Vietnam Fiscal Deficit Estimated at 7% of GDP in 2015: VEPR

Tuan Minh

15:47 26/01/2016

BizLIVE - Vietnam’s fiscal deficit could have widened to 7% of GDP in 2015, a local think tank has said.

Vietnam Fiscal Deficit Estimated at 7% of GDP in 2015: VEPR

Vietnam’s fiscal deficit is estimated at 7% of GDP in 2015, according to VEPR. (Photo: Internet)

Vietnam’s total state budget expenditures are estimated to have exceeded the plan by some 70 trillion dong ($3.11 billion) while the country’s nominal gross domestic product (GDP) may have grown slower than expected, Vietnam Institute for Economic and Policy Research (VEPR) said in a quarterly report.
The country’s state budget deficit, therefore, could have reached 7% of GDP in 2015, the biggest gap since 2000, VEPR said, adding that Vietnam’s fiscal deficit could have breached the ceiling of 5% of GDP over the last four years.
The think tank warned that the country’s fiscal balance would worsen this year if the government did not cut budget spending and use official development assistance (ODA) effectively, in the context that oil prices could be lower than $60 a barrel projected for this year.
  Vietnam's fiscal deficit. (Source: Ministry of Finance, General Statistics Office, VEPR)
VEPR researchers forecast Vietnam’s inflation to reach 4%-5% this year, compared to 0.6% last year, as commodity prices could undergo strong fluctuations.
Inflation in 2016 will be driven by a possible slight rebound of commodity prices and negative effects of the El Nino phenomenon, which could push up the price of rice, VEPR said.
In addition, prices of state-administrated services such as electricity, healthcare and education will likely be revised up this year. Meanwhile, the money supply outpacing the country’s nominal GDP will result in highly volatile prices.
“Historic data shows that low inflation can be reverted is the money supply is not tightly controlled,” says the report.
Annualized growth of credit and mobilization. (Source: State Bank of Vietnam, General Statistics Office)
VEPR predicted the USD/VND rate to fluctuate 3%-4% in 2016, compared to a devaluation of around 5% of the dong in 2015, as external shocks seen in 2015 are unlikely to reoccur.
“China is recording quite positive signals from the consumer and service sector and may limit the devaluation of the Chinese yuan at below 5%,” VEPR researchers said.
Meanwhile, although the U.S. dollar price is still on the rise, the Fed is yet to downsize its balance sheets, thus liquidity in emerging markets will not be hard hit.
Moreover, the outlook of foreign investment in Vietnam is becoming brighter following the conclusion of TPP negotiations and movements of investment away from China, they added.