Vietnam is one of the countries with the highest growing debt-to-GDP ratio, rising by about 10% in the past five years. The above figures are presented in the section of high-quality fiscal consolidation of the report on Vietnam's economic development outlook, announced by the World Bank on July 13.
The report indicates that the Government of Vietnam has vigorously committed to restoring fiscal discipline by strengthening the high quality budgets.
The thematic report emphasizes that the budget deficit (including non-budgetary sources) is estimated to increase to around 6.5% of the GDP in 2016 compared to 6.2% in 2015, leading to Vietnam’s debt-to-GDP ratio of 63.7 percent of GDP by the end of 2016, up nearly 13% compared to that of 2011. The ratio is approaching the ceiling of 65% of GDP.
Despite the impressive economic growth, if the public debt continues to increase, Vietnam will face the problem of fiscal sustainability, according to the analysis of WB experts.
With a high level of public debt, it is hard for Vietnam to implement fiscal policy to cope with cyclical fluctuations. According to WB experts, this shows the importance of consolidating fiscal situation and accelerating structural reforms.
Another issue highlighted in this report is that the rate of deposit mobilization on GDP is on a downward trend, while the pressures of public spending remains high and all debts safety ratios are close to the regulated safety limits.
The report argues that there should be a fiscal consolidation roadmap to ensure fiscal sustainability, which poses little impact on economic growth.
The agency recommends that the government should continue to reform its tax policy with a view to promote domestic revenue mobilization, gradually shorten the list of non-taxable items, and proceed to apply a fixed rate of value added tax.
In the report, the WB also recommends that the National Assembly and the Government to consider some of the amendments of the Law on Public Debt Management, including the need to clarify the difference between the fiscal policy function and debt management function.