Chapter VIII
CAPACITY TO REPAY PUBLIC DEBTS
Article 54. Capacity to repay public debts
1. The fund raising in form of loans must maintain indicators of public debt safety within prescribed limits and set aside amounts to repay public debts in full and on schedule.
2. A new loan only is granted after fully evaluating impacts on scope of public debts, capacity to repay debt for a mid-term period and ensuring limits on indicators of public debt safety.
3. Debts of state budget shall be repaid as follows:
a) Pay interests, charges and other expenses arising out of the debts according to the annual state budget estimates approved by the competent authority;
b) Gain revenue surplus and revenue increase as mentioned in the responding estimate, attain expenditure decrease, budget surplus and other legitimate sources of funds to repayment principals in full and on schedule;
c) The National Assembly shall ratify the new loan amount to pay off the principal to be included in the total loan of annual state budget.
4. Borrowers of guarantees and ODA on-lent loans or external concessional loans must repay debts in full and on schedule.
Article 55. Risk management of public debts
1. Risk management of public debts refers to the identification of risks faced by public debt portfolios, determination of extent of negative impacts thereof with the purpose of adopting prevention and remedial measures and ensuring the capacity to repay public debts.
2. Public debt risks include:
a) Risks of interest rates, foreign exchange rates;
b) Risks from fluctuations of financial market that affect the fund raising;
c) Liquidity risk due to lack of financial assets to be easily changed into cash to meet due debt obligations as committed, including capacity to repay public debts of central budget and local budgets;
d) Credit risk caused by failure of end borrowers or guaranteed borrowers to repay the debt in full and on schedule;
dd) Other risks likely to affect the public debt safety.
3. Preventive measures for risks faced by public debts, including:
a) Granting on-lent loans in which the intermediary borrower takes all of credit risks;
b) Request security for loans, manage collateral for loans to be on-lent and sovereign guarantees;
c) Require borrowers of sovereign guarantees, ODA on-lent loans or external concessional loans to purchase trade credit insurance;
d) Conduct active preventive transactions, including debt purchase, debt swap, use of derivatives and other transactions.
4. Responses to risks faced by public debts, including:
a) Restructuring debts according to the scheme approved by the competent authority;
b) Disposing of collateral and other assets put up as security for loans to recover debts;
c) Use debt repayment fund as prescribed in Clause 4 Article 56 of this Law and require guaranteed borrowers of sovereign guarantees to undertake to be in debt.
5. According to specific risks and impacts thereof on every loan, the Ministry of Finance shall take charge and cooperate with relevant agencies in submitting a scheme for debt restructuring to the Prime Minister for approval, including preventive measures for and responses to risks as follows:
a) Restructure domestic and external debts of the Government;
b) Assign ownership of enterprises with debt obligations to the Government;
c) Make a charge-off or write-off when an end borrower or a guaranteed borrower suffers partial or total loss of capital and assets due to force majeure events.
6. The Ministry of Finance shall restructure debts through debt purchase, debt swap, or loan deferment and report on them to the Prime Minister.
7. An end borrower or guaranteed borrower must set aside reserves to response to risks as per the law; make plans for responses to risks as deemed appropriate; and subject to inspection and supervision of competent authorities.
8. The Government shall provide guidelines for risk management transactions associated with public debts.
Article 56. Debt repayment fund
1. Debt repayment fund is established by the Government to ensure capacity to repay debts arising from loans to be on-lent and loan loss reserves arising out of on-lending and sovereign guarantees.
2. The management of debt repayment fund must meet the following requirements:
a) Ensure accurate and adequate collection and use sources of fund as prescribed in this Law;
b) Ensure liquidity, safety, maintenance and growth of the fund, raise effectiveness of the fund;
c) Do accounting and audit and make financial disclosure as per the law.
3. Revenues of the debt repayment fund comprise:
a) Debts recovered from loans to be on-lent of the Government;
b) Receipt from on-lent loan loss reserves;
c) Receipt from charges for management of on-lent loans and sovereign guarantees;
d) Funds recovered from amounts advanced from the fund;
dd) Receipt from debt restructuring and debt portfolio restructuring;
e) Deposit interests, loan interests, and receipt from sources of fund as trust services;
g) Other lawful revenues.
4. The debt repayment fund is used to:
a) Repay loans to be on-lent to state budget and external loans;
b) Advance funds for guaranteed borrowers of sovereign guarantee when they default on the debt;
c) Advance funds for debt restructuring, restructuring portfolios of government debts and sovereign-guaranteed debts according to the scheme approved by competent authority;
d) Finance expenditures on responses to risks arising from ODA on-lent loans or external concessional loans and sovereign guarantees as decided by the competent authority;
dd) Finance expenditures on public debt management transactions as decided by the Prime Minister.
5. The sources of the debt repayment fund after balancing, used for purposes prescribed in Clause 4 of this Article, are considered temporary idle funds and to be financed to the state budget when revenues of state budget have not been raised enough; deposit services; fund management trust services; or government/sovereign bond investment. The Ministry of Finance shall decide the management and use of aforementioned idle funds and ensure its maintenance and effectiveness.
6. The foreign currencies of debt repayment fund shall be guaranteed as follows:
a) The proportion of foreign currencies must be maintained in such a way that the Government must repay enough external debt service within at least a certain period in a year;
b) If the revenue in foreign currencies of the debt repayment fund is not enough to meet the expenditure on foreign currencies, the deficit shall be financed by the foreign currency fund of state budget.
7. If the debt repayment fund is not enough to repay debt service despite responses to risks in accordance with this Law, the Government shall report on revenues, expenditures, debt service, reasons for insufficient fund for debt repayment, and remedial measures to the Standing Committee of National Assembly, and then the Standing Committee of National Assembly shall forward it to the National Assembly for ratification as prescribed in laws and regulations on state budget.
8. The debt repayment fund shall do accounting in accordance with laws and regulations on accounting.
9. The Government shall provide guidelines for management of debt repayment fund.
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