Covid-19 pushes Vietnam fiscal deficit to nearly 6% of GDP

Vietnam’s budget deficit this year is estimated at VND319.5 – 328 trillion (US$13.78 – 14.15 billion), equivalent to 4.99 – 5.59% of GDP, significantly higher than the 3.44%-of-GDP target set in early 2020, according to Minister of Finance Dinh Tien Dung.

Minister of Finance Dinh Tien Dung speaks at the National Assembly on October 20. Sourcef: National Assembly.

Such a high fiscal deficit is due to lower-than-expected state budget revenue and an increase in regular spending caused by severe Covid-19 impacts, stated Mr. Dung at a the opening of a one-month-long National Assembly sitting on October 20.

This year, Vietnam’s budget revenue is estimated at VND1,320 trillion (US$57 billion), down VND189.2 trillion (US$8.16 billion) or 12.5% compared to the year's estimate and 14% against the figure recorded in 2019.

State budget revenues in a number of major cities have also stayed lower than planned, including Hanoi with 58.8% of the estimate so far, Ho Chi Minh City (58.1%), Haiphong (55.1%), and Khanh Hoa (51.8%), among others.

Meanwhile, state budget spending could reach VND1,680 trillion (US$72.47 billion) this year, down VND60.89 trillion (US$2.62 billion) or 3.5% against the estimate. Notably, regular spending is expected to rise to VND1,070 trillion (US$46.16 billion), or an increase of VND12 trillion (US$517.7 million) or 1.1% of the estimate, mainly for funding measures against the pandemic, natural disasters and social security.

For the next year, Vietnam’s state budget revenue is estimated at VND1,343 trillion (US$58 billion) and expenditure of VND1,687 trillion (US$72.78 billion), resulting in a fiscal deficit of VND343.67 trillion (US$14.82 billion) for 2021.

Chairman of the National Assembly’s Committee for Financial and Budgetary Affairs Nguyen Duc Hai said a high fiscal deficit is justified by the current context.

Mr. Hai said the figure could rise higher by an additional amount of VND38.5 trillion (US$1.6 billion) due to the slow privatization process of state-owned enterprises.

Additionally, the Committee for Financial and Budgetary Affairs warned against the ratio of the government’s direct debt servicing to state budget revenue is approaching the 25% threshold, which Mr. Hai said this could pose a major risk to national financial security.

Mr. Hai also noted a high ratio of regular spending over the total budget expenditure at 63.4%, while the implementation of supporting program for business and people affected by the pandemic has not progressed as expected.