Il state budget

The Ministry of Finance considers such publication an important practice promoting transparency and publicity of Vietnam’s state budget.

The Ministry of Finance (MoF) published the 2020 state budget estimates for public comment, pending the National Assembly’s approval, aiming to provide clear and understandable information related to the state budget.

Illustrative photo.

In 2020, the MoF expected to fulfill the financial – state budget objectives for the 2016 – 2020 period based on fiscal discipline, in turn stabilizing macro-economic conditions and promoting production and business activities.

The MoF would continue to restructure state budget, in which a major part is used for salary reform and social welfare policies.

The ministry targets 2020 state budget revenue at VND1,500 trillion (US$64.75 billion), up 3.8% compared to the 2019 estimate, while the capital mobilization rate for state budget is estimated at 22.2% of GDP, with taxes and fees projected at 19.4% of GDP.

Meanwhile, budget spending is projected to reach over US$1,700 trillion (US$73.38 billion), up 7% compared to the 2019 estimate. The MoF expected to focus on increasing the spending ratio for development investment and lowering regular spending; allocating sufficient funds for timely debt payment and ensuring national financial security.

The MoF expected the fiscal deficit in 2020 at VND234.8 trillion (US$10.13 billion), equivalent to 3.44% of GDP. By the end of 2020, Vietnam’s public debt is estimated to reach 54.3% of GDP, government debt at 48.5% and foreign debt at 45.5%.

All these figures are within the limits and lower than the national financial plan in the 2016 – 2020 period, with the ceiling for public debt, government debt and foreign debt at 65%, 54% and 50%, respectively.

Vo Thanh Hung, director general of the MoF’s State Budget Department, said the publication would encourage provinces/cities to disclose their respective provincial state budget estimates. Therefore, citizens could understand basic information related to provincial state budget management and voice their opinions accordingly.

The timing of the issuance, prior to the National Assembly’s approval, is in compliance with international standards, added Hung.

This is the sixth consecutive year that the MoF publishes the report on state budget estimates for public comment, with which the MoF considers an important practice promoting transparency and publicity of Vietnam’s state budget.

Budget transparency in Vietnam remains questionable. The Ministry Open Budget Index (MOBI) 2018, which was launched by the Budget Transparency, Accountability and Participation (BTAP) Alliance and the Center for Development and Integration (CDI), revealed twenty state agencies at ministerial level out of 37 under the survey failed to disclose information regarding budget execution

In June, BTAP, CDI and the Vietnam Institute for Economic and Policy Research (VEPR) launched the Provincial Open Budget Index (POBI) report, revealing less than half of Vietnam’s 63 provinces and cities failed to obtain the average score of 50.

The release of these figures is a key step in promoting transparency and publicity of Vietnam’s state budget.

The Ministry of Finance has made public detailed figures in the state budget estimate for 2021, indicating a fiscal deficit of VND343.67 trillion (US$14.82 billion) for the year, equivalent to 4% of GDP, down from an estimated deficit of 4.99. – 5.59% in 2020 (equivalent to VND319.5 – 328 trillion (US$13.78 – 14.15 billion).

Disclosure of state budget estimate is a key step in promoting transparency and publicity of Vietnam’s state budget.

Under the budget plan, Vietnam’s state budget revenue next year is estimated at VND1,343 trillion (US$58 billion) and expenditure VND1,687 trillion (US$72.78 billion). The government is set to borrow VND608.56 trillion (US$26.3 billion).

The release of these figures came following the National Assembly’s decision to approve the state budget estimate in 2021 last month, but also a key step in promoting transparency and publicity of Vietnam’s state budget.

A major point of the budget plan it that fund allocation will be prioritized for the Covid-19 fight, recovery efforts after natural disasters, social welfare, national security and foreign affairs, while basic wage, pension and other social beneficiaries stay unchanged in 2021.

Over the years, the Vietnamese government has made improvements to ensure greater transparency of national and ministerial budget management. Specifically, Vietnam’s budget transparency score in the Open Budget Survey 2019 (OBS), the world’s only independent and fact-based research instrument, significantly increased to 38 out of the maximum 100 points, 23 points higher than the previous assessment in 2017.

The score pushed Vietnam’s ranking to 77 out of 117 countries and territories, up 14 places against 2017.

Vietnam’s budget deficit this year is estimated at VND319.5–328 trillion (US$13.78-14.15 billion), equivalent to 4.99-5.59% of GDP, significantly higher than the target set in early 2020 which is 3.44%-of-GDP.

“Such a high fiscal deficit is due to lower-than-expected state budget revenue and an increase in regular spending caused by severe Covid-19 impacts,” said Minister of Finance Dinh Tien Dung in a National Assembly session in October.

This year, Vietnam’s budget revenue is estimated at VND1,320 trillion (US$57 billion), down VND189.2 trillion (US$8.16 billion) or 12.5% compared to the year’s estimate and 14% against the figure recorded in 2019.

Meanwhile, state budget spending could reach VND1,680 trillion (US$72.47 billion) this year, down VND60.89 trillion (US$2.62 billion) or 3.5% against the estimate.

The National Assembly agreed on allocating VND115.4 trillion (US$4.97 billion) for debt payment and VND220 trillion (US$9.47 billion) for development investment.

The National Assembly, Vietnam’s supreme legislative body, today approved a resolution on state budget estimate for 2020, including the state budget deficit of VND234.8 trillion (US$10.11 billion, with an endorsement from 451 out of 453 of National Assembly deputies present, representing an approval ratio of 93.37%.

The resolution received an endorsement from 451 out of 453 of National Assembly deputies present, representing an approval ratio of 93.37%.

Upon breaking down, the state budget revenue for 2020 is estimated at VND1,521 trillion (US$74.54 billion), including estimated central state budget revenue of VND851.76 trillion (US$36.7 billion) and provincial budget revenue of VND660.53 trillion (US$28.46 billion),

Meanwhile, state budget expenditure is expected to reach VND1,747.1 trillion (US$75.29 billion), with the central budget expenditures of VND1,069.56 trillion (US$46.08 billion).

The National Assembly agreed on allocating VND115.4 trillion (US$4.97 billion) for debt payment, VND220 trillion (US$9.47 billion) for development investment, and VND55 trillion (US$2.37 billion) on administration costs of state and party agencies, organizations, among others.

Additionally, an amount of VND14.6 trillion (US$629.15 million) would be allocated for wage reform and laying off public employees.

In a discussion session, Nguyen Duc Hai, chairman of the Finance- Budget Committee under the National Assembly, expressed concern over slow disbursement progress of public investment funds, going down from 64.8% of disbursement rate in 2015 to 54.5% in 2016, 53.1% in 2017, 50.9% in 2018 and 49.1% as of late October in 2019.

On this issue, the Standing Committee of the National Assembly requested the government to review the disbursement procedures to address bottlenecks during the process, ensuring greater disbursement rate and efficiency in utilizing public investment funds.

The Standing Committee urged a more severe discipline measure to organizations and individuals that are directly involved in the delay in announcing public investment plan and the disbursement process.

Previously, the Finance – Budget Committee said with the disbursement rate of 49.1% to date, it would be difficult for the government to meet the disbursement target by the year-end.

The Finance – Budget Committee attributed the lack of preparation for investment projects, difficulties in site clearance and delay in allocating public funds, among others, to such slow disbursement progress.

Prime Minister Nguyen Xuan Phuc in a conference late September said slow disbursement of public investment are bottlenecks for the development of Vietnam’s economy and warned of major consequences if the issue is not properly addressed.

On November 11, the National Assembly approved Vietnam’s socio-economic development plan for 2020, including the GDP growth target of 6.8%.

In addition to the GDP growth target, the 2020 socio-economic development plan includes other key economic indicators, such as the consumer price index (CPI) to stay below 4%; export growth of 7%; ratio of trade deficit to total export value below 3%; total social investment capital at 33 – 34% of GDP; a decline by 1 – 1.5% in the poverty rate; unemployment rate in urban areas below 4%, among others.

The State budget collection this year is projected not to reach the estimate amid rising expenditure and declining fees and charges.

The Vietnam’s January-September budget revenue was estimated at 64.5% of the yearly target, making a year-on-year decrease of 11.5% to touch VND975.3 trillion.

The projected number for the whole year is more than VND1.3 quadrillion, deficiency of VND189.2 trillion (down 12.5%) against the yearly estimate.

Tax declaration at Hanoi’s Department of Taxation. Photo:Khanh Linh.

The Covid-19 pandemic has derailed Vietnam’s economic growth this year. Other factors such as declining oil prices and slow progress of equitisation and divestment of state-owned enterprises also affected revenues from taxes, fees and crude oil export which make collection fail to meet the National Assembly’s projection.

Revenue from crude oil in the past nine months was estimated at VND27.5 trillion, equal to 78.2% of the estimate and down 36.9% from the same period of last year.

“Meanwhile, the budget deficit is forecast to rise sharply due to the adjustment of revenue policy to tackle difficulties for businesses. At the same time, expenditure for disease prevention and control, ensuring social securities and boosting consumption demand… is great, making budget deficit inevitable,” said Minister of Finance Dinh Tien Dung.

The State budget deficit in 2020 is projected at 4.99% of GDP, up 1.55% over the estimate.

The Ministry of Finance (MoF) said balancing the central budget and local budgets at all levels is difficult in the context of shrinking revenue.

As of September 25, the ministry issued VND223.34 trillion worth of government bonds as planned for 2020, in which spending for paying due bond debts and receiving debts with Vietnam Social Securities was nearly VND9.9 trillion.

Worry about repayment

Forecasts show by year-end 2020, debt-to-GDP ratios will basically remain within the safety thresholds set by the National Assembly (NA). However, NA has warned the Government’s direct debt obligation has reached the ceiling of 25% of the total budget revenue in 2020 and is expected to exceed this rate in 2021 which can put it at risks next year.

Under this circumstance, MoF has directed to tackle revenue problems such as strengthening revenue management, reducing revenue loss, fighting against smuggling, trade fraud and price transfer, and reducing tax arrears. At the same time, it will review the state of tax debts of its sub-departments; classify debt groups that can be collected and irrecoverable.

MoF estimates revenues from equitisation and divestment may reach more than VND45 trillion if authorities at all levels drastically put things on the right track along with recovery of the financial and stock markets.

Dr. Vu Dinh Anh said besides restructuring revenue we must also control spending towards more rationally and efficiently such as streaming payrolls, reforming recurrent expenditure and management and use of public asset.

Vietnam recorded a trade surplus of US$2.67 billion during the period.

Vietnam’s state budget collection in the first quarter of this year stood at VND403.7 trillion (US$17.52 billion), up 0.3% year-on-year and equivalent to 30.1% of the yearly estimate, according to the Ministry of Finance (MoF).

Domestic revenue made up a lion’s share in total budget collection. Photo: Kinhtedothi

Upon breaking down, domestic revenue made up a lion’s share of the total at VND340.2 trillion (US$14.7 billion), up 1.2% year-on-year or 30% of the estimate. The MoF noted 57 out of 63 provinces/cities fulfilled tax collection targets as scheduled, or over 25% of the estimate.

Meanwhile, state budget expenditures during the January – March period hit VND342 trillion (US$14.84 billion), representing a slight increase of 0.2% year-on-year, or 20.3% of the estimate.

This resulted in the budget surplus of VND61.7 trillion (US$2.67 billion) during the period.

In 2021, the MoF estimated the budget revenue around VND1,343 trillion (US$58 billion) and expenditure VND1,687 trillion (US$72.78 billion).

Fitch Solutions, a subsidiary of Fitch Group, however expected the country’s fiscal deficit to be narrowed to 3.7% of the GDP.

Such forecast “factors in both a stronger revenue and expenditure outlook against the government’s projections supported by more robust economic activity in 2021 against 2020,” stated Fitch Solutions.

According to Fitch Solution, Vietnam’s budget revenue could rise to VND1,580 trillion (US$68.6 billion), thanks to a continued recovery in economic activity, while expenditure is set to hit VND1,840 trillion (US$79.88 billion).

“A recovery in revenue collection will facilitate looser spending by the government. Capital expenditure disbursement is likely to be quicker in 2021,” Fitch Solutions noted.

In case the epidemic persists for around four to five months, or even longer, manufacturing sectors with high dependence on input materials from China would be in trouble.

Vietnam would face a potential loss of VND42.3 billion (US$1.82 billion) in state budget revenue due to the impact of the Covid-19 epidemic, according to the Ministry of Planning and Investment (MPI).

Illustrative photo.

The MPI has said in a report that the outbreak could lead to a decline in revenue from the domestic taxes, trading activities and crude oil, local media reported.

In case the Covid-19 epidemic is contained in the coming two or three months, industries such as tourism, transportation, commerce, agricultural export – import, among others, are predicted to be the most vulnerable.

Other business activities with high flexibility would face a decline in growth, while only a handful can maintain normal operations, suggested the MPI.

However, in case the epidemic persists for around four to five months, or even longer, manufacturing sectors such as textile and garment, footwear, electronics, consumption goods with high dependence on input materials from China and even multinationals such as Apple, Samsung or LG would struggle.

The MPI said the implementation progress of projects using Chinese capital, labor and input materials would slow down and affect growth of related fields and sectors.

Additionally, a stagnation in Vietnamese exports to China due to the outbreak would cause negative impacts on domestic production.

The MPI has drawn up two scenarios. In the first scenario, the state budget revenue would reach VND1,494 trillion (US$64.30 billion), down VND18.1 trillion (US$779 million) or 1.2% compared to the initial estimate, if the outbreak is contained right in the first quarter.

In another scenario where Covid-19 is put under control in the second quarter, the budget revenue is estimated at VND1,470 trillion (US$63.26 billion), down VND42.3 trillion (US$1.82 billion) or 1.6% of the initial estimate.