Improving the Quality of Planning Work in Capital Mobilization Through Bond Issuance, Especially Government Bonds

Budget Deficit Difference = Change in GDP/Income Factor

Budget Deficit = Previous Year's Budget Deficit + Budget Deficit Difference

The forecast results table above shows that the budget deficit/GDP ratio is still controlled below 10%. The forecast results have shown the practical suitability in 2009 announced GDP and the actual budget deficit ratio is 6.9%.

With the forecasts on the above-mentioned indicators, it can be used as a basis for planning the roadmap for issuing Government bonds. The above forecasts are only for reference on the budget deficit until 2020 (at actual prices) so that planners can make a reasonable decision on the supply of Government bonds for each period. Depending on the investment situation of the coming period, on the basis of having grasped the ODA source, the Government can propose reasonable terms (medium-term or long-term), and at the same time must develop a detailed plan to issue new bonds to match the bonds reaching maturity to ensure compensation and not increase the budget deficit.

Also from this forecast combined with the estimate that the bond market in general accounts for 40%-45% of GDP, the debt market and corporate bonds will account for about 33%-37% of GDP. This is also information to estimate the size of the corporate bond market.

However, it can also be seen in the above forecast that the budget deficit/GDP ratio tends to increase. Therefore, the Government needs to consider managing public investment effectively in the coming period to further boost GDP growth. This will help control the deficit/GDP ratio in the following period to a safe level of 5%. To achieve this goal, the Government needs to consider promoting endogenous growth through orienting the adjustment of the investment structure of the economy to a reasonable and effective level. In addition, it is necessary to take advantage of and improve the quality of human capital so as not to have to increase the capital investment ratio.

3.3.1.4. Perfecting the legal framework

Building a unified system of legal regulations is a prerequisite for implementing solutions to improve the bond market. The construction of a legal framework for the bond market, in the coming time, needs to focus on perfecting the legal framework for the stock market, for bond issuance and trading activities. Building a legal corridor for the stock market to operate is an important factor creating market stability, avoiding instability and fraud in stock trading activities in general and bonds in particular. Although the Securities Law has been issued, it still needs to be improved in the coming time. Currently, there are still many shortcomings in legal issues related to the market that need to be resolved such as:

Firstly, the current activities of the decentralized market are not mentioned in the Securities Law, which makes market participants always face the risk of having to bear risks because they are not protected by any legal framework. Therefore, there is a need for clear legal regulations to protect market participants.

This field. For example, the Securities Law needs to clearly stipulate the subjects allowed to establish, the establishment procedures, the management structure of the OTC Center...

Second, Vietnam currently has 2 stock exchanges, however, many documents still use the phrase “Trading Center”, so it needs to be edited to be consistent in terminology. In addition, it is necessary to unify the use of the concept “Stock Exchange” for the centralized stock market to suit the current situation in Vietnam.

Third, some sub-law documents related to bonds issued in the past are still in effect (such as Decree 141/2003/ND-CP and Decree 52/2006/ND-CP). Therefore, to ensure consistency, there needs to be supplementation and amendment to suit new conditions.

Fourthly, in Vietnam, commercial banks currently operate under a partially multi-functional model, so banks are not allowed to fully participate in the bond market but are only special members. Meanwhile, in order for the Vietnamese bond market to develop, it is necessary to strengthen the activities of commercial banks in the market. Therefore, it is necessary to review the regulations on the securities business model to allow commercial banks to fully participate in the bond market, especially in market making, bidding, and bond issuance underwriting activities.

Fifth, implement additional regulations on protecting the interests of minority investors and have regulations and measures to strictly handle acts that affect the interests of investors such as insider trading or market manipulation...

Sixth, in order for the market to gradually improve and develop, it is necessary to issue legal documents on market makers and credit rating organizations, thereby creating conditions for domestic credit rating companies to emerge, while also creating conditions to attract the participation of prestigious companies and organizations in the world to participate in the Vietnamese market. Complete the legal framework for repo and other derivative activities...

Seventh, in the process of perfecting the system of legal regulations, it is necessary to clearly define the responsibilities of all levels and sectors in managing and supervising the State's borrowing activities through the issuance of Government bonds: for example, the responsibility of the National Assembly in supervising the total national debt, approving the annual borrowing level and deciding on key national projects that need to mobilize capital from bond issuance sources; the responsibility of the Government in unifying the management of State debt; the responsibility of the Ministry of Finance in organizing the issuance, use of capital and payment of bonds when due, appraising the bond issuance plan; the responsibility of the State Bank in managing the activities of financial institutions; the responsibility of the State Securities Commission in managing the activities of the stock market; the responsibility of credit rating organizations; auditing organizations...; the responsibility of relevant ministries and sectors in coordinating the development of the bond market in particular and the capital market in general.

3.3.1.5. Improve the quality of planning work in capital mobilization through bond issuance, especially government bonds.

For the Government, planning work should be understood as a combination of forecasting work, building strategic plans in mobilizing capital sources and establishing a national debt management agency. This agency will have the task of coordinating with relevant ministries and branches (Ministry of Planning and Investment, Ministry of Finance, Ministry of Justice, State Bank, etc.) in building plans to mobilize capital for development investment, in accordance with the investment needs of the State and market capacity, ensuring effective use of capital, saving costs for the state budget.

Forecasting and strategic planning should be based on the following:

First, the socio-economic development strategy for each period. Based on this criterion, determine the overall capital demand of the entire national economy in that period; on this basis, it is necessary to clearly define the structure of each domestic and foreign capital source; at the same time, forecast the situation of savings and investment in society.

as well as the size of the market from which to calculate the volume of capital mobilized through bonds, especially government bonds.

Second, the implementation and balance of the State budget. Mobilizing capital through Government bonds has a very important task of implementing investment spending plans according to the Government's purposes. Therefore, planning and forecasting must be based on the plan and the implementation of budget revenue and expenditure to meet the needs of the Government's development investment budget in each appropriate period.

Third, capital needs for development investment. In addition to the task of compensating for budget deficits, government bonds are also used to invest in a number of national projects. Therefore, when making plans, it is necessary to base on the capital needs for investment in those projects to mobilize investment bonds. In addition, it is also necessary to base on the plan for using government credit capital to develop a plan for issuing government bonds.

Fourth, the market performance. Based on the performance indicators of the capital market, the stock market as well as the ability to supply investment capital and the socio-economic situation to forecast the transaction scale and the mobilization capacity of government bonds.

Fifth, the capital demand for payment of Government bonds in the planning year. Based on the demand for payment of Government bonds, the State budget needs to allocate capital or continue to issue new bonds for payment.

Based on the above, the capital mobilization plan is built, including: Capital mobilization plan by volume and each type of bond term for different needs of the Government; Capital mobilization plan by issuance method: including capital mobilization plan through bidding at Hanoi Stock Exchange and through issuance guarantee.

The problem for the Government is that the capital mobilization plan must be linked to the usage plan and debt repayment plan, ensuring effective capital use and the ability to repay debt.

For local governments that mainly issue bonds to invest in their infrastructure construction, it is necessary to have a capital mobilization plan as well as a specific and feasible plan for using the recovered capital to be able to both repay the debt and invest in other projects. Therefore, it is necessary to establish a bond capital management unit to ensure debt repayment when the bonds mature. This means that through the business mechanism of the infrastructure investment joint stock company, the use of bond capital is implemented in the most effective way.

For businesses that need to build a long-term development strategy, at the same time, it is necessary to determine the capital needs for each specific project. Determine the needs and purposes of capital mobilization, effectively manage the mobilized bond capital and effectively use that capital according to the set goals and plans, thereby proposing appropriate forms of bond issuance.

3.3.1.6. Perfecting the bond market organization model

The proposed model of Vietnam's bond market is based on the orientation of bond market development, on the assessment of the current status of the premises for market formation and development, and on the experience of Korean bond markets. With that perspective, the proposed model of Vietnam's bond market is specifically as follows:

- About market goods:

The Vietnamese bond market is established for the issuance and trading of government bonds, local government bonds, corporate bonds, and convertible bonds. In the immediate future, it is necessary to focus on developing the government bond market. This is because the government bond market is very large in scale, much larger than other markets. At the same time, government bonds have a high level of safety and are currently mainly held by financial intermediaries, so it is easier to organize trading, payment, custody, and

information disclosure. This market also makes it easier to select and develop market members. On the other hand, government bond interest rates are often considered the benchmark interest rates for other issuers, so developing the government bond market is also a condition for forming a benchmark yield curve, thereby supporting other entities to mobilize capital. Once the government bond market is well-operated, the market for local government bonds and corporate bonds will be the next step in the development model.

- About bond issuance market:

Firstly, the bond issuance market needs to be planned for development in conjunction with the development of the secondary trading market, avoiding the phenomenon of hoarding bonds until maturity as in the past. The issuance of government bonds needs to be closely planned to ensure stable budget revenue and expenditure, while creating conditions for members and investors to proactively participate, as well as making it easier to establish a standard yield curve for the market. Based on the plan to repay principal and interest on bonds issued in previous years and the budget's spending needs, the Ministry of Finance, specifically the State Treasury and related units, needs to develop a detailed and fixed schedule for issuing government bonds, and this schedule must be publicly announced to investors at the end of the previous year so that investors can be proactive and have a plan in allocating investment capital to government bonds.

Implement the issuance method through underwriting for long-term bonds over 10 years and conduct bidding for medium-term bonds. In the immediate future, focus on developing 3- and 5-year bonds to establish a standard interest rate for the bond market. When the market has developed, 10-year government bonds can be used to create a standard interest rate for the market. Next, gradually increase the form of competitive interest rate bidding combined with non-competitive bidding, bidding by price; increase the form of large-lot issuance; and move towards ending the retail method to standardize bond trading activities.