More pertinent than ever to drop economic wastefulness

July 31, 2021 | 08:00
Worried about the national financial situation, the National Assembly and the government have continued underscoring the stringent management of the state coffers this year, when there will be a big budget deficit caused by a rise in spending due to the pandemic and a reduction in revenue from enterprises.
The government is urging all expenditures to be reviewed in order to cut down on unnecessary spending, Photo Le Toan
The government is urging all expenditures to be reviewed in order to cut down on unnecessary spending. Photo: Le Toan

The government and the National Assembly (NA) last week asked ministries, agencies, and localities to urgently create effective plans on reviewing state funding, in order to gather the money into economic recovery and development, with the first and foremost task being securing sufficient financial sources to fight the COVID-19 pandemic and support the public and enterprises out of woes.

“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 sent to the NA last week. “All violators must be strictly punished, while budget revenues must be boosted in all localities, especially revenues 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.

The government has also asked the NA to allow it to withdraw recurrent spending sums already allocated to ministries, central agencies, and localities but failed to be disbursed and implemented as of June 30. These sums are to supplement the coffers of the state and localities used for combating the pandemic.

The government’s order comes amid the increasingly complicated pandemic hurting many localities nationwide, especially the southern region. The south is home to many industrial manufacturing hubs of the country such as Ho Chi Minh City, Binh Duong, and Dong Nai, as well as the Mekong Delta region producing 90 per cent of the country’s rice and many types of fruit and aquatic products used for both local consumption and exports.

In this context, there has been a rise in demands for spending for anti-pandemic activities and support for the business community.

In the first half of this year, the government spent VND2.2 trillion ($95.65 million) from its budget provision for these activities. Nearly VND1.8 trillion ($78.26 million) of which was used by the Ministry of Health to purchase vaccines and relevant medical materials and equipment, and the rest for supporting localities. Last year, about VND18 trillion ($782.6 million) was earmarked for the same purpose. The government has required the Ministry of Finance (MoF) to direct and instruct localities to strengthen solutions to tighten financial and state budget disciplines and save recurrent spending to a maximum level.

Vietnam’s public debt management programme 2021-2023

The prime minister has approved a public debt management programme for the 2021-2023 period.

Under the programme, the total borrowing over the next three years will be $75.65 billion, of which $69.56 billion will go to the central budget.

The local budget spending deficit is limited at 0.2 per cent of GDP, as stipulated in the 2015 Law on State Budget, and the debt repayment obligation of local governments is approximately $800 million.

With regards to foreign commercial loans by businesses and credit institutions, the growth rate for short-term credit is capped at 18-20 per cent a year and the net maximum medium- and long-term loans are around $6.35-7 billion per year.

For 2021, the government is set to borrow over $27.14 billion, including $22.93 billion from domestic sources and $4.21 billion from foreign lenders.

Of this figure, over $25.2 billion will be used to balance the central budget while the remaining $1.93 billion will be spent on lending to other borrowers.

The government is expected to repay debts of more than $17.15 billion in 2021.

Minimising spending

“Localities are required to prepare all most feasible scenarios to cope with the COVID-19 escalation. They must remove and cut all unnecessary spending sums in order to save money for fighting the pandemic, purchasing vaccines and medical materials and equipment,” stressed Prime Minister Pham Minh Chinh.

“All expenditures must be reviewed. The use of state budget at all levels must be made transparent. Recurrent spending must be minimised, and spending on purchasing cars and assets for public use must be halted,” he continued.

The government required inspections over certificates of origin of products enjoying tax incentives under free trade agreements, and over post-customs clearance activities, and over products at export-import processing zones and warehouses to also be conducted frequently.

According to the General Statistics Office (GSO), in the first half of this year, there has been a surplus in the state budget of VND80.6 trillion ($3.5 billion) thanks to a rise in revenue created significantly by an increase in domestic business and production activities.

Specifically, the total state coffers revenue hit VND775 trillion ($33.69 billion). In which domestic revenue totalled VND633.1 trillion ($27.52 billion), revenue from crude oil exports touched VND18.5 trillion ($804.34 million), and revenue export-import activities sat at VND122.8 trillion ($5.34 billion).

Meanwhile, the state budget spending was VND694.4 trillion ($30.2 billion), including recurrent expenditure of VND501 trillion ($21.78 billion), development investment of VND133.9 trillion ($5.82 billion), and interest rate payment of VND56.8 trillion ($2.47 billion).

However, according to the MoF, the pandemic’s effects in the past few months will make 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 enterprises kicked out of the market, meaning no money contributed to the state coffers.

Supporting businesses and individuals

In the first six months of 2021, there were around 70,200 businesses halting operations, waiting for disbandment, or completing bankruptcy procedures - up nearly 25 per cent on-year. Each month saw an average of 11,700 enterprises withdraw from the market.

“Our country’s 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 complications in many localities,” 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 state budget deficit of $11.87 billion. This was due to the pandemic causing a decline in business 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 directly supporting businesses and the public have also amounted to tens of billions of US dollars.

Last November, the NA passed a resolution on budget estimation for 2021. In which, total state budget revenue and total state budget spending will be over $58.4 billion and $73.34 billion, respectively. The total state budget deficit will be $14.94 billion, accounting for 4 per cent of GDP.

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 tens of billions of US dollars for its fight against COVID-19 and supporting 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.

Vu Hong Thanh, chairman of the NA’s Economic Committee, told the NA that one of the most important things to effectively manage and use the state budget is to strongly reduce recurrent spending of state agencies.

According to the GSO, recurrent spending often occupies a large part of total budget expenditure. It was VND928 trillion ($40.35 billion), or 71.4 per cent of total state budget spending of VND1.3 quadrillion ($56.5 billion), in 2019.

Last year, while the total budget expenditure was over VND1.78 quadrillion ($77.39 billion), the recurrent spending hit VND967 trillion ($42 billion) or 54.2 per cent.

In order to spur on enterprises’ performance, accordingly fuelling the state budget revenue, the government is expected to promulgate new support solutions which are large enough and effective to continue to help enterprises out of difficulties.

What is more, bigger administrative reforms will also continue to be boosted, in addition to the government’s expected support for businesses to import materials for production and look for output markets.

By Nguyen Dat

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