Budget deficit cap hike won't boost Vietnam economy much: analysts

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Analysts fear that an increase in the budget deficit ceiling alone will be inadequate to help Vietnam achieve its targeted economic growth of 5.8 percent.

The country raised the budget deficit cap from 4.8 percent to 5.3 percent of GDP as tax revenues fell.

Yet this year the government expects public spending for economic development of only VND163 trillion (US$7.74 billion) compared to VND165 trillion last year.

Persistent budget overruns are significantly correlated with economic instability, analysts warned further.

News website VnExpress quoted Dao Van Hung, director of the Policy and Development Institute, as saying though public debt is still under the threshold of 65 percent of GDP set by the National Assembly, the country is approaching that limit rapidly.

The Ministry of Finance estimated public debt at 55.7 percent of GDP as of 2012 end.

A report by major lender Techcombank's Treasury Department said the country is running out of room for new fiscal and monetary policies to pump prime the economy.

Local businesses would be hit by the central bank's tighter rules on debt classifications and risk provisions which are set to take effect from June, it warned further.

The new rules are likely to result in higher interest rates as a result of banks' increased costs, and tightening of lending.

Difficult access to money would continue to plague businesses, dragging down economic growth, the report said.

It forecast growth to be 5.63 percent this year, the same rate predicted by the National Center for Socio-Economic Information and Forecast.

According to a HSBC report early this year, the economy will expand by 5.4 percent.

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