This content is from: Local Insights

Vietnam: Government guarantee conditions tightened

The National Assembly has enacted the Law on Public Debt Management 2017 (LPDM 2017) which will be effective on July 1 2018. In comparison with the previous law, the LPDM 2017 imposes more stringent conditions on the new issuance of government guarantees for foreign loans of enterprises implementing investment projects, thereby leading to more difficulty in obtaining government guarantees for financing of enterprises and their projects, particularly for those with foreign-sourced funding.

Tighter regulations have been imposed in the following areas.

Firstly, several beneficiaries of government guarantees (for example, financial and credit institutions implementing the state's target credit programmes) under the previous law no longer qualify under the LPDM 2017. Only enterprises whose investment projects are subject to investment policy decisions of the National Assembly, the government, or subject to an investment decision of the Prime Minister as prescribed in the Law on Investment and the Law on Public Investment may be issued government guarantees under the LPDM2017.

Second, there are now regulations on annual limits on government-guaranteed loans, which is determined in accordance with the principle that the growth rate of outstanding guaranteed debts does not exceed the growth rate of the GDP of the previous year and within the government-guaranteed loan limit for the five-year period ratified by the National Assembly. Accordingly, based on the annual government guaranteed loan limit that has been determined, the Ministry of Finance will report to the Prime Minister to issue government guarantees to every specific programme/project.

Third, conditions for eligibility of enterprises and banks for social policies have been stipulated. The LPDM 2017 specifies the applicable conditions for each beneficiary, while in the previous law, the conditions were specified in accordance with the objectives of the government guarantee.

The LPDM 2017 was issued as a means of limiting the continuing increase in the public debt of Vietnam in light of the national general effort of official debt prevention annually from 2016 to 2020 from exceeding 65% of the GDP. However, as a consequence, at a time when there is great effort taking place to improve access to foreign funding for the implementation of national key projects, enterprises will likely face obstacles and difficulties in obtaining Vietnam government guarantees for their foreign loans to implement these projects.

Vu Le BangNguyen Bao Linh

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