Vietnam to allow public debt increase to stimulate economic recovery

Prime Minister Nguyen Xuan Phuc said at a meeting on Thursday that the Ministry of Finance should negotiate for loans with the World Bank and International Monetary Fund to facilitate the economic revival.

This could increase public debt by 2-3 percentage points from the current 57-58 percent of GDP. But that will still be within the 65 percent cap the National Assembly has set for 2016-20.

The PM said rejuvenating the economy after the pandemic ends is a matter of urgency, and policies should stimulate spending, investment and exports.

The loans could be used to fund support packages for people affected by the pandemic, he said.

The government had earlier said public debt could be 56.4 percent of GDP this year if GDP growth is 3.6 percent. It stood at 54.7 percent last year.

Another key measure to boost growth would be disbursement of official development assistance (ODA) funds, Phuc said.

However, local authorities are facing challenges in using ODA funds. Deputy Prime Minister Pham Binh Minh said that in the first six months 22 provinces and cities have not been able to spend any percentage of their ODA disbursement target though the country plans to spend VND60 trillion ($2.6 billion) this year.

He blamed it on those localities being unable to mobilize counterpart funds for land acquisition, a requirement for ODA disbursement.

Vietnam, although among the earliest countries globally to contain the novel coronavirus, has not been immune to the resultant economic damage since businesses had to be shut down and trade activities had to be restricted in March and April.

GDP growth in the first half of the year fell to a 10-year low of 1.81 percent. Last year growth was 7.02 percent, the second highest figure in the last decade, after a record 7.08 percent in 2018, according to government data.