Vietnam is a fast-growing economy that is unique in the public debt management context as it is one of three countries qualifying for support under both the Debt Management Facility (DMF) multi donor trust fund covering 86 low-income countries, and the Government Debt and Risk Management (GDRM) program funded by the Swiss State Secretariat for Economic Affairs (SECO) and focusing on 12 middle income countries.
Becoming an upper-middle income country, and eventually a high-income economy by 2045, is a government objective and it will require substantial infrastructure investments to sustain economic per capita growth at an average rate of about six percent for the next twenty years. In addition, Vietnam has committed to zero-net carbon emission by 2050 and the climate mitigation/adaptation investment needs will be very large. Meeting these targets require substantial investments, and it is clear that government borrowing, and debt management will play important roles if the government is to achieve the dual goals.
The debt management engagement with the World Bank is addressing several challenges:
- The organization of debt management remains fragmented, not withstanding some consolidation achieved while revising the public debt management law in 2017. Regional peer countries— Indonesia, Thailand—have well-established, internationally recognized debt management offices that ensure that borrowing decisions are taken from an overall portfolio point of view. The Public Debt Strategy 2030 envisages establishing a Debt Management Office over this period, with a review of the Public Debt Management Law during 2026-30.
- Debt management strategies are largely silent on the preferred structure of the debt. The strategies in place include targets for debt size but little guidance on the risk exposure of the debt, which is the main focus of debt management.
- The domestic market for government securities is under-developed and the investor base is narrow. The government is able to fund itself mainly in the domestic market, thereby to a large extent avoiding exposure to foreign currencies. However, the main buyer of government securities is the publicly owned Vietnam Social Securities (VSS), which creates demand for long- term fixed interest debt that imply low funding cost. But, as the pension system is essentially unfunded, large contingent liabilities will gradually materialize as VSS becomes a net payer.
Subnational governments are expected to become major borrowers implying a need to build strong debt management institutions. While debt levels are low currently, a large part of the infrastructure investments are expected to take place at the subnational level.
Following the COVID-19 pandemic, good progress was seen in the engagement with the central government. Joint missions with the IMF were undertaken in August and November 2022 focusing on the institutional arrangements for debt management and strengthening the debt management strategy and the capacity to undertake detailed cost-risk analysis. The former included high-level workshops with participation from inside and outside the MoF (including the Budget Committee of the National Assembly and various think tanks) were held during the mission, where international experiences in various areas of debt management were discussed. The workshops are seen by the MoF as key tools in building consensus for organizational reforms. In addition, support was provided on foreign exchange rate risk management and capacity building in relation to international bond issuance.
At the sub-national level, GDRM is engaged with the Department of Finance of Ho Chi Minh City to establish a strong debt management function. The capacity building efforts are directly supported by the debt management team at the Ministry of Finance in Hanoi, and the intention is to create a model that can be replicated in other sub-national entities.
Looking forward, the World Bank will continue the support for strengthening debt management in Vietnam. In the short term with a mid-term review of the current 5-year Public Debt Borrowing and Repayment Plan and with continued capacity building.