Fiscal deficits and public debt under strict control

Monday, 2018-06-25 11:37:50
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Well-controlled fiscal deficits and public debt are facilitating local production
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NDO - Vietnam has been doing a highly efficient job in controlling public debt, which has received great applause from the World Bank, one of the country’s largest development partners.

The World Bank stated in its latest update on Vietnam’s economic developments that Vietnam has been effectively controlling public debt.

“After a decade of steady increases in the public-debt-to-GDP ratio, 2017 saw a welcome reversal in the public debt trajectory,” the update stated. “Public debt has stabilised since 2017, with an overall fiscal deficit of 4.5% of the GDP, and the public-debt-to-GDP ratio declined to 61.4% in 2017 from 63.6% in 2016 - remaining below the statutory limit of 65% of the GDP.”

According to the World Bank, stabilised debts are one of the government’s greatest achievements in macroeconomic monitoring, which will help raise the public’s confidence.

In detail, the bank said that the government’s debt fell from 52.7% of the GDP in 2016 to 51.8% last year, and remains slightly above the 50% statutory limit for direct public debt.

In the International Monetary Fund definition, overall public and publicly guaranteed debt declined to an estimated 59% of the GDP in 2017, down from a recent peak of 60% in 2016.

“Fiscal deficits and public debt are expected to be under control,” said Sebastian Eckardt, lead economist for the World Bank in Vietnam.

Minister of Finance, Dinh Tien Dung, also reported that a large achievement has been made in controlling debts.

“Public debt has been strictly managed since 2016. Its increase speed was reduced by 50% to about 9.6%, per year, in 2016 and 2017, to an annual average of 18.1% in the 2011-2015 period,” said Dung. “Public debt reduced from 63.6% of the GDP by late 2016 to only 61.4% by late 2017, down by 2.2%. Furthermore, the government’s debt also went down from 52.6% of the GDP to 51.8%.”

The stabilised public debt is due to a continued adjustment in the fiscal position since 2017.

Vietnam’s fiscal stance improved further in 2017. The overall fiscal deficit is estimated to have narrowed to 4.5% of the GDP in 2017 from 4.8% in 2016 and 5.5% in 2015.

“It is expected that the rate will be 3.5% of the GDP by 2020,” Dung said.

Total budget revenues remained at 23.6% of the GDP in 2017 - at roughly the same level as reported in 2015 and 2016, supported by a cyclical recovery in major tax revenues, including value added tax, corporate income tax, and personal income tax which recovered on the back of strong consumption and income growth.

Meanwhile, over the same period, total expenditures have gradually declined to 28.1% of the GDP from 29.2% in 2015 and 28.5% in 2016, reflecting lower capital expenditure and rationalisation of other discretionary spending items.

“International financial organisations have highly commended Vietnam’s efforts in improving its business climate’s quality and effectively controlling debts. This reflects that the economy’s quality has improved,” said local economist Tran Hoang Ngan.

Efforts by Vietnam’s government to reduce the state budget deficit have received applause from the Asian Development Bank (ADB).

In its update on Vietnam’s economy, released late last year, ADB stated that the government has made “very good results in reducing state budget deficit,” and “the state budget revenue has been strongly increasing.”

“As revenue growth exceeds expectations, the government’s target of trimming the budget deficit to the equivalent of 3.5% of the GDP in 2017 and 4% in 2018 looks broadly attainable,” said Eric Sidgwick, ADB country director for Vietnam.

On April 21, 2018, the prime minister issued Decision 437/QD-TTg on borrowing, repayments and borrowing limits for 2018. Under which, the government has adopted plans to borrow VND384 trillion (US$17 billion) this year, of which VND275.97 trillion (US$12.26 billion) will come from domestic loans and the rest will be foreign loans.

The loans will be used to balance the state budget (VND341.77 trillion or US$15.2 billion), offset budget overspending (VND195 trillion or US$8.67 billion), repay principal (VND146.77 trillion or US$6.52 billion) and re-lend to enterprises (VND42.23 trillion or US$1.87 billion).

The government also plans to pay VND256.769 trillion (US$11.41 billion) worth of debts in 2018.