FBC agrees with plans to boost state coffers

Falling oil prices and the lacklustre sale of G-bonds have impacted state revenues Photo: Le Toan

According to the committee (FBC), estimated budget revenues for the whole year totals $42.25 billion, with $752.3 million higher than the target.

However, this is due to a $2.19 billion rise in localities’ collection. The central coffers, in contrast, collected some $1.44 billion below the target.

“Localities’ collected money is used for localities only, not for the government’s spending. This makes the central budget more difficult,” said the FBC’s Chairman Phung Quoc Hien.

This year, the central budget was expected to face an 8.6 per cent rise in spending on year, against the 6.1 per cent increase in revenue.

Hien said the over-spending estimates for this year, of VND226 trillion ($10.37 billion) – equal to 5 per cent of GDP, might be surpassed.

The sharp fall in oil prices and difficulties in state bond sales have been the main factors behind the dismal budget revenues. Due to low price of crude oil in exports, the state budget will fall short of its target by some $2.89 billion in 2015, the FBC has anticipated.

Meanwhile, the government’s major capital mobilising initiative – the issuance of government bonds (g-bonds) – remains unattractive to. In this year’s first nine months, issuances totalled less than $5.67 billion, or around half of the whole-year target.

Since early this year, the legislature has only allowed g-bonds with tenors of more than five years to be released domestically, so as to reduce the payment pressure caused by short-term debts. However, financial experts have pointed out that the main holders of Vietnamese g-bonds are commercial banks who actually need short-term rather than long-tenor bonds.

Measures to be implemented

The FBC has agreed with the government’s proposal to use money from the equitisation of state-owned enterprises to settle one-third of the state budget deficit ($458.7 million out of the aforesaid $1.44 billion).

The government has requested its investment arm - State Capital Investment Corporation - to divest its holdings from several companies, such as Vietnam Dairy Corporation and FPT, which can fetch an additional $3 billion.

Also, in a bid to boost the attractiveness of g-bonds, the FBC has also given the thumbs-up to the government’s proposal to resume the issuance of bonds over three years in this November. The amount of these bonds will not exceed 30 per cent of the total g-bonds issued in 2015 and 2016. The FBC has also asked the legislature to allow the issuance of both long-term and short term g-bonds.

Additionally, the Ministry of Finance has urged the General Department of Taxation (GDT) to ensure tax debt collection. Since July 2015, the GDT has imposed tougher measures on debtors, including publishing their names regularly.

In order salve sovereign debts, the FBC has given the green light to the issuance of $3 billion in international bonds – the largest cluster ever issued – for terms of 10-30 years.

This issuance will take place in 2017, when the new law on the state budget takes effect and allows the release of international bonds to cover budget over-spending. The committee required that the borrowing cost has to be lower than or at least equal to that mobilised domestically.

Unfortunately, the situation looks grim for the next year. The FBC estimates that in 2016, state spending would likely rise 8.6 per cent on year, against an expected revenue increase of 6.1 per cent.

The state budget revenues may still face shortages due to the slow recovery of global oil prices.