Spending increases as Vietnam tackles external headwinds

The Ministry of Finance (MoF) reported that in the first five months of 2023, the economy recorded a $5.06 billion surplus in the state budget. Total state budget expenditures are estimated to reach $28.4 billion – equivalent to 31.5 per cent of the year’s estimates and up 10.9 per cent on-year.

Spending increases as Vietnam tackles external headwinds, Illustrative image (Photo: VNA)

All types of spending have increased, such as recurrent spending up 5.6 per cent, development investment up 35.5 per cent, and interest payments down 1.3 per cent.

“All expenditure ensures requirements for socioeconomic development, national defence and security, state management, and payment of debts,” the MoF stated.

Meanwhile, total state budget revenues are estimated to hit more than $28 billion, tantamount to 47.5 per cent of the year’s estimates and down 6 per cent on-year.

Domestic revenues are estimated to sit at $27.77 billion, down 2.9 per cent compared to the same period last year. Revenues from crude oil exports stood at more than $1.1 billion, down 12.1 per cent on-year. Revenues from export-import activities are estimated to come at $4.58 billion, down 20 per cent on-year.

According to the General Department of Tax, state budget revenues from real estate, land, and securities have plummeted. In the first four months of this year, revenue from personal income tax from property transfer was equal to nearly 42 per cent of that in the same period last year, and revenues of the same tax from securities transfer reduced by half on-year, while revenue from housing and land registration fees fell by 48.2 per cent.

Besides this, revenues from land use dropped strongly month-after-month. For example, such a revenue reached an average $678.26 million a month in the fourth quarter of 2022, while that of the first four months of this year hit an average of $347.82 million a month.

Meanwhile, revenue from VAT was equal to 91.3 per cent of that in the corresponding period last year. Revenue from special consumption tax reduced by 9 per cent on-year due to a reduction in vehicle consumption. A decree was enacted in November 2021 prescribing the rates of registration fees for domestically manufactured or assembled motor vehicles, trailers or semi-trailers towed by motor vehicles.

“Business, production, and investment activities are facing massive difficulties coupled with a reduction in trade will likely hurt the state budget revenue in Q2 and the entire year, pressuring the fiscal policy monitoring,” stated Minister of Planning and Investment Nguyen Chi Dung.

According to the World Bank, difficulties in domestic production and trade are expected to cause a reduction in state budget revenues in the coming months.

“In the near term, Vietnam faces heightened risks associated with external headwinds and domestic vulnerabilities. Persistent inflationary pressures and the prospects of more aggressive monetary tightening, especially in the US and other advanced economies, could induce volatility in global financial markets and hamper economic growth even further at a time when a slowdown is already underway,” the World Bank said.

“Uneven or incomplete recovery in China could further affect its growth and trade dynamics with Vietnam. Additionally, the risk of de-globalisation looms, with heightened geopolitical tensions and conflicts raising uncertainty about the future path of global trade and growth and would substantially affect small open economies such as Vietnam.”

Vietnam’s key export markets include the US, China, and the Eurozone. The Economist Intelligence Unit has forecasted that their growth rates this year may stand at 0.7, 5.7, and 0.7 per cent, respectively.

Last year, Vietnam’s export turnover from these markets reached $109.1 billion, $58.4 billion, and $47.1 billion – up 13.3, 4.5, and 17.4 per cent, respectively. In the first five months of this year, the figures hit $37.2 billion, $19.8 billion, and $18.5 billion, down 19.5, 9.3, and 6.5 per cent, respectively, compared to the same period last year.

Vietnam’s five-month export turnover is estimated to be $136.17 billion, down 11.6 per cent on-year.

The MoF revealed that based on forecasts that there will be massive difficulties both at home and abroad, and state budget overspending in 2023 will likely be $19.8 billion, about 4.42 per cent of GDP.

Budget revenues this year are expected to be $70.46 billion, which is far lower than the realised figures of $77.6 billion last year, which was equal to 126.4 per cent of 2022’s estimates and up 13.8 per cent on-year.

Meanwhile, it is estimated that Vietnam’s total state budget expenditure this year will be about $90.26 billion, up 16.3 per cent compared to 2022.

Budget resolutions set plan for 2023 Vietnam’s state budget performance is expected to see a deficit of billions of US dollars this year, with such a landscape fixed for next year – with warnings sounded about punishing violations in budget management and usage.

Budget estimate shortcomings require modern fix The low-quality formulation of state budget revenue estimates needs to be improved, as it will continue having unwanted direct impacts on the country’s financial landscape.