Tiếng Việt
中文 (中国)
In recent weeks, the world financial community has expressed great concern at the news that the United States is likely to go into default because of reaching the public debt ceiling. So, what is the truth of this case? Compared with the law of Vietnam, what is the regulation on the public debt ceiling of Vietnam?
The public debt ceiling is the concept of a maximum amount of money that a country’s government can borrow to finance government activities, such as paying salaries to employees working as civil servants, public employees, etc. or make public investment in the development of national infrastructure, paying interest on government bonds issued by the Government…
When the public debt ceiling is reached, which means that the Government can no longer borrow any more money, the country is at risk of defaulting because it does not have the funds to pay its obligations. However, in practice this situation is very rare, most of which only apply to the United States, but in the 300 years since its founding, the United States has not once fallen into default due to reaching the public debt ceiling.
In fact, what global businesses and organizations fear is just a worst-case scenario that has never happened, although the US government’s temporary shutdown due to reaching the public debt ceiling has happened a few times, causing serious consequences for the stable development of the United States.
So, what are the regulations on the public debt ceiling of the US and Vietnam? Is there anything in common between the two countries?
Regulations on Vietnam’s public debt ceiling
Clauses 1, 2 and 3 of the Law on Public Debt Management 2017 stipulate that public debt includes:
– Government debt means debt arising from domestic and foreign loans, signed and issued in the name of the State, in the name of the Government.
– Government-guaranteed debt means a debt that is borrowed by an enterprise or a policy bank of the State and guaranteed by the Government.
– Local government debt is a debt incurred by the People’s Committee of the province.
In essence, public debt is a concept that always exists if the Government of a country wishes to develop quickly, with more money to develop in a short time. To better understand the concept of public debt in Vietnam and other countries, we can imagine two basic factors revolving around a country’s budget: budget revenue and budget expenditure.
Clause 1, Article 5 of the Law on State Budget 2015 stipulates that state budget revenues include:
a) All revenues from taxes and fees;
b) All fees collected from service activities performed by state agencies, collected from service activities performed by public non-business units and state enterprises to the state budget in accordance with law;
c) Non-refundable aid from the Governments of other countries, organizations and individuals abroad for the Government of Vietnam and local authorities;
d) Other revenues as prescribed by law.
Clause 2, Article 5 of the Law on State Budget 2015 stipulates state budget expenditures including:
a) Expenses for development investment;
b) Spending on national reserves;
c) Recurring expenses;
d) Payment of debt interest;
dd) Aid expenditure;
e) Other expenses as prescribed by law.
Accordingly, in a fiscal year, if the budget revenue is less than the budget expenditure, leading to a budget deficit, the Government will not have enough money to pay for its plans and activities, affecting the development of the country.
Thereby, to make up for the shortfall, the budget deficit, the Government will have to borrow from many different sources, usually in the form of government bonds. That loan is called public debt.
Regarding the public debt ratio, according to the State Bank of Vietnam, in 2022, Vietnam recorded the ratio of public debt to GDP in the year about 40.2%. With a GDP of about $400 billion in 2022, the public debt ratio that year was about $160 billion.
In recent years, the ratio of public debt to GDP has been maintained at around 40%, a significant decrease compared to 47.6% in 2016 and about 65% in 2011.
The 65% figure is also Vietnam’s public debt ceiling set by the National Assembly. In addition, the National Assembly also stipulates a number of other notable ceilings, including the government debt ceiling at 54% of GDP and the state budget deficit at 3.9% of GDP.
The reduction from 65% in 2011 to 40.2% in 2022 is a clear demonstration of the effectiveness of Vietnam’s policies. The 40.2% figure shows that Vietnam still has room for about 25% of GDP to reach the ceiling, showing good room for Vietnam to cope with economic fluctuations that may lead to an urgent need for loans to cover budget expenditures, such as the Covid-19 pandemic, leading to a sharp increase in spending to support people’s lives.
In addition, in the medium-term future, Vietnam is also expected to achieve a better public debt ratio. According to the IMF’s report, by 2028, Vietnam’s public debt to GDP ratio is expected to drop to 31.3%/GDP, the lowest in the ASEAN region, contributing to helping Vietnam increase its credit ranking according to the criteria of many international organizations.
The current state of the US public debt ceiling
Different from Vietnam’s public debt ceiling which is determined by the ratio of public debt to GDP each year, expressed in %, the US has a public debt ceiling that is set to an actual number. Currently, the US public debt ceiling is $31.4 trillion, equivalent to 117% of US GDP. This figure is the clearest evidence that the US has no public debt ceiling calculating according to a percentage of GDP. It is expected that June 5, 2023 (Pushed back from June 1 according to the new forecast of the US Department of Finance) is the time when the US will hit the current public debt ceiling.
If the public debt ceiling is not lifted, the US government will temporarily stop working and if this situation continues for too long, neither side make concessions, the US will have to declare default, the government will stop working completely. As a result, the credit rating of the United States will be lowered, affecting the position of this country on the world stage.
According to St. Louis Fed, the US public debt growth rate compared to GDP growth in 2022 is about 120%, down 20% from the peak of nearly 140% in 2019 due to the Covid-19 pandemic, but still an alarming figure when considering that in the period from the beginning of the millennium 2000s, this ratio is still only approximately 50-60%.
In Manhattan, USA, there is a public debt meter that shows that the US public debt has officially surpassed the $31 trillion mark. This is a huge increase since this watch ran in 1989 with only $3 trillion in public debt, a growth of 10 times or 1000% after 34 years.
In addition, under the national public debt index, the watch also has another remarkable indicator: Your family share.
That is, if this public debt is divided among each household registered in the United States, the average household will incur a huge amount of debt, currently at about $248,000 or about $94,000 debt per individual.
Currently, the latest information from US House of Representatives Speaker Kevin McCarthy says that he has reached a preliminary agreement with US President Joe Biden on the terms of the public debt ceiling, thereby avoiding the worst situation the United States defaulted on its debt.
Mr. McCarthy said that during the 90-minute phone call, the two sides agreed on preliminary content on lifting the debt ceiling for two years and limiting spending during that time, recovering unused Covid funds, speeding up the licensing of some energy projects and increasing eligibility for programs for the poor.
Joe Biden’s side also said that his legal team had finished drafting the document and sent it to both bicameral, calling on the two bicamerals to agree to sign the document immediately to raise the debt ceiling and ensure the operation of the Government, the economy as the public debt clock draws closer (June 5, 2023), averting a catastrophic default, the risk of economic recession and the loss of millions of jobs.
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