The Vietnamese National Assembly (NA)’s year-end meeting, scheduled to last for more than three weeks from October 20 to November 17, will focus on reviewing socio-economic development in 2020 and decide important matters related to socio-economic issues and the state budget for the next year.
2020 economic review: Stays resilient despite Covid-19
Due to the Covid-19 pandemic, Vietnam’s GDP is estimated to grow at 2.0-3.0% in 2020 versus a target of 6.8% for the year.
This would result in the GDP growth rate averaging 5.9% over the 2016-2020 period, which falls short of the 5-year period target of 6.5-7.0%. Per capita GDP is estimated at US$2,750 in 2020, which also misses the target of US$3,200-3,500 by 2020.
On the other hand, labor productivity has significantly improved, growing by an average of 5.8%/year during 2016-2020 vs. 4.3%/year in the 2011-2015 period. Another important highlight is that the economy remained resilient amid strong external headwinds with low inflation, a relatively stable exchange rate and improving foreign exchange reserves.
2020 budget deficit is estimated at 5.0-5.6% of GDP
State revenue is expected to reach VND1,323.1 trillion (US$56.94 billion) in 2020, fulfilling 87.5% of this year’s target and decreasing 14% year-on-year. Meanwhile, state expenditures are estimated at VND1,686.2 trillion (US$72.56 billion), fulfilling 96.5% of this year’s target.
At the NA meeting on October 20, Minister of Finance Dinh Tien Dung said that the 2020 budget deficit is estimated at VND319.5 – 328 trillion (US$13.78 – 14.15 billion), equivalent to 4.99 – 5.59% of GDP, significantly higher than the 3.44%-of-GDP target set in early 2020. As a result, public debt could rise to 56.8% of GDP at end-2020 from 55.0% of GDP at end-2019. Notably, the ratio of government debt to state budget revenue would be 24.1%, which is approaching the 25% threshold set by the NA and pose major risks to the national financial security.
The government sets a cautious growth target for 2021
The Vietnamese government targets 6 – 6.5% GDP growth in 2021 given uncertainties stemming from the pandemic, which is lower than the rate forecast by international institutions (an average of 7.2%). Despite this cautious view, the government still aims for the prospect of the 2021-2025 period with a GDP growth rate of 6.5-7.0%, and per capita income of US$4,700-5,000 by 2025. It is also important to note that the government continues to prioritize the dual target of containing the pandemic and boosting economic growth, especially in the early years of the 2021-2025 period.
Fiscal spending is expected to be limited in 2021 due to debt payment pressure
For the next year, the target for the State budget is likely unchanged compared to the estimate for the 2020 fiscal year.
Specifically, budget revenue is estimated at VND1,343.3 trillion (US$58 billion) and expenditures at VND1,687.0 trillion (US$72.78 billion), resulting in a budget deficit of VND343.7 trillion (US$14.82 billion).
Meanwhile, public investment is expected to slightly increase by 1.4% in 2021 against the previous year, equivalent to VND477.3 trillion (US$20.53 billion). GDP is expected to grow faster in 2021 and the budget deficit is estimated at 4.0% (based on adjusted GDP, which is 25.4% higher than current method of GDP’s calculation).
Given an economic rebound after the pandemic shock, Viet Dragon Securities Company (VDSC) predicts the tax revenue would exceed the government’s target. However, on the expenditure side, VDSC expects that the space for expansionary fiscal policy is limited due to the debt burden.
The government estimates that the direct debt repayment obligation will be VND368.27 trillion (US$15.84 billion), of which domestic debt payment obligation is VND323.09 trillion (US$13.9 billion) and foreign debt obligation is VND45.18 trillion (US$1.94 billion). This is equal to 27.4% of the planned budget revenue, exceeding the 25% threshold.
In general, VDSC said the government is taking a cautious view in setting its development goals for 2021, which is understandable due to lingering risks from the Covid-19 pandemic.
