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GOVERNMENT’S
BORROWING MONEY
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 Presentation Outlines:

01 OVERVIEW AND RELATED PROBLEMS

Definition, Characteristics, Classifications, Methods, Problems

02 REAL SITUATIONS IN VIETNAM

Situations, Causes, Effects

03 SOLUTIONS, LESSONS LEARNED

Solutions, lessons
 OVERVIEW
RELATED PROBLEMS
1. DEFINITIONS

- The money borrowed by the government through issuance of securities,

bonds and bills
- To make up the difference between revenues and expenditures.
- Is a main part of public debt
2. CHARACTERISTICS
2.1. The obligation of the Government to pay

Government’s borrowing money is reflected in two aspects:

• Direct repayment
• Indirect payment
2. CHARACTERISTICS
2.2. Rigorously managed with the intervention of the
competent Government authority

• First, to ensure:
 borrowers are able to repay the loans
 macro-economic balance
 national finance security.
• Second, to gain the objectives of the capital use process.
2. CHARACTERISTICS
2.3. Socio-economic development for the benefit of the
community.

• Mobilized and used not to satisfy the private interests of any individual or
organization, but for the common good of the community

• In Vietnam, it is decided based on the people interests, must be

considered as the most important condition
 3. CLASSIFICATIONS
Government’s Borrowing Money

By the geographical origin of the loan.

Internal loan External loan

Owed to lenders within Owed to foreign lenders

the country

Two ways of By the geographical origin of the loan.

classifications
Short term loan Medium term loan Long term loan

Generally considered to For more than one year For more than ten years.
be for one year or less. to ten years.
4. GOVERNMENT BORROW MONEY METHOD
Direct
Indirect
borrowing
borrowing
• From organizations and • From commercial banks,
individuals supranational institutions
• Issue debt instrument:
- Treasury Bills • From ODA
- Bonds
- Government Bonds
5. PROBLEMS WHEN COUNTING GOVERNMENT’S BORROWING MONEY

Inflationary Investment property

• Budget Deficit quota often does not • Need to subtract the total value of
adjust after the effects of inflation government asset from government’s
• It should be based on actual interest borrowing
rates.
 GOVERNMENT’S
BORROWING MONEY
IN VIETNAM
 Sales

15%
1%

13%
55%

16%

VND USD JPY EURO Other

 Sales

1%
19%

80%

Government's borrowing
Government's guaranteed loans
Local borrowing
 Chart Title
100%
100.00% 100.00% 100.00%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 0.00%
Category 1 Category 2 Category 3

Series 1
 Chart Title
5
4.5
4.5 4.3
4
3.5
3.5
3
2.5
2.5
2
1.5
1
0.5
0
Category 1 Category 2 Category 3 Category 4

Series 3
1. SITUATION OF GOVERNMENT’S BORROWING MONEY IN VIETNAM
Government’s borrowing money (GBM)
The number and rate of Government borrowing:

• The public debt

reached over ~$94B
(62.2% of GDP) • Public debt accounted for
• Government’s
63.73% of GDP
borrowing money to • GBM accounted for 53.62%
GDP is 49.2%. • Government guaranteed
2015 loan is 10.25% of GDP 2017
2016 • Public debt is
• National debt repayment estimated at
obligations compared to 61.3% of GDP
total debt Export of goods • GBM is about
and services is 29.7% 51.8% of
• The figure is close to the GDP
public debt ceiling (65%)
Evaluations of domestic and foreign organizations
On the situation of Vietnamese government debt over the past years:

Vietnamese’s • Vietnam may face risks on debt sustainability.

• The public debt / GDP ratio by the end of 2017 has decreased.
Organization
Public debt to 2014 is 61.4% of GDP, compared to 63.8% in
2016.
• GBM stands at 51.8% of GDP, while in 2016 it is 52.8% of GDP
• Government’s borrowing money has also fallen, which is about
9% of GDP from nearly 12% in recent years.

=> It’s necessary to increase the mobilization of domestic and

foreign loans

• Moody’s
Foreigns
 
Organization • World Bank
2. EFFECTS OF GOVERNMENT’S BORROWING
MONEY ON THE ECONOMY AND COMMUNITY

About the neutrality of government’s borrowing money

• The traditional view: tax cuts that are offset by government’s borrowing money will stimulate
consumption and reduce national savings.

• Barro-Ricardo's view: tax cuts that are offset by government’s borrowing money do not stimulate
spending even in the short-term
2. EFFECTS OF GOVERNMENT’S BORROWING
MONEY ON THE ECONOMY AND COMMUNITY

About the effectiveness of the impact of GBM on the

economic growth

• If a country has a large foreign debt, the ability of consumption reduces.

• A large government’s borrowing money has the effect of replacing private equity. This results in
rising interest rates and restricting businesses’ investment.
• Internal debt is considered less impact. If the domestic debt is large, the government is forced to
raise taxes to pay interest on debt.
• The government’s use of debt instruments for macroeconomic regulation will be ineffective
 Causesofofthe
Causes theincrease
increaseofofGBM
GBM

Massive Investment
01 • The cost is taken from the government budget that is
borrowed from domestic and foreign credit institutions
• Wasted a lot of money on building, reparing the
infrastructure
=> The rate of government debt will increase rapidly.

Corruption still existed

02 • The preferential international loans will disappear and
commercial loans will be replaced with much higher
interest rates.
• The interest paid on loans is too large
• There is no transparency in the use of loans

Declining revenue
03 • Tax evasion and underground economic activities
• The informal economy in Vietnam is 15.6% of GDP
• The high tariffs and complex laws
• Workers not pay taxes, the briberies is quite popular
SOLUTIONS OF THE DEVEL
OPMENT COUNTRIES
AND LESSONS FOR VIETNA
M
 Solutions of America

Cut spending Public sector

Increase revenue
restructuring

Budget deficit Increasing taxes and

causing factors Tax reform policy Lack of longterm reducing spending are
are important, is not easy
sensitive solutions the only solutions for
improving the state of
=> Difficult to cut public finances
 Solutions of Japan

Raising taxes Increase Increase budget Financial

productivity revenues stability
• Create a
• The level of cut • Only be • The target
psychological
spending is only implemented with financial stability is
prediction of
limited the application of to stabilize the
inflation
family allowances debt gro
 Lessons for Vietnam
The government’s borrowing money crisis in
the US is more or less directly and indirectly
affecting, in the immediate and long term,
many aspects of socio-economic and
political life in the country

• Vietnam's major trading partner and
export market may be shrinking,
reducing some incentives and
opportunities for export expansion of
Vietnam
• Ring the necessary wake-up call for state
management requirements
• Improve the efficiency of public investment,
maintain the effectiveness of macro-economic
surveillance
• Ensure social security and seek and
coordinate resources for development of the
country
RECOMMENDED SOLUT
IONS TO FACE GOVERN
MENT’S BORROWING M
ONEY
01 05
Change growth model depend on capital,
Develop a GBM strategy improve productivity and increase the
effect of state-owned

06
Ensure the sustainability of GBM scale

02 and GBM growth rate, solvency and

limit risks, expenses.
Reduce the national budget deficit

03 Strictly controlling on-lending loans

and government guaranteed loans. 07 Promote international cooperation to
attract foreign currency revenue.

Severely punish officials who behave

04 Publicity and transparency in GBM

management 08 wrongly in economic projects lead to
nation’s massive losses.
 Thank you
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