Vietnam gov't mandated to narrow fiscal deficit to 4% of GDP in 2021

Vietnam's National Assembly has approved the state budget estimate in 2021 with a fiscal deficit of VND343.67 trillion (US$14.82 billion), equivalent to 4% of GDP, down from an estimated deficit of 4.99. – 5.59% in 2020 (equivalent to VND319.5 – 328 trillion (US$13.78 – 14.15 billion).

Vietnam's National Assembly has approved the state budget estimate in 2021 with endorsement of 446 deputies present, or a 92.53% approval rate.

Specifically, Vietnam’s state budget revenue next year is estimated at VND1,343 trillion (US$58 billion) and expenditure VND1,687 trillion (US$72.78 billion). The government is set to borrow VND608.56 trillion (US$26.3 billion).

The National Assembly agreed with the proposal from the government in keeping the basic wage, pension and other social beneficiaries unchanged in 2021. Fund allocation will be prioritized for the Covid-19 fight, recovery efforts after natural disasters, social welfare, national security and foreign affairs.

Regarding the state budget estimate for 2021, some National Assembly deputies said a growth target of 5.6% in domestic revenue in 2021 would be quite modest, given the average growth rate of 10% in the past three years.

Overview of the National Assembly's session. Source: quochoi.vn.

According to Chairman of the National Assembly’s Committee for Financial and Budgetary Affairs Nguyen Duc Hai, with the estimated domestic revenue of VND882 trillion (US$38.11 billion) for 2021, representing an increase of 5.6% year-on-year, the government anticipates the business community would face difficulties next year amid lingering Covid-19 impacts.

Moreover, some major sources for domestic revenue, such as tax revenue from coal mining, automobiles, alcohol beverages, cigarettes, hydropower plants, among others, have stabilized and are unlikely to increase substantially next year.

Additionally, estimated government spending in 2021 is lower by around VND8.1 trillion (US$350 million) compared to that of in 2020, reflecting the government’s efforts in cutting regular spending to mitigate declines in budget revenue, noted Mr. Hai.

Covid-19 leads to high budget deficit

For this year, the country’s 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.

Such a high fiscal deficit is due to lower-than-expected state budget revenue and an increase in regular spending caused by severe Covid-19 impacts, noted Minister of Finance Dinh Tien Dung in a National Assembly session on October 20.

This year, Vietnam’s budget revenue is estimated at VND1,320 trillion (US$57 billion), down VND189.2 trillion (US$8.16 billion) or 12.5% compared to the year's initial estimate and 14% against the figure recorded in 2019.

Meanwhile, state expenses could reach VND1,680 trillion (US$72.47 billion) this year, down VND60.89 trillion (US$2.62 billion) or 3.5% against the estimate. Notably, regular spending is expected to rise to VND1,070 trillion (US$46.16 billion), an increase of VND12 trillion (US$517.7 million) or 1.1% of the estimate, mainly for funding measures to mitigate the pandemic, natural disasters and secure social security.