Vietnam's bond plan with US dollars is intended to bolster reserves and stimulate economic expansion
Vietnam is set to issue US dollar-denominated bonds, a move aimed at boosting national foreign exchange reserves, funding development investments, and easing pressure on interest rates. This decision comes as the country's national credit rating has significantly improved, according to leading organisations such as Fitch Ratings, S&P, and Moody's.
The government's precise goal in issuing these bonds during the current period is to benefit from the weakened US dollar and low US interest rates, which reduce the foreign currency debt service burden and support the sustainability of high US debt and aggressive fiscal plans. This strategy aims to make domestic products more competitive globally and to maintain financing conditions favourable for the government amidst rising debt levels.
Successfully raising dollar bonds from the public will help reduce pressure on the banking system and the foreign exchange market in case dollars are needed to pay foreign debts. The issue of US dollar-denominated bonds can be applied to both domestic and international investors, helping to reduce exchange rate pressure during the period when Vietnam needs dollars in the short term.
Deputy Prime Minister Hò̀ Đức Phớc has directed the State Bank to study and advise on solutions for issuing these bonds. Experts believe that issuing construction bonds in foreign currencies is reasonable due to the large capital demand for infrastructure investment in the coming period.
Phan Lê Thành Long, chairman of AFA Capital, suggests that focusing on sustainable development and green projects could help achieve lower interest rates. Dollar interest rates on the international market are expected to decrease as the US Federal Reserve (Fed) may reduce interest rates next month.
The current time is considered favourable for issuing dollar-denominated bonds due to Vietnam's low and manageable foreign debt ratio. However, the issue faces risks, particularly due to high greenback interest rates. CEO of economic and financial data provider WiGroup Trần Ngọc Báu believes that the move is an effort by the Government to find a solution to raise idle dollar sources from the public and limit negative impacts on exchange rates.
Issuing dollar bonds will not only add capital to the economy and reduce pressure on interest rates, but also help increase the national foreign exchange reserves, according to General Director of AFA Capital Nguyễn Minh Tuấn. Experts recommend strengthening communication to portray Vietnam as a stable growth country with tools to manage exchange rates, interest rates, public debt, and national risks at medium to low levels. They also recommend that the Government clearly define the purpose of capital raising for an effective plan.
Vietnam has issued three rounds of dollar-denominated bonds in the past, in the 2005-2006 period, 2010, and 2014. If capital raising is for sustainable development and green projects, lower interest rates and longer terms could be achieved. The Government of Vietnam is planning to issue US dollar-denominated bonds, and the move is expected to help Vietnam raise international capital at a cheaper cost.
