Cat Linh-Ha Dong urban railway project and the problem of public debts

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In the annual budget estimate submitted to the National Assembly, the Government always sets an increase in Vietnam’s public debt payment obligations compared to the previous year.

Cat Linh-Ha Dong urban railway project and the problem of public debts

The local media recently reported that the Cat Linh – Ha Dong urban railway route in Hanoi, which uses loans from three loan agreements signed with the Import-Export Bank of China totaling US$690.62 million, has not opened but has had to pay debts to China. Such projects are proof that the use of borrowed money has not been effectively used.

It is said that the Ministry of Finance has had to pay hundreds of millions of USD of debt for the Cat Linh – Ha Dong project on behalf of the Government.

According to the Government report: public debt decreased sharply, from 63.7% of GDP at the end of 2016 to 55% of GDP at the end of 2019. In 2020, due to the impact of the Covid-19 pandemic, public debt increased slightly to 55.3% of GDP, but still was lower than the target set for the 2016-2020 period of no more than 65% of GDP.

However, looking at the data on public debt, it can be seen that public debt typically increases every year.

In the coming period, the pressure to pay public debt will become clear as the debt repayment period gets closer and closer. In the public debt report to the National Assembly, the Government noted the need to continue implementing measures to restructure the Government debt because the debt repayment obligation due after 2021 is highly concentrated in 2024 and 2025.

According to the Government’s report, the total debt repayment of the Government in the first nine months of 2021 was VND 289,328 billion, about 73.3% of the whole year plan. Total debt repayment of the Government in 2021 is expected to be about VND 365,932 billion (92.8% of the plan).

In general, for the public debt payment obligation in 2021, Vietnam will have to pay a total of more than VND449 trillion.

In the annual budget estimate submitted to the National Assembly, the Government always sets an increase in Vietnam’s public debt payment obligations compared to the previous year.

In 2022, the Government plans to borrow another VND571,014 billion and to repay the principal at VND288,264 billion and interest and fees at VND129,856 billion. In total, in 2022, Vietnam will have to pay VND 418,119 billion in both principal and interest. In 2022, it is also expected to record the first time the public debt balance has reached more than VND4 quadrillion.

In 2021, the Government’s loan mobilization structure still focused on domestic sources. It is estimated that in 2021, the Government’s domestic debt accounts for about 67.5% of the total Government outstanding debt (up from 63.8% at the end of 2020), and the Government’s external debt accounts for 32.5%.

It is worth noting that the current budget is still not enough to pay the debt. In order to pay debts on time, the Government must “borrow new debt to pay old debt”. Therefore, it is urgent to strengthen public debt management and improve the efficiency of public debt use. If there are more projects like the Cat Linh – Ha Dong urban railway, the risk to financial security will be very unpredictable.

Luong Bang

Most urban railway projects in Vietnam are behind schedule, resulting in an increased need for investment capital.

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