Fiscal deficit to require further economic assistance

The General Statistics Office (GSO) reported that in the first four months of 2024, the economy recorded an $8.8 billion surplus in the state budget. Total state budget expenditures are estimated to reach $21.76 billion – up 4.4 per cent on-year. All types of spending have increased.

Meanwhile, Vietnam’s total state budget revenue stood at $30.56 billion, up 10.1 per cent on-year. Domestic revenues are estimated to stand at $26.24 billion, up 12.9 per cent on-year.

Revenues from export and import activities in the first four months touched $3.42 billion, down 5.7 per cent on-year.

The GSO reported that total goods export turnover in the first four months is estimated to reach $123.64 billion – up 15 per cent on-year, with $33.62 billion for Vietnamese exporters, up 21 per cent; and $90.02 billion for foreign exporters, up 12.9 per cent – including crude oil exports.

Meanwhile, total goods import turnover of the economy in the period is estimated to hit $115.24 billion – up 15.4 per cent on-year, including $41.86 billion for Vietnamese importers, up 19.7 per cent; and $73.38 billion for foreign importers, up 13.1 per cent.

However, according to the GSO, the four-month increases in export and import turnover do not really mirror the global market’s recovery with rising demands for the Vietnamese market. Such increases are based on the steep declines seen in the same period last year, when total export and import turnover reduced by 15.1 per cent on-year, including exports down 12.8 per cent; imports down 17.5 per cent.

In the first four months of this year, total revenue from crude oil exploitation and exports, all from PetroVietnam, were estimated to sit at over $883.3 million, an increase of 0.6 per cent as compared to the same period last year.

PetroVietnam reported that in Q1, all production indexes exceeded initial plans. The group’s exploitation of crude oil hit 2.54 million tonnes, up 19.4 per cent – in which domestically exploited crude oil reached nearly 2.1 million tonnes – up 20 per cent, and overseas-exploited crude oil stood at 450,000 tonnes, up 16.7 per cent.

PetroVietnam’s exploitation of natural gas reached 1.69 billion cu.m, up 32 per cent; nitrate and NPK fertiliser production touched 475,800 and 77,300 tonnes, up 7 and 59 per cent, respectively.

The group’s production of petrol and oil, excluding production by Nghi Son Refinery, reached 1.61 million tonnes, up by 22.5 per cent.

PetroVietnam’s total Q1 revenue is estimated to be $9.62 billion, surpassing 33 per cent of the initial plan and up 19 per cent on-year. Its financial contribution to the state budget is estimated to be $1.3 billion, exceeding 40 per cent of the initial plan and up 5 per cent on-year.

The group’s total investment capital reached $205.4 million, up 44.6 per cent on-year.

Lingering challenges

However, according to experts, lingering difficulties into this year are expected to continue affecting the state budget, with a dent in revenue and a need for more fiscal assistance for the public and enterprises.

Early this year, the government reported that in 2024, total state budget revenue is set to be $71.78 billion, including $35.98 billion for the central budget and $35.8 billion for localities’ coffers. This is lower than last year’s $72.48 billion.

In addition to this, a further $803.3 million from the localities that failed to be disbursed for salary reform in the public sector last year will be shifted to this year for the same purpose.

Meanwhile, total central budget expenditure for this year will be about $51.7 billion, of which nearly $18 billion is to be used as a supplement for localities’ coffers.

The government told the National Assembly that the state budget estimates for 2024 has been calculated based on assumptions that economic growth will be 6-6.5 per cent, and inflation will be 4-4.5 per cent, and the government’s policies on tax reduction and exemption in 2024 are expected to be the same and implemented as in 2023.

“New solutions will be used to increase revenue and save expenses, and also to closely control budget deficit, public debt, government debt, the nation’s foreign debt, and the government’s direct debt repayment within the permissible limits,” said Prime Minister Pham Minh Chinh.

According to the World Bank, the Vietnamese government is expected to maintain a moderately supportive fiscal policy in 2024 but resume fiscal tightening in the outer years.

“In 2024, the fiscal deficit is projected to widen to 1.6 per cent of GDP as revenues remain weak, while expenditures are set to rise due to a planned civil service salary increase and continued efforts to accelerate public investment,” said the World Bank in its Taking Stock bi-annual economic update released on April 23. “Thereafter, the fiscal deficit is projected to shrink to 1.1 per cent in 2025 and 1 per cent in 2026.”

The bank added that the risk to the outlook were broadly balanced. Slower-than-expected growth in advanced economies and China could further dampen external demand for Vietnam’s export sector.

Moreover, an escalation of geopolitical tensions and climate-related disasters pose additional downside risks for Vietnam.

“Domestically, a slower- than-forecast real estate market recovery could affect investor sentiment and weigh on private sector investment. The continued worsening of the financial sector’s asset quality resulting from the real estate market’s downturn could undermine growth prospects as capital buffers, especially at some larger state-owned commercial banks, are relatively thin,” the World Bank said,

“Continued expansionary fiscal measures could support the economic recovery, while financial sector stability should be a top priority.”

More proposals

Meanwhile, according to the International Monetary Fund (IMF), given ample fiscal space, the budget is better placed to take the lead to provide additional support if economic activity proves weaker than expected. The government could scale up social safety nets that would boost growth and protect the most vulnerable households. Over the medium term, further revenue mobilisation efforts would bolster social spending and infrastructure investment.

The IMF suggested that strengthening the fiscal framework and budget processes would increase transparency and enhance the quality and effectiveness of fiscal policy. The budget process has been weakened by overly conservative revenue projections in recent years.

“A budget based on realistic projections and assessment of risks would allow to better decide on the appropriate fiscal space and level of spending and debt, while increasing transparency,” the IMF said. “The scope and duration of permitted carry over spending could be more limited and ensure that all spending is integrated in the budget process.”

It is important to accelerate efforts to strengthen macro-fiscal capacity, such as projections, risk assessment, and the impact of fiscal measures. Conducting expenditure reviews could help identify priorities and improve the quality of expenditures, according to the IMF.

Last year, total state budget revenue and expenditure hit $72.48 billion and $73 billion, leaving a deficit of $520 million.

The total value of all policies used for supporting the public and enterprises in 2023 reached about $8.37 billion, including $6.96 billion worth of tax-related assistance.

Vietnam to consolidate fiscal stance in line with 2030 strategy The government should continue to support the expansion of domestic demand, which is gaining momentum for recovery, as a fiscal solution for spurring on economic growth, experts have suggested.