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Tuesday, June 25, 2024

State budget deficit seen reaching 4% of GDP

The Saigon Times

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HCMC – Vietnam’s state budget deficit this year is expected to account for 4% of gross domestic product (GDP), below the 4.42% projected by the Finance Ministry but above the figure in the post-pandemic period.

In a public debt report for 2023 which the ministry has sent the Government, the ministry attributed the deficit to persistent woes at home and abroad.

The performance of the backbone economic domains such as import and export, and foreign investment has been lower than in the same period the previous year. Some exporters have had no other choice but to close shop, scale down operations or cut jobs. Likewise, real estate firms and banks are no different, resulting in adverse impacts on state budget revenue.

In light of this issue, the estimated collection to balance to the state budget this year is over VND1.62 quadrillion while the budget deficit is seen making up 4% of GDP, or some US$16.4 billion based on the country’s 2022 GDP of US$409 billion.

Moreover, the National Assembly (NA) will determine the safety indicators for public debt. Specifically, it is estimated that by the end of 2023, public debt would reach 39-40% of GDP. Among them, government debt accounts for 36-37% of GDP and the country’s foreign debt stands at 37-38% of GDP.

The Government’s direct debt repayment commitment represents 20-21% of the total budget collection. Likewise, the servicing of foreign debt accounts for 7-8% of the total export revenue of goods and services and it is guaranteed to remain within the limit set by the NA, which is 25%.

Regarding the borrowing and debt repayment plan, the total borrowing for this year to cover the budget deficit and repay the principal is set at VND621,015 billion, as per the NA’s resolution.

On this basis, the Government mapped out a borrowing plan of nearly VND604,380 billion, equivalent to 94% of the plan. Of them, over 90% is sourced from Government bond issues, while the remainder comes from foreign loans, including ODA.

Notably, bond maturity is currently growing by one to three years, with an average of 12.6 years, and interest rates are also rising by 3.7-4% per year over 2022.

This year, the Government has disbursed VND311,537 billion to settle debts. Of this amount, nearly 90% (VND279,742 billion) represents direct debt repayments, while the remainder comprises debt refinanced via foreign loans.

Still, the volatility in currency exchange rates has restricted the use of Vietnamese dong estimates when acquiring foreign currency for debt repayment purposes.

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