By Khanh Vu and Francesco Guarascio
HANOI (Reuters) -Vietnam has increased government bond sales by nearly 30% so far this year, data shows, as it bids to boost public spending to spur growth and shield the economy from the risk of crippling U.S. tariffs.
The Southeast Asian industrial hub’s economy has expanded rapidly in recent years – growing more than 7% in 2024 – thanks to foreign investment in export-oriented manufacturing plants powered by cheap labour and components often shipped from China.
Exports accounted for 87% of gross domestic product last year, of which the largest share went to the United States, according to official data.
But the country now faces tariffs of 46% from the Trump administration on goods imported into the U.S., much higher than most regional competitors, which economists at research firm BMI have estimated could reduce growth by up to 3 percentage points.
Vietnam has kicked off trade talks with the U.S., and is trying to persuade Washington to reduce or eliminate the new tariffs, which have been paused until July.
The country is also selling more bonds, despite a historic reluctance to increase low public debt levels.
It has so far raised 130.8 trillion dong ($5.04 billion) from government bonds with different maturities this year, up by 26.7% from last year, according to data from the Hanoi Stock Exchange updated to April 23.
The money is earmarked to boost public investment, mostly in railway and power infrastructure, and to spur domestic consumption to meet this year’s GDP growth target of at least 8%.
The government plans to raise around 500 trillion dong ($19.25 billion), or around 4% of GDP, in financing this year according to the finance ministry.
Adam Samdin, from Oxford Economics, said that the government has ample space to raise public debt levels, given that debt is just 36% of GDP, well below the mandated ceiling of 60%.
“Should growth be lower than expected from higher tariff rates, we think the government can afford to respond with more fiscal stimulus as well,” he told Reuters.
SPENDING PLAN
Earlier this week, Vietnam’s prime minister outlined plans to boost public spending and “fully disburse” allocated funding for ministries and local authorities, having missed spending targets for years.
About $19 billion in public funds was left uninvested from 2021 to 2023, about 25% less than planned, according to finance ministry data, and the government has forfeited billions of dollars in foreign aid.
“In Vietnam, a 1% increase in public investment will boost GDP growth by 0.06 percentage point,” Can Van Luc, a government adviser, said, adding growth was the objective.
Bond issuances have continued despite higher rates. The coupon on 5-year government bonds is so far up almost 50% year-to-date, to an average of 2.17%, and nearly 25% higher on 10-year bonds, at 2.92%, according to stock exchange data.
(Reporting by Khanh Vu and Francesco Guarascio; Editing by Rachna Uppal)
Comments