Da Nang will be allowed to borrow more, but how much is enough?
The National Assembly’s Standing Committee has agreed to give Da Nang a special framework so that will allow the city more room to regulate its fiscal budget and financing.
The central government will delegate more financial powers to the coastal city, which means Da Nang will have more budget independence, including more control over budget revenue and investment projects.
Da Nang will borrow more by offering municipal bonds to the public, said local authorities, since its annual budget of VND1.3 trillion ($58 million) will not be enough to meet the rising demand of the city’s rapidly growing economy.
Following the new financial mechanism, Da Nang’s outstanding public debt can reach a ceiling of VND3 trillion annually.
The Vietnamese central government controls local government borrowing by imposing rules that can take the form of restrictions on the overall debt or expenditure ceilings.
Da Nang has faced a dilemma in which on one hand the city is willing to run up more debt to have funds to build infrastructure; on the other hand, its borrowing capacity is limited by the rule saying that its total outstanding debt should not be higher than 30 percent of the city’s annual capital expenditure budget.
The city’s top officials, including Secretary of Da Nang’s Party Committee Nguyen Xuan Anh who at a meeting with newly-elected State President Tran Dai Quang in April asked for the central government’s support in favor of the city’s efforts to make an economic breakthrough, have tried to change that rule for quite a long time, raising the ceiling to 100 percent from 30 percent.
However, the decision has been met with mixed opinions.
National Assembly Chairwoman Nguyen Thi Kim Ngan said the new cap will inflate Da Nang’s public debt.
“Da Nang should think carefully [about the proposal] and take its debt-servicing capacity into account. [The city] should not live beyond its means. Soaring public debt will take a heavy toll on Da Nang,” said Ngan.
Minister of Finance Dinh Tien Dung also expressed his concern over the new cap. He suggested it should be raised to 40 percent, equal to a 10 percent increase from the current ceiling.
“The cap [of 40 percent] is appropriate for Da Nang to control its budget deficit as well as public investments,” said Dung.
However, Chairman of the People’s Committee of Da Nang Huynh Duc Tho dismissed such concerns.
“Da Nang has aimed for a new ratio higher than current 30 percent. We are confident that the city will use the funds effectively and will be able to pay back its debts,” said Tho.
“[We also want the central government] to delegate more [administrative] power to Da Nang so that the city will be more proactive with administrative management and business regulations,” the city’s top official added.
Prime Minister Nguyen Xuan Phuc last month agreed to give Ho Chi Minh City more freedom to act on its own so that the southern city can realize its full potential, developing into “the pearl of the East Sea”.