|Spending has been lower than revenues so far in 2021, leading to a surplus in Vietnam. Photo: Le Toan |
Prime Minister Pham Minh Chinh has ordered the Ministry of Finance (MoF) to consider a possibility for increasing the country’s budget overspending to “make bigger room for ensuring expenditures for national development and macroeconomic stability”.
It remains unclear how high the level of such a rise in budget deficit would be. However, the government will have to seek permission from the National Assembly (NA).
If the legislative body agrees on the government’s proposal to increase the budget deficit, the country would have more state funding for investment development amid a decrease in contributions from the business community. Development investment will need the hands of the state in the context of climbing expenditures for supporting enterprises and fighting against the pandemic.
Last November, the NA passed a resolution on budget estimation for 2021. Total state budget revenue and total state budget spending would be over $58.4 billion and $73.34 billion, respectively, and the total state budget deficit would be $14.94 billion, accounting for 4 per cent of GDP.
Over the past few years, Vietnam has suffered from budget deficits, with $10.93 billion or 3.99 per cent of GDP last year; $8.7 billion or 3.36 per cent of GDP in 2019; and $6.65 billion or 2.8 per cent GDP in 2018.
In the 2016-2020 period, the state budget overspend accounted for 3.6 per cent of GDP on average, which ensures not exceeding 3.9 per cent of GDP under the NA’s Resolution No.25/2016/QH14 from 2016 on Vietnam’s national financial plan for 2016-2020.
Last November, the NA had to increase the country’s state budget deficit for the first time by an additional $5.8 billion for 2020. In late 2019, the figure had been fixed at $10.2 billion. The NA’s bold move contributed to helping the country reach a positive economic growth rate of 2.91 per cent last year.
According to the MoF, total state budget revenue in August was estimated at $3.4 billion, raising the figure in the first eight months of the year to over $43.47 billion, up 14.3 per cent as compared to the same period last year.
This include domestic revenues of $35.67 billion, up 12 per cent; revenues from crude oil exports of $1.1 billion, up 0.9 per cent; and revenues of $6.84 billion from export-import activities, up 31.2 per cent.
Meanwhile, total state budget expenditures are estimated to hit $5 billion in August, raising the 8-month figure to over $39.9 billion, including $8.14 billion for development investment, $3.13 billion for interest payments and $28.38 billion for recurrent spendings.
As much as $826 million were used for fighting against the pandemic and about $70 million were earmarked for supporting people with difficulties caused by the health crisis.
Thus in the first eight months of this year, there has been a state budget surplus of $3.57 billion.
However, such a surplus is not quite a boon because, as the pandemic resurged in April, domestic revenues have been reduced on-month, from $5 billion in April to $3.7 billion in May, $3.5 billion in June, $3.36 billion in July, and $2.74 billion in August. This means that domestic production and business activities have been facing massive difficulties.
What is more, revenues from crude oil exports in August were estimated to be $143.4 million, down by $9.7 million compared to July. This has led to the 8-month figure of $1.1 billion, up only 0.9 per cent on-year.
Besides that, revenues from export-import activities in August were estimated to be $1.04 billion, down by $478.2 million as compared to July.
According to the Ministry of Planning and Investment, 2021 so far should not have witnessed such a state budget surplus of $3.57 billion if more money from the state coffers had been used as public investment, which remains low in the period.
The public investment speed remains at a snail’s pace due to social distancing, standing at 40.6 per cent of the initial plan assigned by the prime minister, and lower than the 46.41 per cent recorded in the same period last year.
“Because the spending is lower than the revenue, it has led to a state budget surplus in the first eight months of this year,” said the MoF in a report on the budget situation.
However, according to the MoF, the pandemic is expected to cause big dents in the state budget for the whole year and raise the budget deficit. The business community is now bogged down in difficulties, with a large number of businesses kicked out of the market, meaning no money contributed to the state coffers.
In the first eight months of 2021, there were 85,500 enterprises halting operations, waiting for disbandment, and completing bankruptcy procedures – up 24.2 per cent on-year. Each month saw an average of nearly 10,700 enterprises withdraw from the market.
“Our country’s economic growth in the first six months of 5.64 per cent remains lower than the target, while there have been massive difficulties due to the pandemic,” said NA Chairman Vuong Dinh Hue. “Production, business, and people’s lives are facing great woes. They urgently need major support for recovery.”
Last year, the Vietnamese economy suffered from a total state budget deficit of $10.93 billion. This was due to the pandemic causing a decline in businesses’ performance, making it difficult for them to contribute to the state coffers, and because of the government’s application of policies on supporting healthcare, production, and social security.
Policies on deferred tax payments and direct support for businesses and the public have also mounted to tens of billions of US dollars.
Experts said if Vietnam has more policies to assist enterprises and the public, there will be a big reduction in the state budget as the country would need billions of US dollars for its fight against COVID-19 and support enterprises. Thus, if Vietnam borrows more international loans, the country’s efforts to control public debt will be affected.
The government recently sent a report on the national budget to the NA, stating that as of late 2020, the economy’s public debt was equivalent to 55.3 per cent of GDP, in which foreign debt held 47.3 per cent of GDP. The government’s debt decreased from 52.7 per cent of GDP in 2016 to 49.6 per cent of GDP by late last year, creating a bigger room for fiscal policy.
According to the MoF, since early this year, the government has inked two agreements on foreign loans with total value estimated at $98.6 million.
The NA and the government have continued underscoring the stringent management of the state coffers. They asked ministries, agencies, and localities to urgently come up with effective plans on reviewing state funding to gather funds for economic recovery and development, with the first and foremost task being securing sufficient financial sources to fight the pandemic and support the public and enterprises.
“It is a must to cut down on recurrent spending to a maximum level, and fight against negative activities and wastefulness in state budget expenditure,” said a government report recently sent to the NA. “All violators must be strictly punished, while budget revenues must be boosted in all localities, especially from stable and sustainable sources.”
At a recent cabinet meeting, all government members agreed on a plan to cut at least 50 per cent of costs of ministries, central agencies, and localities for organising conferences and business trips at home and abroad. In addition, another 10 per cent of their recurrent spending is ordered to be saved in service of the country’s fight against the pandemic and increasing investment for national security and defence.
According to the General Statistics Office, recurrent spending often occupies a large part of total budget expenditure. It was $40.35 billion or 71.4 per cent of total state budget spending of $56.5 billion, in 2019.
Last year, while total budget expenditure was $77.39 billion, recurrent spending hit $42 billion or 54.2 per cent. The rate in the first eight months of this year is 71.1 per cent.