Budget situation gets severe and public debts grow fast after five years of restructuring

15-Oct-2016 Intellasia | Vietnam News Agency | 6:00 AM Print This Post

The economic reform opened a historical turning point for Vietnam. However, this road has moved into a different phase and requires strong transformation of the entire economic system, in order to adapt to the deeper and wider integration. In that context, the government issued a policy to restructure the economy and reform the growth model, and won an absolute consensus from the society.

However, throughout the five years of implementation, the results from three key routes of the restructuring including the settlement of banks’ bad debts, the restructuring of state-owned enterprises (SOEs) in which the central point is equitisation, and the change of public investment mechanism, remain very modest.

At the 2016 Vietnam Economic Forum with theme “Challenges and prospects of restructuring” held on October 12th 2016, Dr Tran Dinh Thien, director of the Vietnam Institute of Economics emphasized that the five years struggling with the restructuring is the most difficult time in the 30 years of the economic reform. The restructuring process is very slow in progress with limited achievements, far from the goals and expectations. Dr Thien frankly pointed out that the public investment mechanism in fact has not been changed. Meanwhile, the budgetary difficulties have become increasingly severe and bad debts have risen. In addition, although the banking system is said to have stood firm after turbulent times, the bad debt issue remains the same and even shows signs of increasing.

According to Dr Thien, the banking system has been purified and eliminating weak and damaged parts. Nevertheless, the system is still internally weak and operating on a very unstable platform. Moreover, the system of enterprises is generally lacking power particularly the domestic firms (including state-owned and private units), in terms of ranking, real strength and competitiveness, said Dr Thien.

Regarding the equitisation activities of SOEs, according Dr Thien, although the number of equitised firms is not limited, the restructuring through equitisation, such as reallocation of national resources and transfer a part of the capital to private sector for management and reuse, is negligible, because only about 10-15 percent of the total capital of SOEs has been equitised. Dr Thien assessed that this is a very modest ratio to transform the corporate governance system – the core element that fundamentally improves the operational efficiency of enterprises. The equitisation of SOEs has not achieved substance and lacked motivation, confidence, optimism and excitement.

One of the barriers pointed out by Prof Nguyen Quang Thai from the Vietnam Institute of Development Studies is the cumbersome apparatus. Prof Thai said that the authorities tend to choose the provisions with local benefits for implementation, and the coordination as well as results thus are very poor.

Specifically, according to Prof Thai, the calculation of the Gross Domestic Product (GDP) growth of localities increased by 1.8 times compared to the national growth rate, and although adjustment was made, the inaccuracy was still 1.3 times, although these numbers are later used for setting the objectives. Prof Thai said that localities all expect to be assigned low budget revenue targets while always want to receive larger funding from the central budget. Thus, the public debt rise is unavoidable.

Moreover, when the international integration gets deeper and the global technological revolution has moved to a new phase (the fourth technological revolution) along with the global climate challenges, the responses of Vietnam remain separated. In addition, the current state of corruption (internal invasion) and the acts of sabotage by external forces against the national development have made the objective difficulties become heavier, said Prof Thai.

Agreeing to this point of view, Dr Nguyen Dinh Thien shared that after 30 years of reform – a sufficient amount of time for South Korea to become an industrialised country, Vietnam is still in a low level of development which primarily bases on exploitation of natural resources, processing and assembling. More than 80 percent of Vietnam’s enterprises are using low-level and less than low level technology. Dr Thien concerned that the biggest risk which is being lagged behind has clearly become a reality.

By the end of 2015, 843 enterprises with 100 percent state capital recorded total assets of 3,100 trillion dong (148 billion US dollars), in which the equity was 1,200 trillion dong (58 billion US dollars) total revenue was 1,700 trillion dong (81 billion US dollars), and pre-tax profit was 187 trillion dong (8.9 billion US dollars).

According to Dr Nguyen Dinh Cung, Head of the Central Institute for Economic Management (CIEM), although the scale of SOEs is large, the investment activities are inefficient. Many SOEs have continuously been suffering losses, leading to resource draining and damage to the national prosperity. The examples, given by Dr Cung, can be named as the Dinh Vu polyester fibre project of the Vietnam National Oil and Gas Corporation (investment value of seven trillion dong, operation suspended) and Thai Nguyen Iron and Steel expansion project (investment value of about eight trillion dong, recorded loss of two trillion dong in the four years).

In addition, Ninh Binh Fertiliser plant has suspended operation for more than one month and 400 workers have to leave temporarily. This plant suffered a loss of 75 billion dong in the first year of production (2012) and a total of 1.629 trillion dong loss in the next three years from 2013 to 2015. Phu Tho Ethanol Biofuel plant with investment value of 2.4 trillion dong, was left unused for years, although the weather has been devastating its trillion dong-equipment.

Dr Cung said that the priority order for policies needs to be changed and the loss of State capital must be ended, as well as the reduction in efficiency of the use of State capital and assets. He added that if such situation is not handled, it will lead to investment addiction. When it breaks the major balances and cause macroeconomic instability, the confidence in policies will decline and lead to the increase of crisis and people, at that time, will turn to speculative activities instead of pouring capital into investment channels. The cost for raising capital, thus, will become higher.

Dr Cung suggested that the government should continue to carry out strong reform, improve the business environment, make comprehensive breakthrough in institution instead of focusing on the reform of administrative procedures as at the present time. Regarding the reform of judicial system and court, criminal and commercial courts should be clearly distinguished and separated.


Category: Economy, Vietnam

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