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How high will Vietnam’s public debt reach?

Speaking at a press conference in late March, Dominic Mellor, an economist from ADB, warned that Vietnam would face risks in public debt as the budget deficit is believed to be larger than thought.

He said that if the state budget revenue is lower than planned, the government would rather accept a higher budget deficit than lower expenditures. If so, the public debt may reach 60% of GDP by 2016.

The forecast about low budget revenue was made amid the drop in corporate income tax rate, tax exemptions for some businesses and the removal of import tariffs under free trade agreements. Besides, the continued crude oil price fall in the world market will also have a negative impact on the tax collection.

Meanwhile, government expenditures are expected to increase by 20% after two consecutive years of decline.

Regular spending is also expected to increase by 10%, while spending on healthcare and education will rise by 11% and 5%, respectively.

When asked about the public debt forecast by ADB, Dr. Le Dang Doanh, a renowned economist, said this was a reliable figure.

However, Doanh said the actual figure may be even higher, because there exist some problems with the Vietnamese method of calculating public debts.

Doanh feared the actual figure has far exceeded the safety line of 65% of GDP.

“I repeatedly warned that the public debts have been increasing very rapidly,” he said.

It is expected that VND282 trillion from the state budget would be used for the payment of the public debt in 2015, which is equal to 31% of the state budget’s revenue.

Meanwhile, the regular expenditures take about 72%. This means that total expenditures would be higher than the taxes to be collected.

“It is obvious that there is no more dong left for re-investment. This is really dangerous,” Doanh said.

However, a government report shows that the public debt had reached 54.2% of GDP and was nearer to the 60% of GDP threshold by the end of 2014.

The government reported that Vietnam’s public debt is still below 65% of GDP, the safety line in accordance with international standards.

Vietnam is striving to curb the public debt at no more than 65% of GDP by 2020, of which the government’s debt must not be higher than 55% and the foreign debt must not be higher than 50%.

In the latest news, Cao Viet Sinh, head of an inter-ministerial taskforce, reported at a government meeting on March 30 that the euro and yen depreciation would help reduce the public debt by VND12 trillion.


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