Vietnam’s Significant Fiscal Consolidation Produces Good Results

Nhat Trung

08:39 21/07/2019

BizLIVE -

In recent years, Vietnam has reversed the rapid rise in public and publicly guaranteed (PPG) debt seen in the years up to the 12th Party Congress of January 2016.

Vietnam’s Significant Fiscal Consolidation Produces Good Results
According to the latest estimates from IMF, Vietnam has implemented significant fiscal consolidation, strictly limiting the issuance of government guarantees and stabilizing the state budget deficit to about 4.6 percent of GDP in 2017–18 (GFS measure), down from 5.5 percent in 2014–2016. 
When the surplus of Vietnam Social Security (VSS), the pay-go pension system, and other extrabudgetary funds (EBFs) is included, the general government (GG) deficit averages 2.7 percent of GDP in 2017– 18. 
In recent years, Vietnam has reversed the rapid rise in public and publicly guaranteed (PPG) debt seen in the years up to the 12th Party Congress of January 2016. It has implemented significant fiscal consolidation, strictly limiting the issuance of government guarantees and stabilizing the state budget deficit to about 4.6 percent of GDP in 2017–18 (GFS measure), down from 5.5 percent in 2014–2016. 
When the surplus of Vietnam Social Security (VSS), the pay-go pension system, and other extrabudgetary funds (EBFs) is included, the general government (GG) deficit averages 2.7 percent of GDP in 2017– 18.
Economic and social inclusion. Vietnam’s growth has been inclusive to date and poverty fell from over 60 percent to below 5 percent in the last 30 years. Social spending, on health and education, has been critical in achieving inclusive growth. 
But it has declined slightly in recent years and the SDG costing exercise points to large gaps in health and infrastructure spending: 7 percent of GDP annually in public and private spending, of which 1 percent in health and the rest in roads, water and electricity. The private sector is expected to play a large role in financing of the SDGs, and improved investment efficiency with reduced current spending will free fiscal space. 
While there is no funding gap in education, the focus on primary and secondary education, where PISA scores point to high attainment, is appropriate. Access to tertiary education should be maintained; universities and vocational institutions should work with government and industry to reduce skills mismatches.
Preparing for population aging. Demographics have been favorable to date, but pension reforms are needed to address unfunded pension liabilities and improve the coverage, adequacy, sustainability and intra- and inter-generational fairness of pensions. Under current policies VSS outlays will overtake revenues in the 2030s. Policy changes to the Pension Fund are about to be
discussed in the National Assembly (NA) (draft Labor Code), including the increase in retirement ages from 60 to 62 for men, and 55 to 60 for women, and more stringent eligibility and base calculation criteria. 
Swift implementation of these reforms and continued monitoring and adjustments to address unfunded pension liabilities would be desirable. The reforms should also ensure that vulnerable groups are adequately protected in old age and that poverty in old age does not rise. VSS and other EBFs should be integrated in the macro-fiscal framework.
Health Insurance Fund. The recent expansion in public health care coverage (88.5 percent in 2018) and growing per capita health care spending are driving health care spending higher (from 7.9 percent of the budget in 1995 to 14.2 percent in 2014) and the Health Insurance Fund has swung into deficit. 
VSS plans to strengthen cost controls, consolidate collections of tax and social security premiums and raise co-payments are welcome. The authorities should also enhance the referral system; increase competition in pharmaceuticals; create an electronic patient records system; and address high out-of-pocket spending. More pre-funding of health care costs and improvement in collections and reducing informality should be examined.

NHAT TRUNG

Tin liên quan

Cùng dòng sự kiện