Public debt must become a development tool

Looking back at the history of global public debt, it is easy to see a common denominator: countries that fall into crisis often make mistakes in at least one of three points: lack of transparency, poor risk management, and borrowing not linked to growth.

Greece in 2009 is a typical example. When information about budget deficits and public debt was hidden for many years, when it "broke", market confidence collapsed immediately, bond yields skyrocketed and the country had to resort to a bailout package of hundreds of billions of euros from the EU and the International Monetary Fund (IMF). The sovereign debt crisis in Argentina in 2001-2002 or more recently Sri Lanka in 2022 all have something in common: large-scale borrowing in foreign currencies, while failing to forecast exchange rate risks.

As the domestic currency depreciates, the burden of foreign currency debt swells, exceeding the ability to repay. The above countries borrow mainly to cover current deficits.

In contrast, Japan, a country with public debt of more than 200% of GDP, the highest among developed countries, still maintains a stable credit rating because most of its debt is domestic; invested in infrastructure, education , health care, science and technology.

The draft Law amending and supplementing a number of articles of the Law on Public Debt Management has made efforts to overcome shortcomings to avoid the "mistake" of public debt. The new regulation clearly states: the total annual borrowing must not exceed the public debt ceiling decided by the National Assembly ; the issuance of bonds with terms of less than 5 years must be limited to the maximum. This is a resolute message: no hot loans, no accumulation of short-term debt to "patch" immediate spending needs; minimize the risk of having to accumulate debt repayments in a short period of time.

According to the draft, the Ministry of Finance must periodically publish public debt information on a quarterly and annual basis, instead of only reporting annually as before. By publishing quarterly, the Government has made a strong commitment to transparency; creating conditions for the National Assembly, voters, investors and international organizations to have updated information.

Along with that, if previously, debt plans were often short-term, now the new regulations require the development of a 5-year public debt strategy and a 3-year public debt borrowing and repayment plan, along with risk scenarios for exchange rates, interest rates, and growth.

A major shortcoming in the past was the decentralized management mechanism. Accordingly, many ministries, sectors and localities participated in borrowing and using capital, leading to the consequence that some places borrowed beyond their repayment capacity, some places reported late, making it difficult to control the overall public debt accurately. The draft clearly states that the Ministry of Finance is the only focal agency to uniformly manage public debt; creating a solid basis for issuing synchronous borrowing policies, coordinating fiscal and monetary policies smoothly.

Linking public debt to sustainable development, a lesson from Japan, has also been clearly shown in the draft. Accordingly, loans will be prioritized for key infrastructure projects that can recover capital or create growth momentum...

It can be seen that the new regulations on public debt are not only technical but also clearly demonstrate the goal of creating a “trust contract” between the State and society. People, businesses, and investors will have more confidence in the economic prospects and be willing to contribute financial and human resources if they see that tax money and loans are being managed transparently, responsibly, and towards sustainable development.

ANH THU

Source: https://www.sggp.org.vn/no-cong-phai-thanh-cong-cu-phat-trien-post810145.html