Finance expert explains deficit solutions

In light of the socioeconomic development plan 2011-2015, Vietnam’s budget deficit will be reduced to below 5 per cent of GDP by 2015. Can this goal be achieved?

Scaling down the deficit to below 5 per cent of GDP is not only a target, it is vital to our national financial security.

As part of this plan, the prime minister approved a mid-term debt management programme for 2013-2015 that, if effective, would ramp down the budget from 4.8 per cent this year to 4.7 per cent in 2014, and 4.5 per cent in 2015. The plan continues to reduce the deficit through 2020, with the ultimate goal of balancing the national budget.

Vietnam’s analysis of the deficit differs from that of the rest of the world. What would the deficit look like if it followed international practice?

Vietnam currently does not count government bonds issued in that year on budget receipts, whereas debt payments on capital to make-up for budget shortfalls were counted. This is a major difference.

The State Budget Law is in the process of being amended to fix this problem.

However, the figures I mentioned as part of your first question do incorporate bond issues as the law is likely to change in the coming time.

Our budget deficit would be considerably lower if calculation followed international practice. For example, in 2012, the deficit approximated $6.6 billion or 4.8 per cent of GDP, whereas it would go down to $3.87 billion or 2.76 per cent of GDP if done in the same way as most countries.

How is the deficit calculated now?

Following regulations, budget receipts include collection of taxes, fees, and others from individuals and businesses.

The budget is then allocated to socio-economic development, defense and security, maintaining the state apparatus, and paying down the national debt.

This last one is very important, as in 2012 $2.8 billion was deducted from the state budget to pay principal debt, and $1.4 billion was similarly allocated in the first half of 2013. These were calculated as budget expenditures, whereas many countries would not include it.

What will the budget look like in the time to come?

As a developing country, Vietnam needs tremendous capital volumes to serve socio-economic development needs. Thereby, keeping the deficit at a manageable level is crucial. Part of the deficit is paid off with loans from both domestic and external sources and part of the budget will later be allocated to pay these loans when they come due.

Ministry of Finance figures show that this year, the state will need $7.7 billion to bring the deficit down to the targeted 4.8 per cent. Most of this, $6.4 billion, will be raised through government bond capital.

In 2014 and 2015, $8.6 billion and $9.5 billion, respectively, will be needed and the country plans to come up with most of this capital also through bond sales.