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Brexit indirectly increases public debt

Released at: 08:50, 01/07/2016

Brexit indirectly increases public debt

Photo: Duc Anh

Rising Japanese Yen following UK vote pushes up Vietnam's debt in the currency.

by Hung Nguyen

Vietnam’s public debt may be higher due to the stronger Japanese Yen emerging from the Brexit crisis, according to Saigon Securities Inc. (SSI).

“Since Vietnam’s foreign debt, especially for ODA loans, is mostly in Japanese Yen, which is estimated at 40 per cent of the total, it will pay more in the future,” said Mr. Nguyen Duc Hung Linh, Director of Retail Research & Investment Advisory at SSI.

The Japanese Yen, he said, has been strengthening over the past few days due to Brexit, pushing up Vietnam’s foreign loans in Japanese Yen.

Forty per cent of Vietnam’s public debt is in Yen, 25 per cent in US dollar, and 20 per cent in Euro. It has some $45 billion in public debt in Japanese Yen and the currency has increased 3.8 per cent since last Friday’s vote in the UK and 17.6 per cent since the beginning of the year.

Among listed companies, the Phalai Thermal Power Joint Stock Company (PPC) had total debts of VND4.3 trillion ($192.68 million) in Japanese Yen as at the end of 2015, Mr. Linh said.

In the first six months of this year Vietnam recorded total budget revenue of VND425 trillion ($19.04 billion), or 42 per cent of estimates. Revenue from domestic business activities was VND342.8 trillion ($15.36 billion), VND17.7 trillion ($793.13 million) from crude oil, and VND63 trillion ($2.82 billion) from import and export activities, according to the General Statistics Office (GSO).

Budget expenditure totaled VND508.5 trillion ($22.78 billion) in the first six months, of which VND74.5 trillion ($3.33 billion) went to investment and development, or 29.2 per cent of estimates, socioeconomic spending and spending on national defense, State administration, and the Party and related units was some VND363.4 trillion ($16.28 billion), and VND68 trillion ($3.04 billion) was spent on debt repayments, according to the GSO.  

The government recently approved a plan to borrow VND452 trillion ($20.25 billion) to cover the budget deficit, issue VND60 trillion ($2.68 billion) in government bonds, and use VND43 trillion ($1.92 billion) of ODA for re-lending.

One indirect impact of Brexit on Vietnam is the devaluation of the Renminbi, which increased the trade deficit between Vietnam and China, putting pressure on the Vietnam dong and causing uncertainty in currency markets, according to economic expert Nguyen Tri Hieu. Mr. Can Van Luc, Senior Advisor to the Chairman and Senior Executive Vice President of BIDV, said that the increasing Renminbi also puts pressure on the US Federal Reserve to increase interest rates, which may also put the Vietnam dong under further pressure.

Mr. Luc also said that during economic uncertainty capital tends to flow to “safe havens”. Vietnam is still a frontier market, which may be too risky for investors and they may withdraw given the impact of Brexit globally.

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