Budget woes put growth plan in peril

The 11^th session, also the last of the 13^th National Assembly, came to a close last week with the adoption of a resolution on the 2016-2020 socio-economic development plan.

The resolution set an ambitious target of 6.5%-7% in annual growth for Vietnam, which is higher than the annual growth rate of 5.9% in the 2011-2015 period.

The government has estimated that by following the 2016-2020 growth target, the country’s total GDP for the entire period would be about US$1.39-US$1.43 trillion.

However, in order to realize 6.5%-7% in growth, many sources of capital must be mobilized. According to a government report on Vietnam’s 2016-2020 economic development, total development capital for these five years is estimated to be from US$443-US$485 billion, equivalent to 32%-34% of GDP.

Of these figures, capital from the state coffers (including government bond-based capital) will account for 19.7%-21.6%. Meanwhile, capital from the public and domestic private enterprises will occupy 45%-47.4%.

For the 2016-2020 period, total capital from foreign-invested projects (excluding locally-contributed capital) will be US$65.5-US$72.8 billion, equal to 15.4%-16.2% of Vietnam’s total development capital.

Committed and disbursed capital from official development assistance (ODA) and concessional loans for the 2016-2020 period is expected to reach US$20-25 billion.

However, experts have warned that the government many find it difficult to mobilise sufficient capital for socio-development over the next five years due to budgetary difficulties as well as a series of hurdles facing private firms.

“Private firms are receiving unfair treatment from the government, in term of tax, land, and other incentives”, said Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry.

Nguyen Ton Quyen, chairman of the Timber and Forest Product Association of Vietnam, claimed that thousands of local wood processors have been seriously hit by a lack of bank loans. “If the state helps them, the local wood sector can grow 15%-20% per year, instead of just 5%-7% as is the case now”.

According to the World Bank and the Asian Development Bank (ADB), Vietnam will receive less concessional ODA due to its status upgrade as a middle-income nation. Also, the government is seeking short-term loans locally.  This means bigger pressure in paying debts over the next five years, making it difficult for Vietnam to ensure sufficient development capital.

The ADB has stated that Vietnam’s plans for fiscal consolidation are at risk from shortfalls in revenue. Over the past five years, reductions in corporate income rates, and the removal of tariffs and taxes for favoured firms have eroded the tax base. Additionally, low oil prices are squeezing the life out od resource tax revenue, which comprises 10% of the total.

“To achieve higher growth, greater effort is needed to address Vietnam’s low productivity growth and to support domestic firms’ ability to integrate into global value chains”, said Eric Sidgwick, ADB country director for Vietnam.

“Central to this task will be speeding up and deepening the process of state-owned enterprise reform-beyond just equitisation-to remove the distorting impact which these firms have on the economy and its competitiveness”, Sidgwick stressed.