VietNamNet Bridge – Deputy governor of the State Bank of Vietnam (SBV) Nguyen Thi Hong said at the Government’s media briefing in Hanoi last week that the central bank is weighing the Ministry of Finance’s proposal for a VND30 trillion (US$1.37 billion) loan to finance the State budget deficit. Dr. Pham The Anh of the National Economics University talked over the matter.

The Ministry of Finance has proposed borrowing VND30 trillion from the central bank and has explained that this credit would not be used to offset the lower-than-expected budget collections. As a public finance expert, what do you comment?

Pham The Anh

Normally, we only borrow money when we fall short of it. The point is whether it is a temporary or long-term deficit. A temporary deficit is normal. Other countries sometimes grapple with fiscal imbalances as spending outpaces revenue. For instance, as budget collections are lower expenditures at the beginning of year, a government must take out a loan in the middle of the year to fund the budget deficit. This is a temporary loan and the government must repay it within same year.

The SBV said the ministry would repay the proposed loan in the same fiscal year. This is all right but the problem is whether information about the loan is publicized or not. Central banks of other countries usually announce their balance sheets including properties, loans, debt recovery and interest. But Vietnam has not fully taken this common practice. The SBV may lend but no one knows it could recover it. Who will oversee the lending? Will the Finance Ministry pay interest like the private sector?

The State budget is in deficit while the economy is recovering. Could you explain that?

The State budget does suffer a deficit due to overspending. Regular expenditures make up 70% of the budget and this ratio is too high. Interest payments also account for nearly 10%. Therefore, there is not much left for development investments.

Growth of budget collections has slowed. In previous years, budget collections jumped due to high inflation with a growth rate reaching 20% a year, and tax revenue, especially the value added tax (VAT), also soared. This year, budget collections are estimated to increase just 6-7%, not to mention falling tax revenue due to the oil price plunge on global markets.

What should Vietnam do in the current context?

The most important thing is to downsize the bulky government apparatus with overlapping functions found at a number of agencies. Besides, the central budget should not cover costs of entertainment and sports activities or festivals. Some provinces have raced to build big-ticket monuments or museums in recent times. A locality has just proposed a VND1.4 trillion statue construction project. These projects have piled pressure on the central budget.

Instead of restructuring and cutting spending, I see the Government is trying to add fees, making life tougher for citizens and businesses as well.

The World Bank has warned Vietnam of huge public debt. What’s your view?

I already warned of the problem three years ago. Since 2012, Vietnam’s key macro-economic problems have not been inflation or monetary issues but fiscal policy and public debt. The current major problem actually is public debt.

Solving public debt is much more difficult than inflation. To deal with inflation, the Government just tightens monetary policy and raises interest rates. But it takes five to 10 years to address public debt if the Government really wants to do it. If not, public debt can never be solved.

SGT