On Tuesday 8th November, Vietnam’s National Assembly approved plans to restructure its economy with the goal of tackling its rising debt problem, as well as strengthening its private sector by focusing on small and medium enterprises (SMEs).

A recent post on the government’s website highlighted the objective of restructuring the state budget in order to “ensure safety of public debt and national financial systems” before 2020. The announcement comes at a time when Vietnam’s public debt is growing at a rate reported to be three times faster than GDP and also an increasing risk to the country’s export industries.

The legislation aims to:

1. Cap public debt at 65% of GDP, which the World Bank forecasts to be 63.8% at the end of 2016 and 64.4% at the end of 2017. Deputy Prime Minister Vuong Dinh Hue has previously stressed that the ability to repay the country’s debts is much more important than the debt ceiling.
2. Cap government debt at 54% of GDP, which is forecast to grow from 54.58% in Q4 of 2016 to 63.08% in 2020.
3. Cap foreign debt at 50% of GDP. Vietnam will aim to improve relations between domestic and foreign-funded businesses, while also stating that foreign-funded projects will be selective in order to commit to its obligation to protect the environment.
4. And finally, lower government spending to 3.5% of GDP, a figure that hit 6.1% of GDP in 2015.

The resolution also aims to expand its privatisation program and restructure credit institutions before 2019. Vietnam climbed up eight spots in the World Bank’s “Doing Business Report”, ranking it 82nd out of 190 countries and displaying its commitment to SME investors.

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