Budget deficit discrepancies
Source: 10-MAY-2008 Intellasia | Tuoi Tre
May 10, 2008 - 7:00:00 AM In line with the calculation method of International Monetary Fund (IMF), Vietnamese government's budget overspending was 6.6% of the country's output (GDP) against the previously announced 5%. At the conference on the budget deficit held on May 5 by National Assembly's Finance Committee, economists said that the budget overspending is a main factor pushing inflation at new highs.

The reasons causing high inflation included undisciplined fiscal policies during past years, showing the budget overspending continued rising with the growth rate of 17.18% a year, spoke Dr Le Quoc Ly, chief of Monetary Finance Department.

Ministry of Investment and Planning also confirmed that increasing inflation is caused partially by the overspending. In 2001, the total spending accounted for 26.5% GDP that is at 40% at the moment.

Nguyen Cong Nghiep, vice finance minister stated at the conference that Vietnam's budget overspending is at the allowable level 5%. One third of the deficit is compensated by foreign and domestic loans. The State Budget is managing to pay mature debts and control bad debts. By the end of the year, the government's debts could equal to 36.5% GDP.

However, according to EU's specialist Jitendra Modi, Vietnam's budget overspending calculation method abolished a part of spending from re-lending ODA, G-bonds, G-bonds and Vietnam Development Bank's investment activities. In line with IMF's method, the budget overspending figure should be 6.6% GDP.

Alarming on budget deficit could lead to a reduction in private investment or a rise in deficit of non-resident payment balance and relieve the public faith in the government's macroeconomic administration ability, warned Vu Thanh Tu Anh, economist of Fullbright education programme. This also has raised the forecast that the government could have to print more banknotes to compensate budget deficit, he added.

In his opinion, the government's policy to tighten up public spending to reduce the budget deficit is totally right, however we still have to wait for the assignment's efficiency. The moves of cutting and delaying public investments are not easy because approved projects are enclosed with vital interests of relevant institutions. Factually, the state cannot control SOEs' investment items because some large groups have their own banks.

Therefore, the government needs to improve the budget receives, reduce spending and avoid a heavy dependence of the state budget on instable receives such as petroleum or import tariff like present, Vu Thanh Tu Anh proposed. The government should increase PIT and tax on real estate.

All large investment projects must have a careful spending estimation and must be publicised. Why is all these information kept as national secret? Jonathan Pincus, chief economist of United Nations Development Programme remarked. He also advised, Vietnam should not keep the gold principle that the government does not borrow loans for consumption.