VietNamNet Bridge – The economic downturn, which has dealt a strong blow on businesses, has made the local budgets become empty. Not only poor provinces, but the three biggest economic centers in the north, central and south – Hanoi, Da Nang and HCM City – all have failed to fulfill the tax collection plans.

Local budgets can be saved only by… bonds

Hanoi can reportedly fulfill 95 percent of the estimates on tax collection assigned by the city people’s council and 95.8 percent of the estimates assigned by the government. The figures are 81.1 percent in Da Nang and 92 percent in HCM City.

The failure in the tax collection in the three biggest economic centers will surely lead to the higher state budget imbalance.

In the first 11 months of the year, the sum of money mobilized to the state budget increased slightly by 1.24 percent in comparison with the same period of 2011 to 593,400 billion dong. However, this is just equal to 80.1 percent of the estimates. It is obvious that, the state budget would not have the amount of money it expects.

Meanwhile, the spending from the state budget has increased by 16.91 percent, which has been explained by the increases in the spending on socio-economic development projects, national defense and state management (up by 23.34 percent over the same period of the last year).

As a result, the state budget deficit in the first 11 months of the year increased to 131,400 billion dong, or 6.2 billion dollars.

The anticipated state budget imbalance has forced the government to push up the issuance of government bonds in order to offset the overspending. About 103,500 billion dong worth of bonds have been issued through the State Treasury by December 6, 2012.

Meanwhile, local authorities in Hanoi, Bac Ninh and Da Nang have also thought of issuing local authorities bonds to offset the budget deficit. The Da Nang city authorities plan to issue 5 trillion dong worth of five year bonds.

Latent risks

The bond issuances, if successful, would help local authorities to pay the debts which have reached 91 trillion dong so far. This would also help them raise enough money to fulfill the half-finished construction projects.

Nevertheless, economists have warned that the bond issuance would cause certain risks to the national economy.

Firstly, this would make the total public debts increase, which may go beyond the control by the central government.

The latest government’s report showed that the public debt in 2012 accounts for 55.4 percent of GDP. Of this, the government’s debts accounts for 43.1 percent of GDP, and the government-guaranteed debts 11.7 percent, and local authorities’ debts 0.53 percent.

With the local authorities’ debt increases, the ratio of debts on GDP would increase rapidly in the time to come. This would make it impossible to see the bank loan interest rates to go down, thus making businesses unable to access official credit.

Secondly, local authorities may go insolvent. In the context of the economic difficulties, when the budget imbalance can be seen in most localities, it would be very difficult for anyone to find the sources of income to pay debts.

Da Nang City, for the last many years has been known as having the receipts higher than the spending. However, it has also reported that the receipts are not big enough to offset the expenditure, especially when the receipts from the land fund exploitation have decreased due to the real estate market fall.

DNSG