National debt vs national deficit

The Hanoitimes – By 2025, Vietnam’s public debt is projected at 47.5% of the revised GDP (which is 25.4% higher than current method of GDP’s calculation), or 60.4% of the level before being revised.

Vietnam targets an average fiscal deficit of 3.7% in the next five years period, being around 4% of the GDP in 2021 before declining to 3.4% by 2025, according to Minister of Finance Dinh Tien Dung.

Minister of Finance Dinh Tien Dung at the hearing session. Photo: Nhat Bac.

By 2025, Vietnam’s public debt is estimated at 47.5% of the revised GDP (which is 25.4% higher than current method of GDP’s calculation), or 60.4% of the level being revised, stated Mr. Dung at a hearing session at the National Assembly on November 5.

For the 2021 – 2025 period and given the average GDP growth target of 6.5 – 7%, the government estimates total state budget revenue of VND7,800 trillion (US$336.93 billion), a 1.1 – 1.2-fold increase compared to the 2016 – 2020 period. Of the total, the contribution of taxes and fees revenues would be around 13 and 14% of GDP, while it made up 24.5% and 20.4% of the GDP in the 2016-2020 due to the enlargement of the Vietnamese economy after the GDP revision.

Meanwhile, revenue from land and import-export activities in the next five years would be around the level of the 2016 – 2020 period, while that of crude oil would be half of the previous five years and account for 3.3% of the adjusted GDP in the 2021 – 2025 period.

Overview of the hearing session at the National Assembly. Source: quochoi.vn.

Priority to ensure fair business environment

The finance minister informed that the structure of budget revenue continues to improve, in which domestic revenue accounts for 85 – 86% of total, import – export activities 12.7%, and crude oil 1.4%.

Mr. Dung said amid global uncertainty stemming from the Covid-19 pandemic and global trade tensions among major economies, the Ministry of Finance (MoF) still expects domestic revenue to expand by 8% annually in 2021 – 2025.

To achieve this target, the MoF would continue to improve the legal framework regarding state budget revenue collection, and push for reforms in the process, especially in restructuring sources of revenue in compliance with international practices.

The MoF gives priority to ensuring a fair and favorable business environment to promote business and investment activities, stated Mr. Dung.

Regarding state expenditure, Mr. Dung said the government expects to spend around VND9,700 trillion (US$419.34 billion), a 1.3-fold increase against the 2016 – 2020 period. Of this amount, capital expenditure is set at VND2,750 trillion (US$118.88 billion), or 27.28% of total expenditure.

Additionally, Mr. Dung said the government would continue to tighten regular spending while still ensuring sufficient allocation of funds for social beneficiaries, national security and essential public services.

For 2020, Vietnam’s budget deficit 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 3.44%-of-GDP target set in early 2020.

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.

For next year, Vietnam’s state budget revenue is estimated at VND1,343 trillion (US$58 billion) and expenditure of VND1,687 trillion (US$72.78 billion), resulting in a fiscal deficit of VND343.67 trillion (US$14.82 billion) for 2021.

The Hanoitimes – State budget allocation would continue to be prioritized for the Covid-19 fight, recovery efforts in the wake of natural disasters, social welfare, national security and foreign affairs.

Vietnam’s National Assembly has approved the state budget estimate in 2021 with a fiscal deficit of VND343.67 trillion (US$14.82 billion), 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).

Vietnam’s National Assembly has approved the state budget estimate in 2021 with endorsement of 446 deputies present, or a 92.53% approval rate.

Specifically, 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 National Assembly agreed with the proposal from the government in keeping the basic wage, pension and other social beneficiaries unchanged in 2021. Fund allocation will be prioritized for the Covid-19 fight, recovery efforts after natural disasters, social welfare, national security and foreign affairs.

Regarding the state budget estimate for 2021, some National Assembly deputies said a growth target of 5.6% in domestic revenue in 2021 would be quite modest, given the average growth rate of 10% in the past three years.

Overview of the National Assembly’s session. Source: quochoi.vn.

According to Chairman of the National Assembly’s Committee for Financial and Budgetary Affairs Nguyen Duc Hai, with the estimated domestic revenue of VND882 trillion (US$38.11 billion) for 2021, representing an increase of 5.6% year-on-year, the government anticipates the business community would face difficulties next year amid lingering Covid-19 impacts.

Moreover, some major sources for domestic revenue, such as tax revenue from coal mining, automobiles, alcohol beverages, cigarettes, hydropower plants, among others, have stabilized and are unlikely to increase substantially next year.

Additionally, estimated government spending in 2021 is lower by around VND8.1 trillion (US$350 million) compared to that of in 2020, reflecting the government’s efforts in cutting regular spending to mitigate declines in budget revenue, noted Mr. Hai.

Covid-19 leads to high budget deficit

For this year, the country’s budget deficit 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 3.44%-of-GDP target set in early 2020.

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, noted Minister of Finance Dinh Tien Dung in a National Assembly session on October 20.

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 initial estimate and 14% against the figure recorded in 2019.

Meanwhile, state expenses 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. Notably, regular spending is expected to rise to VND1,070 trillion (US$46.16 billion), an increase of VND12 trillion (US$517.7 million) or 1.1% of the estimate, mainly for funding measures to mitigate the pandemic, natural disasters and secure social security.

The Hanoitimes – An addition of VND4.54 trillion (US$196.5 million) was mobilized to help mitigate impacts from natural disasters, flooding and African swine fever.

The Vietnamese government has spent nearly US$1 billion for disease control and disaster response, including VND17.9 trillion (US$774.7 million) to aid the Covid-19 fight and support people affected by the pandemic, according to the Ministry of Finance (MoF).

The government expects a fiscal deficit of VND343.67 trillion (US$14.82 billion) next year. Photo: Chien Cong.

The government also allocated VND4.54 trillion ($196.5 million) to help mitigate impacts from natural disasters, flooding and African swine fever, while nearly 32,950 tons of rice from national reserves were allocated to people in provinces and cities hit by natural disasters.

Under the severe covid-19 impacts, state budget revenue in the first 11 months of 2020 was estimated at VND1,260 trillion ($54.53 billion), or 83.4% of the estimate.

This budget revenue reflected difficulties of the business community and the impact of government’s supporting policies in forms of freezing and delaying in payment of taxes and fees, noted the MoF.

“Assuming Vietnam’s GDP growth to reach 2-3% for this year, failing to meet the target of 6.8%, state budget revenue is estimated to decrease by 12.5%, or VND190 trillion ($8.21 billion), compared to the estimate,” Minister of Finance Dinh Tien Dung stated.

“While there is a decline in state budget revenue, the government still has to increase spending on tackling problems caused by climate change and natural disasters, ensuring social welfare,” he added.

During the 11-month period, state budget expenditures totaled VND1,369.6 trillion ($59.23 billion), or 78.4% of the year’s estimate. Of the sum, capital expenditure was equivalent to 71.4% of the estimate, higher than the disbursed amount of the same period last year, but lower than expected.

Given the current context, Minister Dung urged government agencies to tighten spending, including at least 70% cut in expenses for working trip abroad and 10% of regular spending.

“The government has been able to save VND17.4 trillion ($753.4 million) from trimming off unnecessary spendings,” Mr. Dung stated.

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

For the next year, Vietnam’s state budget revenue is estimated at VND1,343 trillion ($58 billion) and expenditure of VND1,687 trillion ($72.78 billion), resulting in a fiscal deficit of VND343.67 trillion ($14.82 billion).

In 2021, Fitch Solutions, a subsidiary of Fitch Group, forecast Vietnam’s expenditures to grow by 16.6% as a rebound of economic activity as well as government efforts to expedite public capital expenditure should drive rapid growth in expenditures. This would result in a fiscal deficit of 3.6% of the GDP (excluding debt payment).

The Hanoitimes – The association urged the government to gradually open borders for the resumption of international flights to markets that have put the pandemic under control, including the Europe, Australia, India, China, South Korea and Japan.

Vietnam Aviation Business Association (VABA) has proposed the government to provide a credit aid package worth VND25-27 trillion (US$1.07-1.16 billion) to support the aviation industry that has been under serious impacts from the Covid-19 pandemic.

The aviation industry is among the hardest-hit sectors by the pandemic. Photo: Pham Hung

This is the third time that VABA has sought such support from the state since the first Covid-19 outbreak in early 2020.

According to VABA, while the credit package would help enterprises improve their financial capabilities, government agencies should continue considering extending deadline of debt payment for enterprises in the aviation industry until the end of 2024.

VABA also referred to suggestion from local enterprises for keeping existing supporting programs of reducing take-off, landing charges and navigation services fees, as well as policies for workers affected by the pandemic.

Meanwhile, the association urged the government to gradually open borders for resumption of international flights to major markets that have put the pandemic under control, including the Europe, Australia, India, China, South Korea and Japan.

“The Ministry of Transport should carry out study to assess the impacts of the pandemic on the development of the aviation industry in both short- and long-term, which would serve as a basis to reform the state administration in this field accordingly,” stated VABA.

VABA asked competent authorities to keep up with the efforts of reforming administrative procedures and allow airlines to be flexible in operation, including launching new services and domestic tourism stimulus program, and promoting tourism activities.

The national aviation industry was among the hardest-hit sectors by the pandemic last year, with the passengers volume suffering a plunge of 43% year-on-year to 66 million and 15% in cargo handling to 1.3 million tons.

In the past year, the government has been providing a series of support for the aviation industry, including waiving fees related to outstanding government-guaranteed loans for local airlines, and reduce 50% of take-off and landing charges, as well as air navigation service fees for domestic flights.

Airlines are also given permission to offer price of zero for air transportation services not included in the list of services under state management.

Last November, the National Assembly (NA) approved the government’s proposal to help ease Vietnam Airlines’ financial difficulties during the Covid-19 pandemic.

Under its resolution, the NA agreed to allow the State Bank of Vietnam (SBV), the country’s central bank, to provide refinancing loans worth VND12 trillion (US$518.57 million) for Vietnam Airlines to maintain its operation.