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Private economic sector blocked by three powers

Private businesses, according to economists, have been hampered by state-owned enterprises (SOEs), foreign invested enterprises (FIEs) and state management agencies. 
VietNamNet Bridge - Private businesses, according to economists, have been hampered by state-owned enterprises (SOEs), foreign invested enterprises (FIEs) and state management agencies. The capital cannot reach the private economic sector because it has been taken away by the state budget.

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Dr Nguyen Dinh Cung, head of the Central Institute of Economic Management (CIEM), said at a recent workshop on reviewing the economic performance in 2015 that while macroeconomic indexes look better, the driving force for growth has not changed much and the potential has nearly been used up.

“This is quite a vicious circle. In order to improve the competitiveness of Vietnamese goods, it is necessary to devalue the dong. However, if Vietnam devalues the local currency, it will bear heavier debts, while the state budget will get weaker,” he commented. 

Cung said Vietnam reaped big fruits in 2015 with the GDP growth rate reaching 6.68 percent, exceeding the targeted rate, and a low inflation rate at 0.6 percent.

A lot of problems still exist: the budget deficit may exceed 5 percent of GDP threshold, the GDP growth rate was lower than that in 1990-2010 and the exports decreased.

However, a lot of problems still exist: the budget deficit may exceed 5 percent of GDP threshold, the GDP growth rate was lower than that in 1990-2010 and the exports decreased.

Cung pointed out that the government cannot figure out the debt payment plan with a stable source of revenue, but just ‘robs Peter to pay Paul’.

In 2016, the state has to pay a debt of VND110 trillion dong, including VND55 trillion in the first quarter of the year, and it plans to issue VND76 trillion worth of bonds.

“It is clear that with the money raised from government bond issuance, we will not have much money for investment after paying debts,” commented Nguyen Anh Duong, deputy head of CIEM’s Macroeconomic Division.

“The government borrows money mostly to pay debts,” he said. “The low-cost capital should have been lent to the private economic sector to help them expand production and business. However, the capital has been borrowed by the government for long term.”

Pham Chi Lan, a renowned economist, also commented the bond government issuance blocks  credit flow to the private sector.

“It is understandable why many private businesses have shrunk and they will die one day: they have been hampered by three big powers,” Lan said.

Lan went on to say that newly set up businesses still cannot pay tax to the state budget and generate growth.

Therefore, the state budget revenue still relies on operating businesses. It is estimated that businesses have to reserve 40.8 percent of their profit to pay to the state.

The experts emphasized that state agencies complain that the state budget is small but in fact, the Ministry of Finance always fulfills its task of collecting tax for the state.


Tien Phong


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