Curbing budget deficit: a challenging task

The Ministry of Finance’s latest figures showed that total budget collections in the first half of 2013 only fulfilled 43.7 per cent of the year’s target, tantamount to VND356.5 trillion ($16.9 billion).

Meanwhile, the total budget spending approximated VND449 trillion ($21.3 billion), albeit the time for applying minimum wage hike scheme was extended from January 1 to July 1, 2013 to save expenses.

This triggered budget deficit of VND92.3 trillion ($4.4 billion) in the first six months, equal to 57 per cent of National Assembly (NA) approved level and 91.3 per cent of the level calculated following international standards.

“If firms were still in the woods and budget collections dropped set targets in this third quarter, the government should submit to the NA budget revised collection plans to get hold of budget deficit when there was a big distance between budget receipts and expenditure,” NA’s Finance and Budget Committee member Tran Quang Chieu recommended.

Chieu, however, said this was only in the worst case scenario.

“One of most important measures to keep budget deficit at below 4.8 per cent of the GDP was to unblocking credit channels to pump capital into the economy. Strong measures must be taken to at least reach 12 per cent credit growth this year while the consumer price index is retained at below 8 per cent, paving the way for us to achieve 5.5 per cent economic growth and keep budget deficit under control,” Chieu said.

Senior economist Tran Du Lich proposed hiking capital sources for unfinished state projects and bolstering public investments and spending to motivate the aggregate demand.

In fact, total retail and services revenue in the first six months of 2013 only surged 4.9 per cent versus 6.7 per cent in the same period of 2012. Total investment of society fell from 42 per cent of the GDP in some previous years to a mere 29.6 per cent in 2013’s first half.

In this context, many international financial organizations like the World Bank and International Monetary Fund had scaled down GDP growth forecast for Vietnam to 5-5.3 per cent only this year.

“In such circumstances, reaching collection and budget deficit targets proves quite a challenging task,” said Dr. Vo Tri Thanh, deputy head of Ministry of Planning and Investment’s Central Institute for Economic Management.

To reach these set goals, Thanh noted, government agencies needed to radically execute governmental Resolution 02/NQ-CP presenting wide-ranging measures to support firms and market.

Accordingly, efforts must gear towards quickening capital disbursement at state-funded projects and programmes and those using government bond capital, bringing investors’ comfort in space, infrastructure, human resources and procedure settlement aspects and presenting suitable credit and lending policies to unclog hardships in areas facing high inventories like agriculture, construction and industry.

“Some suggested that in current context the government should take strong measures as in 2009, meaning to implement a huge bailout package of around VND200 billion ($9.5 billion) to rescue the economy.  If this measure was used, the GDP would rebound quickly but it threatens macro-economy, particularly inflation and budget deficit targets.  We must not sacrifice stability at any costs,” Thanh noted.