Gov’t guarantees reduced to 70%

The adjustment is one of the regulations stated in the Government’s Decree 04/2017/NĐ-CP, promulgated early this year to supersede Decree 15/2011/NĐ-CP, issued on February 16, 2011.

According to the new decree, from March 1, Government guarantees must not exceed 70% of the total investment capital of a programme or project approved by the National Assembly.

Ministry of Finance officials at a press briefing Wednesday to announce changes in Government guarantee provisions and management.

For projects whose total investment is at least VND2.3 trillion (US$102 million) and are approved by the Prime Minister, the maximum proportion guaranteed by the Government is 60%.

Hoang Hai, deputy director of the ministry’s Debt Management and External Finance Department, said on February 1 the new decree aims at tightening the provision of Government guarantees and enhancing the management of public debt.

In the future, the Government plans to gradually reduce the level of its guarantees so that more State resources will be provided to key projects and programmes. For other projects, investors’ borrowing must seek guarantees from commercial banks, Hai added.

Explaining the reduction, Hai said that previously, it was essential for the Government to support enterprises because the Vietnamese economy was in the very early stage of development.

However, at present, Vietnam has become a middle-income country with ability to access lending sources such as Official Development Assistance (ODA) and World Bank’s IDA (International Development Association) also being limited, thus perception of public debts also needs to be changed.

Enterprises must find ways themselves to resolve their financial difficulties, instead of depending on State support, Hải highlighted, adding that businesses are now being encouraged to access lending sources from foreign commercial banks and financial institutes.

With the new decision, the proportion of loans guaranteed by the Government in the country’s total public debt is expected to decrease over time.

Electricity of Vietnam and PetroVietnam are enterprises which are striving to get loans from foreign banks, Hai said.

Besides adjustments on the level of Government guarantees, the document also includes amendments for determination of guarantee fees and procedures for assessing projects and applying for guarantees, as well as supplement regulations related to managing loans guaranteed by the Government, collateral assets and risk management.

Hai said the value of the collateral asset must be at least equal to 120% of the value of the original loan or the value of bond issuance secured by the Government.

The minimum guarantee charge rate for each programme or project has also been increased from 1.5% per year to 2% of the secured outstanding loan, Hai said.

In addition, under the current regulations, corporate financial capacity is also a factor which will be taken into account when determining guarantee charges, he added.

The new decree also supplements accountability of State management agencies involved in the process of appraisal and approval of projects which are eligible for Government guarantees in case of a problem.