Public Debt of Vietnam: Risk and Challenges. The paper aims to analyse risks and challenges of Vietnam’s public debt. The analysis is a combination of statistical descrip tion and numerical simulation. It basically shows that the public debt sustainability and liquidity are still below the conventional saf ety thresholds but the macroeconomic conditions are quickly dete-riorating as a result of the recent highly -rising p ublic debt. | Journal of Economics and Development , , December 2011, pp. 5 - 23 Public Debt of Vietnam: ISSN 1859 0020 Risk and Challenges Pham The Anh National Economics University, Vietnam Email: Abstract The paper aims to analyse risks and challenges of Vietnam’s public debt. The analysis is a combination of statistical description and numerical simulation. It basically shows that the public debt sustainability and liquidity are still below the conventional safety thresholds but the macroeconomic conditions are quickly deteriorating as a result of the recent highly-rising public debt. Given the Vietnamese government’s targets, the benchmark scenario implies that Vietnam’s public debt to GDP ratio will consistently increase to around 65% in 2015 and then 82% in 2020. Facing increasing risks of high public debt and limited potential revenue sources, the only way for the government to avoid an explosive path of public debt is to reduce public spending seriously and persistently. Keywords: Public debt, macroeconomic volatility, Vietnam JEL Classification: E60, E62 and E66 Journal of Economics and Development 5 Vol. 13, , December 2011 1. Introduction The Vietnamese economy has probably been experiencing the hardest time since its renovation (Doi Moi) started in the early 1990s. The recent global economic crisis has revealed many shortcomings of the economy which had been enjoying high growth regardless of its long term stability. Economic growth slowed down while prices increased dramatically. Furthermore, macroeconomic imbalances such as the trade deficit and public debt continued to increase, threatening the country’s sustainable growth and stability. Vietnam, like many other developing countries, has a high demand for loans in order to implement various socio-economic projects. There are many reasons for policy makers to be tempted by the prospect of vast borrowing programs. The loans may be used to finance public infrastructure .
