Vietnam battles public debt and budget deficit

The 13th National Assembly convened its 11th meeting in Hanoi on March 21, where the Economic Committee released its report on Vietnam’s state performance from 2011-2015.

The report acknowledged the efforts made by authorities to meet the targets set by the National Assembly, but socio-economic development failed to reach the goals laid out for the 2011-2015 period.

Government spending on infrustructure took up a high percentage of the state budget. Photo: VnExpress

The NA’s committee underlined that the average GDP growth from 2011-2015 was only 5.9 percent, lower than the 7 percent target set by the NA at the start of the five-year tenure. Total Factor Productivity was only 29 percent of GDP growth, while ICOR remained high.

“The state budget was imbalanced while current state expenditure has risen sharply. Government spending was much higher than the target of 4.5 percent of GDP. Moreover, public debt spiked and the government was forced into a series of bail outs. Poverty reduction measures were unsustainable,” the Economic Committee said.

In 2015, Vietnam's public debt reached a record high 62.2 percent of GDP; a significant increase in the short time given the ratio was only 38 percent in 2011, according to the State Bank of Vietnam (SBV). In a nutshell, Vietnam's public debt rose 20 percent per year from 2010-2014.

This may have stayed within the National Assembly’s cap of 65 percent, but the public debt ratio has risen quickly with ineffective investments causes huge losses.

National debt ratios from 2011-2015

Much of the public debt was due to government spending on crucial infrastructure and the figure does not include State owned enterprises (SOEs). Certain limitations were found in all three prioritized economic and budget-deficit-reduction targets: financial, SOEs and restructuring public investment.

Regarding restructuring public investment, the report showed that although there were positive changes, investment discipline remained a concern, with various completed projects deemed ineffective and investment in irrigation and healthcare falling behind schedule. Outstanding loans and late disbursement for capital constructions also spiraled.

A large number of SOEs were equitized but many struggled following divestment. State-owned stakes in  SOEs overall remained high at over 50 percent, while small and medium enterprises faced huge difficulties accessing credit and non performing loans persisted.

Vietnam's macro-economy was one of the hot topics at the ongoing National Asembly meeting, along with public debt and the state budget deficit. Photo: VNExpress

Previously, Deputy Prime Minister Nguyen Xuan Phuc delivered a report on the state's implementation of the 2015 socio-economic development plan that showed 12 out of 14 targets set by Vietnam's legislature were achieved or surpassed.

Regarding the socio-economic development plan for 2016-2020, the government has set a target of average annual GDP growth of 6.5-7 percent. By 2020, GDP per capita could reach $3,200-3,500, and the contributions of industry, construction and services should be about 85 percent.

The deputy prime minister said: “We’ll have to develop and manage all markets to ensure fair and transparent competition among enterprises. The government will manage monetary policy flexibly and issue fiscal policies to control inflation, the value of the VND, foreign currency reserves and other key factors that affect the economy.”

"We’ll exploit international commitments, expand and diversify export markets, enhance trade promotions, build trademarks for Vietnamese products and develop the domestic market. Private businesses should be encouraged to invest in mining, petroleum, seaports, shipbuilding, seafood processing, maritime logistics services, and sea and island tourism,” added Phuc.