 percent.

Could you give general comments about the current Vietnamese debt situation?

Firstly, the debt ratio on GDP remains within the safety line. Second, the government of Vietnam does not make any violation in debt payment. We keep paying debts and we have the capability to pay debts in the next many years.

Vietnamnet/ Source: TBKTVN