Falling global oil prices will have a double-edged impact on Vietnam's economy--simultaneously lowering revenues generated by crude oil exports as well as the costs of importing petroleum products.
US crude closed below $60 a barrel for the first time in five and a half years, sliding amid new concerns about consumption falling far behind surging output, according to the Financial Times.
The US oil benchmark surrendered early gains an ended down 99 cents at $59.95 a barrel on Thursday. Brent, the international crude marker, also headed south, falling 56 cents to $63.68 a barrel. Both contracts settled at the lowest levels since mid-July 2009.
The declines came on top of drops that exceeded $2 on Wednesday after OPEC reported that demand for crude in 2015 would be the lowest in ten years.
The regional cartel expected next year's prices to be even lower than the current nadir.
Morgan Stanley predicted that Brent would average $70 a barrel in 2015, down $28 from a previous forecast, and $88 a barrel in 2016.
The investment bank also said that oil prices could fall as low as $43 a barrel, next year.
Vietnam's export revenues are expected to plummet, dealing a strong blow to the state budget, said economist Le Dang Doanh. Earnings from crude oil shipments now account for 10 percent of the country’s state budget.
The reduction will also cut Vietnam’s spending on imported petroleum products and help curb inflation. Relevant agencies should study whether Vietnam will enjoy a net benefit or loss from the drop in crude prices, so that it can make budgetary adjustments, he said.
Chairman of the Government Office Nguyen Van Nen said the state budget collection plan for next year was calculated based on an oil price of $100 per barrel. Every $1 drop in the price per barrel has translated to a VND 1 trillion ($47.62 million) loss for the state budget.
“If oil prices plummet below $80 a barrel, budget collection will fall by around VND20 trillion,” Nen said.
To minimize losses caused by the price reduction, the country plans to focus on fields with low extraction costs and temporarily cease tapping high-cost ones, he said.
Vietnam is expected to produce more than 17 million tons of crude oil this year (341,000 barrels per day), beating its annual target by at least five percent, Reuters quoted state oil and gas group Petrovietnam as saying.
Vietnam, which boasts the third-largest crude oil reserves in Asia, produced 16.71 million tons of crude oil in 2013.
The country's crude oil exports in the first 11 months of the year rose 9.4 percent from the previous year, according to government figures.
Glenn B. Maguire, ANZ bank's Chief Economist for the Asia Pacific Region, said the oil price drop has had a small impact on GDP growth for net importing countries of refined oil like Vietnam.
Maguire expects the country’s GDP will lose a mere 0.1 percent if oil prices slip 10 percent for four consecutive quarters. In terms of inflation, a 10 percent decline in oil prices over four straight quarters may cut inflation by 2.6-2.7 percent. At that rate, the oil price reduction is projected to exert a nearly insignificant impact on the Vietnamese economy in 2015.
Economist Trinh Nguyen of HSBC projected that oil revenue will fall in line with the reduction in Brent crude prices. But, crude oil's contributions to the country’s total revenue has declined gradually over the years, while corporate income tax and trade revenues have risen over the years, offsetting the dependence on oil revenue, she said.
Meanwhile, the drop in oil prices will benefit producers and consumers. The decline in the price of oil and other commodities has helped manufacturers cut their selling prices, boosting sales.
Headline CPI in Vietnam slowed to 2.6 percent year-on-year last month due to lower transportation prices and is expected to further decline.
Consumers will likely benefit from the rise in disposable income, as well as a bounce in the manufacturing sector, allowing them to gradually increase spending, she said.
To offset the state budget deficit caused by the drop in crude oil prices, the Ministry of Finance recently increased import taxes imposed on certain kinds of gasolines from 18 percent to 27 percent, and oil from 14 percent to 26 percent.
Economist Ngo Tri Long criticized the ministry’s decision since Vietnam's gasoline prices have remained high due to exorbitant import taxes and 11 reductions since late July.
The 92-RON gasoline price has fallen to VND 19,930 per liter from VND25,640 per liter in early July.
Taxes account for 35 percent of the retail price of gasoline, he said adding that the country should reevaluate those taxes to assist local bussinesses and consumers.
Any increase in the tax would add to government income, but ultimately hurt consumers and enterprises that are struggling to grow.
Economist Doanh said lower petroleum costs could help businesses cut prices, spurring local consumption and production, which would ultimately generate more tax revenue for the state budget.
Vietnam imported 7.78 million tons of crude oil worth $7.19 billion between January and November, up 16.5 percent in volume, and 13.9 percent in value, according to the General Statistics Office.