Dr Nguyễn Đức Thành, director of the Việt Nam Centre for Economics and Policy Research
Nguyễn Đức Thành, director of the Việt Nam Centre for Economics and Policy Research, told the Thời báo Kinh tế Việt Nam (Việt Nam Economic Times) newspaper some measures that Việt Nam could adopt to ensure the harmonisation between the State budget and enterprises development.
For the first time in five years, the growth rate in the first quarter was lower than that of the same period the previous year. Will you please tell us which sectors of the economy have expanded and which have contracted?
In the first quarter of 2016, the GDP in the agriculture, forestry and fishery sector was 1.23 per cent lower than that of the first quarter of 2015. Meanwhile the GDP in the service sector scored quite positive results. However, it was the worst time for industry. Indicators for production and consumption were much lower than those of 2015. In the first quarter of 2016, the sector’s growth rate was around 6.3 per cent against the average of 10 per cent for the entire year of 2015.
Do you think the increase in inflation in the first quarter of 2016 is a reflection of the increase in the people’s consumption power?
In February of this year, headline inflation had already surpassed 1 per cent. By the end of the first quarter, it had jumped to 1.69 per cent. The paradox here is that the hike in inflation was not due to an increase in people’s consumption power, but was due to pressure from price adjustment decisions from the government. Gross retail and consumption services in March were down slightly compared to the previous two months. Generally speaking, in the first quarter of 2016, the retail sector scored an increase of 9.7 per cent – almost equal to the 10 per cent reached in the first quarter of 2015. However, I should say that the good performance of the retail sector was mainly due to the increase in price of a certain group of commodities. The retail sector in the first quarter saw an increase of 8.3 per cent while that of 2015 was 9.2 per cent.
By now I can say that our real estate market has escaped its period of stagnation, yet its development remains unstable.
Under the document, the short term credit intended for mid- and long-term loans to real estate developers will be cut from 60 per cent to 40 per cent, while the risk factor will increase to 250 per cent from the current 150 per cent. Such a change in credit policy will have a strong impact on the real estate market.
What are your comments on the reported deficit in the 2015 State budget?
According to the Government’s report presented at the National Assembly, it was estimated that in 2015 our budget deficit would be about 6.34 per cent of GDP. This figure was smaller than the projection of about 7 per cent in the fourth quarter of 2015 given by the Việt Nam Centre for Economics and Policy Research.
In the context of low revenues for the State budget while public spending is overriding its revenue, a budget deficit will be unavoidable.
In 2015, total aggregated spending stood at VNĐ1,262.87 trillion (US$56.6 billion) – an increase of 19.1 per cent compared with that of the previous year. That means the budget deficit in 2015 was about VNĐ266,000 billion ($12 billion). And at present, all short term revenues have been pushed up to compensate for the declining revenues from crude oil and import-export tariffs.
Do you think that enterprises will have to bear the burden of the State budget deficit?
In the coming years, most taxes and tariffs will be reduced considerably as many Free Trade Agreements in which Việt Nam is a signatory will come into effect. As a result, the low tax revenues from import-export duties will affect our State revenue collection. To fill in the gap, we will have to increase the revenue collection from other types of fees or charges, for example, the environmental protection tariff levied on diesel and petrol, the increase in electricity tariffs, and the imposition of a special consumption tax on imported cars and other items.
I should say that the change in the current Insurance Law has become a burden to both employees and employers as the insurance fund accounted for over 30 per cent of the salary fund.
To encourage enterprises to develop, do you have any recommendations for the Government on their current taxation policy?
We all agree that small and medium enterprises are the driving force and motivation for national economic growth. To achieve their goals, the Government needs to adopt special policies, including institutional and administrative reform to help the private sector grow.
There is no doubt that if we fail to improve our state budget collection in 2016 while cutting down regular expenses, the National Assembly’s target of 5 per cent of GDP will not be achieved.
In addition, the government should come up with an integrated and effective strategy in down-sizing administrative staff in the five year term of 2016-20. —VNS