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Vietnam’s widening budget deficit may spook investors
Vietnam’s widening budget deficit may lower investor confidence, according to agencies and countries that provide the country with grants and low-interest loans.
The gap may expand to about 12 percent of gross domestic product (GDP) this year, compared with the 8.3 percent previously expected, according to a World Bank report released at a bi-annual meeting of the Consultative Group on Vietnam, which includes international agencies and nations such as Japan.
Vietnam’s government is implementing a stimulus plan it values at more than US$8 billion to meet a proposed goal of 5 percent economic growth in 2009. The package has spurred concern of a revival of inflation, which surged last year to the quickest since at least 1992 and was the fastest in Asia.
“The donors were concerned over the budget deficit, credit, and especially the return of inflation,” Minister of Planning and Investment Vo Hong Phuc told the meeting in the Central Highlands city of Buon Ma Thuot.
Vietnam recorded a budget shortfall of about 4.8 percent of GDP last year, according to the International Monetary Fund (IMF).
Increased stimulus spending is likely to boost inflation, widen the deficit and put “pressure” on the dong, the United Nations Development Program said.
Recent dong weakness may force Vietnam to raise interest rates to bolster the currency, the IMF said Monday in a note, adding that the budget gap may jeopardize economic stability.
“Spending too much”
“A budget plan not including appropriate financing could end up affecting investor confidence,” the World Bank said, adding that government stimulus plans have “led to considerable anxiety.” The Asian Development Bank warned the larger deficit increased the vulnerability of the Vietnamese economy.
“This stimulus package is welcomed to support the poor but the problem is that the government is spending too much, and government revenue is limited,” Mitsuo Sakaba, Japan’s ambassador to Vietnam, said in an interview in Buon Ma Thuot.
“We should discuss with the Vietnamese government how to narrow down this gap between expenditure and revenue.”
Measures that Vietnam counts in its stimulus package include subsidies for loans and cash distributions to poor households, as well as tax reductions and deferrals, according to the Washington-based World Bank, which says the government’s $8 billion figure for the stimulus includes some duplication as well as some measures approved last year.
Stimulus plan
“If you exempt taxes, you have less revenue,” said Sakaba. “So for how long can this kind of policy continue?”
The purpose of the stimulus package is to maintain a “reasonable rate” of growth, according to a Ministry of Planning and Investment document distributed at the conference, which said that the measures helped Vietnam’s GDP expand 3.1 percent in the first quarter during a period when many global economies contracted.
“We will manage the economy in a way that will ensure stability, and we will not let inflation quicken like before,” Phuc said. “It is our government’s priority to ensure that we have a sustainable macro-economy.”
Inflation in Vietnam reached 28.3 percent in August, before easing to 5.6 percent last month.
“Pressures are resurfacing,” the World Bank said in its report Monday.
thanhnien, Bloomberg
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