If official development assistance (ODA) is included, the nation’s public debt will be 63.2% of gross domestic product (GDP) at the end of 2016, still below the 65%-of-GDP limit, said Deputy Finance Minister Do Hoang Anh Tuan at a press meeting on Monday.
“International experiences show that the 65%-of-GDP limit is only safe when a country achieves an [annual] economic growth rate of 3% or higher and a fiscal deficit of below 5%,” Mr. Tuan added.
Vietnam’s public debt has made headlines recently, particularly when the nation wraps up the 2011-2015 socio-economic plan and a leadership change looms.
According to a latest research of the Academy of Policy and Development under the Ministry of Planning and Investment, Vietnam’s public debt should be 66.4% of GDP at the end of 2014, above 59.9% initially reported if the provision for contingent liabilities were taken into account. Debts of state-owned enterprises (SOEs), the State Bank of Vietnam and insurance and social security institutions are not calculated.
Mr. Tuan, however, rejected that figure and reasserted that the country’s public debt is calculated under the existing legislation. Meanwhile, SOEs should be accountable for their own liabilities and only government-guaranteed loans [for SOEs] are taken into account when calculating public debt.
The deputy minister explained that the central budget will fall short of 31 trillion dong ($1.38 billion) compared to the plan set for this year because crude oil prices are lower than the projected $100 a barrel and Vietnam reduces import tariffs under free trade agreements.
To deal with dwindling budget collections, the ministry will boost recovery of tax arrears, fight transfer pricing and stimulate business activities.
“From January 2016, the general corporate income tax will be cut to 20% and that for small- and medium enterprises will be slashed to 17%. Tax collections will rise if well done,” Mr. Tuan noted.
The Finance Ministry has proposed used 10 trillion dong from divesting state stakes in profitable equitized companies to finance the budget shortfall in 2015. The government has also put forward a plan to issue $3 billion worth of sovereign bonds overseas starting 2017 for rollovers.
Regarding budget constraints, if ODA is included, the state budget will have some 95 trillion dong for additional expenses, Mr. Tuan noted.
Planning and Investment Minister Bui Quang Vinh on October 22 warned that the state budget would be extremely constrained next year as around 45 trillion dong (roughly $2 billion) is left for new expenses after allocations for the approved programs and projects.
According to the proposed plan submitted by the government for the 2016-2020 period, the government would borrow between 3,020 trillion dong and 3,090 trillion dong, with 1,360 trillion dong used to offset budget deficit, around 280 trillion dong for on-lending and the remainder for debt repayments.
Total ODA and preferential loans provided by foreign donors in the next five years are projected at 250 trillion dong.
Prime Minister Nguyen Tan Dung said in a report at the ongoing National Assembly sitting that the nation’s public debt is rising fast and debt payment pressure is huge.
Vietnam’s public debt swelled at a quick rate of 18.6% per year to 2,347 trillion dong (roughly $110 billion) in 2014, more than doubling that recorded in 2010, a Ministry of Finance report showed.
According to The Economist’s global debt clock. Vietnam’s public debt per person already surpassed $1,016 on October 11.