Vietnam's public debt service is on the rise. (Photo: Internet)
Vietnam’s rapidly rising public debt
is a concern and reducing fiscal room for maneuver and could pressure domestic interest rates, which could adversely impact corporate and bank performance, the International Monetary Fund (IMF) said in a statement after a mission team visited the country on April 6-22.
The mission recommended a growth-friendly fiscal consolidation - beginning this year - to reduce the fiscal deficit
to around 3% of GDP
by 2020 from around 6.5% of GDP since 2012 and put public debt on a sustainable and downward path.
“The consolidation should focus on broadening the revenue base, and safeguarding spending on high-quality public investment in education, health, and infrastructure, while also making resources available to resolve non-performing loans and strengthen capital in state-owned banks,” it added.
The mission also suggested Vietnam hold on the monetary policy as recent domestic shocks feed through the economy so long as underlying inflation pressure remains muted. However, “should evidence of second-round effects on inflation emerge, some tightening of monetary policy would be warranted,” said the statement.
“For 2016, growth is expected to ease to around 6%, mainly reflecting weaker external demand and severe drought and salination of arable land that have adversely affected agriculture,” says the statement.
Underlying inflation should remain low, although headline inflation is expected to rise modestly due to a pick-up in food prices and planned increases in administered prices for education and health services.
The current account surplus is projected to ease in the near term with slowing external demand although foreign direct investment is expected to remain strong, it predicted.
The World Bank said in its latest report that Vietnam’s fiscal deficit as per GDP would reach 5.9% in 2016, 5.7% in 2017 and 5.5% in 2018, down from 6.2% in 2014 and 6.5% in 2015.
Meanwhile, its public debt is set to swell to 63.8% in 2016, 64.4% in 2017 before reaching 64.7% in 2018, up from 54.5% in 2013. The debt ceiling is set at 65% of GDP.