Increased spending pressure, unstable collection
In recent years, the pressure on increased State budget spending has led to the pressure of increased collection in order to ensure the stability of the State budget. The average annual growth rate of expenditure for the 2007-2016 period stood at 17.4% and the regular expenditure rate was at 18.3%. Meanwhile, the average State budget revenue growth rate during that period was 15% and regular revenue at 14.5%, much lower than the regular spending.
According to Assoc. Prof., Dr. Vu Sy Cuong, from Hanoi’s Academy of Finance, the pressure threatens the sustainability of the State budget in the long run, despite the Government's efforts to reduce the relative size of Vietnam’s budget. Spending has been cut down from over 30% of the GDP to around 27-28% between 2012 and 2014, but increased substantially in 2015 before falling back again in 2016.
Meanwhile, the pressure on decreased budget income in the immediate future is mainly due to related budget collection policies which have not yet generated sustainable income. Revenues from non-renewable resources such as land and crude oil still account for 20% of the State budget collection for the 2009-2013 period and about 18% in 2014.
State budget revenue is in difficultly, while budget spending is under increasing pressure, making it difficult for the Government to balance the State budget. According to Chairman of the Board of Directors of Hanoi Stock Exchange Nguyen Thanh Long, the challenge now is that the scale of State budget revenue is on a downward trend, whilst expenditure remains high and the pressure of increasing recurrent expenditure is still large.
Specifically, the total State budget revenue in 2015 was estimated to increase about 1.55 times compared to 2010 but in reality the total expenditure increased by 1.77 times. In particular, during 2010-2015, while the size of regular expenditures was estimated to increase by 2.04 times, the revenue scale of tax, charges and fees increased by just 1.65 times, including revenues from crude oil.
This trend has made the balance of State budget and the budget deficit reduction plan a difficult task. State budget deficit in 2013 was at 6.6% of the GDP; in 2014, 5.69% and 4.95% in 2015. On average, during 2011-2015, the State budget deficit was 5.4%, higher than that during the 2006-2010 period (at about 5.07%).
The high overspending has led to the soaring public debt over recent years. According to the latest report on public debt issued by the Ministry of Finance, by the end of 2015, the government debts reached nearly US$94.3 billion. Although public debt indexes are still within the set limits, the debt changes over the years are causing concern.
Finance Minister Dinh Tien Dung also pointed out that the PF sector is facing several challenges and risks, including the size of the budget which is rapidly decreasing compared to the GDP, along with unreasonable revenue structure.
The demand for spending has increased steadily, exceeding the ability to balance resources, leading to difficulties in balancing the State budget and overspending, in addition to low budget accumulation for development. Public debts and debt repayment obligations are increasing rapidly, in line with high pressure on repaying in the short term.
Meanwhile, the management and use of loans are inadequate, without links between investment decisions and repayment obligations. The use of public utilities and public investment is also still inefficient.
Limited discipline and supervision
The biggest drawback of Vietnam’s PF system is the limited budget discipline, right from the estimation stage through the implementation and monitoring process. Director of Vietnam Development Research Institute Nguyen Quang Thai said that there is often a great deviation between the estimates and actual revenue-expenditure balance. State budget balance exceeded 44% of the estimates in 2014 and 42% in 2015.
Several expenditures are being considered by the National Assembly (NA), but under the "general" mechanism the NA assigns the Government to coordinate such amounts and make reports to the NA, which can lead to budget settlements taking two years. This issue should be resolutely resolved.
Another serious problem is uncontrolled spending and consequently the large State budget mobilisation rate (about 20% of the GDP). If combined with the financial debts used to compensate for deficits, spending should be up to 30% of the GDP; meanwhile the monitoring regime by the NA, the People's Councils, and people remains limited.
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There is still a large deviation in project estimates and actual revenue-expenditure balance. (Credit: NDO/Song Anh)
Economist Vu Dinh Anh said that in the near future, Vietnam needs to continue to promote economic growth at a high rate, curb inflation and stabilise the macroeconomy, while striving to ensure social equality. Financial policy in general, and fiscal policy in particular, must focus on achieving these goals, which is also the basis for ensuring the sustainability of the State budget.
While State budget revenue is continuously surpassing the annual budget estimates and is difficult to forecast, State budget expenditures are also the same, exceeding budget estimates and depending on the actual capacity of budget collection. In addition to the centralised State budget funds, there are dozens of State financial reserves outside the State budget, making it difficult to control the expenditures in order to promote the efficiency of the budget.
Moreover, according to Long, the most notable issue is a lack of a system with a clear consistent view in mobilising and using PF resources. The gradual reduction of State budget contributions to promote the production and operations of businesses has not yet been put into place in the overall relationship with State budget expenditure restructuring, as well as the mobilisation of social resources.
The criteria for determining the revenues and expenditures of the State budget remain inadequate, and are not yet in line with international standards. The issuance of budget policies and regimes is not linked to the calculation and balance of resources. The split between policy issuance and the demand and responsibility of resource allocation has lasted for many years, leading to increased government borrowing pressure. Meanwhile, regulations to promote publicity and accountability have still not been completed enough to promote the effectiveness of people and communities’ in monitoring the use of public resources.
Towards openness and transparency
Identifying the shortcomings in State budget expenditure, the National Institute for Finance has proposed a number of solutions, including continuing to implement a tightened fiscal policy, with savings and restructuring expenditures, including expenditures for investment and recurrent expenditure, as well as to not promulgate new policies that increase or decrease State budget revenues.
Moreover, allocating and using investment capital should be in a concentrated and efficient manner, while prioritising capital for investment in key infrastructures, promoting public-private partnerships and non-State investment, and strictly implementing the medium-term financial budget plan to allocate State budget in order of priority.
Dr. Le Trung Thanh, from the University of Economics and Business under the Vietnam National University - Hanoi, said that one of the limitations of the PF administration is transparency. Over the past few years, the Government has made efforts to promote publicity and transparency in the management of the State budget, but in reality, compared with international practice, the announcement of the state of Vietnam’s State budget is still backward, simplistic and lagging behind. Meanwhile, the access to and identification of budget issues at local levels is still weak.
In order to shorten this gap, it is necessary to continue to improve the legal framework, guide the implementation of the relevant legal bases, and enhance the accountability of the person who makes financial decisions, as well as attaching personal responsibility to the financial consequences, including in the State-owned enterprise sector.
According to Minister Dung, restructuring the State budget and public debt not only helps to increase the revenue, ensure the need for spending and maintain public debt within the prescribed limits, but more importantly facilitates the development of the State budget and public debt system to actively support a healthy business environment, with a neutralist, transparent and convenient collection system.
Along with the renewal of policies and regulations on public expenditure and public debt, the effective management, use and distribution of the scarce resources is critical for ensuring that the national socio-economic development objectives are met and ensuring the national financial security.
