Vietnam's high public expenditure posing fiscal challenges
By Linh Lan
October 04, 2017 | 07:29 AM GMT+7
The Government of Vietnam and the World Bank released the report "Vietnam Public Expenditure Review: Fiscal Policy towards Sustainability, Efficiency and Equity" on October 3 in Hanoi.
The report shows that Vietnam’s development transformation, characterized by graduation to middle-income status, an aging working population, greater openness and fast decentralization, has also brought about new fiscal challenges.
These developments have put Vietnam among the fastest growing countries with impressive poverty reduction and strong service delivery outcomes. Consistently high budget deficits, rising public debt and falling overseas development aid (ODA) have emphasized the importance of developing sustainable fiscal strategy.
The main contributors to the lower revenue-to-GDP ratio include a decrease in oil revenue, land revenue, and tariff revenue. The falling share of oil revenue in total GDP is due to the recent collapse in crude oil prices. From 2006-10 to 2011-15, the oil revenue-to-GDP ratio declined from 4.8 per cent to 3.0 per cent.
Revenue from import and export activities to GDP fell from 5.5 per cent to 4.2 per cent and land-related revenue from 2.5 per cent to 1.7 per cent.
Accordingly, the Government of Vietnam and the World Bank Group, supported by other development partners, therefore embarked on this joint Public Expenditure Review to assist in identifying appropriate responses to these challenges.
The review aims to provide empirical evidence to answer three main questions that cut across the 15 chapters of this PER, including (1) How to create fiscal space whilst ensuring fiscal sustainability? (2) How best to align public spending with national priorities? (3) How to strengthen accountability for results?
“In order to ensure fiscal sustainability, the National Assembly of Vietnam has issued a Resolution requiring the reduction of fiscal imbalances and thereby of budget deficit to 3.9 percent of GDP during 2016-2020 and no more than 3.5 percent in 2020.” said Do Hoang Anh Tuan, vice minister of Finance.
“We are pleased that this report provides concrete recommendations on policy options in these regards,” he said.
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