Vietnam’s fiscal deficit, including principal repayments, would come in at 6.6 percent of GDP this year and next year, up from 5.9 percent in 2018, Fitch Solutions Macro Research forecast.
It was revised from 5.7 percent and 5.8 percentprojected previously.
According to Fitch analysts, this follows a 7.4 percentdeﬁcit based on its estimates (including principal repayments, otherwise 3.2 percentwithout according to oﬃcialﬁgures) in the ﬁrst half of 2019.
“We expect fallingVietnamese government bond yields in line with the decline in global bond yields to ease growth in interest payments on newissuances going forward. However,we expect this tobe more than offset by increased government borrowing tofund key public infrastructure projects to ease the congestion in major cities and ports exacerbated by the influx ofcompanies relocating their operations to Vietnam as aresult of the ongoing US-China trade war,” the analysts said.
Global yields have fallen as a result of a rush tosafety amid growing economic and geopolitical uncertainty globally, as well asexpectations of further monetary easing by the US Federal Reserve and majorglobal central banks.
This has supported a decline in Vietnamese credit default spreads and alsoyields offered on new Vietnamese government bond issuances. Given that risks tothe global economy appear to be ﬁrmly weighted to the downside, government bondyields are likely to head even lower over the coming quarters.
However, Fitch believes that the positive impact ofthis on ﬁscal accounts will be outweighed by an increase in governmentborrowing to expedite key infrastructure projects, which would put upsidepressure on interest payments.
Besides, according to Fitch, evidence has so far shownthat Vietnam is the main beneficiary of the relocation of manufacturingoperations out of China.
“We expect the rush by companies to relocatemanufacturing operations from China to Vietnam to avoid the US’ tariffs onChinese exports to continue worsening congestion in major cities such as Ho Chi Minh City and Hanoi, as well as at Vietnam’s sea ports,” the analysts said.
According to Fitch, an important point to note is thatdelays to land acquisition for these projects would also increase project costsfor the government as the inﬂux of businesses to the country would increasecompetition for land, particularly in and around the major cities, puttingupside pressure on land prices. –VNS/VNA