Higher budget deficit ceiling won't help Vietnam's GDP growth: expert

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 Consumers buy goods at a supermarket / PHOTO COURTESY OF TUOI TRE

Even though Vietnam's budget deficit cap was raised from 4.8 to 5.3 percent of gross domestic product (GDP) for next year, the higher ceiling will not "considerably" increase GDP growth, an economist has said.

Nguyen Anh Duong of the Central Institute for Economic Management (CIEM) was speaking at an economic forum that heard many experts warn that Vietnam needs to be cautious in its quest to boost GDP growth, Tuoi Tre (Youth) newspaper reported.

The event was organized by CIEM and the German Development Cooperation GIZ on Friday, more than one week after the National Assembly agreed to lift the budget deficit cap as recommended by the government, which said it needs money for public spending to boost GDP growth.

Vietnam's GDP growth this year was expected to be 5.4 percent, and has been set for 5.8 percent next year.

However, Duong said even if the entirety of the 0.5-percent rise in budget deficit is spent on public investment projects, it will only be able to help raise GDP growth by 0.057-0.086 percent.

In fact, in 2009, the government issued a stimulus package of VND145 trillion (US$6.86 billion), or about 8.7 percent of GDP, but the initiative contributed to a raise in GDP growth of just 1-1.5 percent, Duong said.

Raising the budget deficit ceiling will effectively increase resources for development only when Vietnam's government has measures for restructuring public spending and improving the effectiveness of its investments, according to the economist.

In the meantime, a higher ceiling and the issuance of more government bonds are actually "worrisome," as they will affect the stability of the budget, Duong said.

The NA approved the government's plan to issue bonds worth VND170 trillion ($8 billion) for 2014-16, in addition to bonds worth VND75 trillion already approved for issue in 2011-15.

According to official figures, Vietnam's public debt was over VND1,600 trillion ($75.73 billion), or 55.4 percent of GDP, as of 2012, which was considered within a safe range.

But, Duong said: "What matters is not whether the public debt is safe, but the ability to pay the debt in the future."

With figures of the first half this year, he calculated that Vietnam has to pay debt and associated interest of over $1 billion every quarter, or 16 percent of the budget's income.

Duong is also concerned that as the government increases its investment in the public sector, it will hamper the private sector's investment, like in 2009 when the stimulus package was launched, the private sector's investment decreased to 33.9 percent from 35.2 the year before.

Even if increased public spending can help boost Vietnam's GDP growth, inflation will go up accordingly, he said, anticipating if this year's target is met, inflation will reach nearly 9 percent.

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Nguyen Dinh Cung, chief of CIEM, also warned that after two years of economic reforms that tightened public spending to give more opportunities to the private sector, the government may now loosen those policies, to increase public investment, in the hopes of achieving its GDP growth target.

A CIEM study claims that while many government officials stressed GDP growth as an important goal for Vietnam -- an assertion backed up by many of the government's economic reports -- local agencies calculated their figures incorrectly.

According to the study, the agencies included the increased values of all sectors and import taxes, including that of FDI businesses, even though their profits end up overseas.

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