Reduction in public debt effects on state budget stability in Viet Nam

Abstract

The rapidly growing public debt has become a major concern for the safety of state budget in Viet Nam. This study
examines the relationship between state budget and public debt before and after the Public Debt Management Law in
Vietnam. In 1990s, high levels of government debt was tended to be compensated by the economic growth. In recent years,
while economic growth of Viet Nam slowed, the demand for infrastructure investment and economic recovery expanded
the government debt in level and magnitude, leading to state budget stability. The solutions to limit the detrimental
effects of public debt on state budget stability contains: (i) Develop the appropriate public debt structure in term of
period, interest rate and currency that avoids the large fluctuations in debt impacting on burden budget; (ii) Ensure the
budgetary stabilization based on the fiscal discipline aiming at complying with regulatory standards, enhancing fiscal
policy enforcement.