Audit finds giant holes in Vietnam's local budgets

By June 22, 2016 | 01:06 am PT

Local authorities in Vietnam have misspent about VND1.3 trillion ($58.7 million) this year, mostly on heavy construction investments, putting the country at risk of missing its deficit reduction target for the year, according to the State Audit.

The State Audit has conducted an annual bond audit to examine how local authorities have administered and used funds raised from bonds.

The audit statistics show the Vietnamese government so far this year has raised VND248 trillion ($11 billion) through bond auctions, of which 40 percent has been allocated to local authorities.

Local authorities are keen to build infrastructure in order to establish a stable source of their future budget revenues.

Many have been caught up in fierce competition to attract infrastructure projects to their localities, sometimes at a cost to the national economy.

They tend to overestimate project costs as the central government distribute funds to local levels after taking into account local development plans.

According to the audit, the real cost of these projects often turns out to be much lower than the estimates.

For instance, auditors found out that a project to enlarge the Hau River in Vietnam’s Mekong Delta actually cost VND622 billion, only 39 percent of the estimated cost of VND 1.88 trillion.

State auditors pointed out that through heavy investments in building projects, local governments might also run the risk of living beyond their means.

audit-finds-giant-holes-in-vietnams-local-budgets

Workers assemble steel reinforced bars at a construction site in Hanoi. Vietnam’s public debt nearly doubled to VND2,608 trillion ($116 billion) in 2015 from VND1,393 trillion in 2011, according to official statistics. Photo by Reuters/Nguyen Huy Kham.

Vietnam has adopted the fiscal decentralization system in which the central government always lays out budget plan every three or five years and gives local authorities freedom to manage their own budget, including revenues and expenditures.

Vietnam plans to raise VND220 trillion this year via government bond auctions.

Bonds have been an important source of funds for government spending.

The World Bank forecasts that Vietnam’s public debt in 2016 will be 63.8 percent of gross domestic, significantly up from 59.6 percent in 2014.

Rising public debts will put mounting pressure on Vietnam to seek more loans to offset the state budget.

Last year, in an attempt to reduce the pressure of debt repayments, Vietnamese lawmakers decided to set new rules on the trading volume of government bonds.

According to the new regulations, the State Treasury, which holds weekly bond auctions at the Hanoi Stock Exchange, has offered more long-term bonds and cut the trading volume of short-term bonds on the domestic debt market so that the proportion of bonds with tenures of five years or more will increase to 46 percent of the gross debt.

Vietnam’s public debt nearly doubled to VND2,608 trillion ($116 billion) in 2015 from VND1,393 trillion in 2011, according to official statistics.

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