National budget hangs in the balance as oil prices plummet

Update: December, 10/2014 - 10:23

It is time for Viet Nam to restructure its national budget collection, economic expert Vu Dinh Anh told Thoi bao Kinh te Viet Nam (Viet Nam Economic Times).

How are falling global oil prices affecting the Vietnamese economy?

The drop of crude oil prices in the international market will positively affect our economic recovery. I believe that our national budget revenue from business production and exports will increase. Such an increase will compensate for any losses incurred from oil extraction, crude oil exports and oil imports. It might lead to the surge of the national budget thanks to declining inflation and price increases of commodities and services.

Contributions from crude oil account for more than 10 per cent of budget revenue. Should we be worried about the falling oil price?

Last week, the oil price dropped 33 per cent and then 38 per cent. If the price keeps falling, it will raise an alarm regarding our national budget structure. As we all know, our national budget depends significantly on the extraction of mineral resources and import-export activities. These industries depend very much on the international market and drain our nation's natural resources, labour resources and financial resources.

Revenue from business production, not natural resource extraction, should be the mainstay in the national budget.

Revenue collection for this year has been completed. So don't you think the falling oil price will only be a concern next year?

According to reports from the Ministry of Finance, our 2014 budget collection was fulfilled in November and revenue from crude oil surpassed 13.2 per cent of the target. Therefore, the current drop in the oil price will not have adverse impacts on the 2014 budget collection. But it will affect the 2015 budget collection. At a recent National Assembly meeting in November, the deputies unanimously adopted a projection of the crude oil price at $100 per barrel.

If the crude oil falls to, say, $40 per barrel in 2015, Viet Nam will lose about VND120 trillion ($5.7 billion) from crude oil exports. Therefore, our national budget will lose VND 60 trillion ($2.85 billion) from crude oil contributions, excluding the shortage from low prices of imports and consumption of oil and petroleum.

Revenue from crude oil includes taxes levied from natural resources and enterprises' income tax. In 2014, this revenue accounted for 11 per cent of estimated national budget collection or about VND85.2 trillion ($4 billion).Compared with the 2013 budget contribution, the figure was reduced by almost 15 per cent. So no doubt, if the price of the crude oil keeps falling, it will adversely impact the 2015 national budget.

In your opinion, what consequences will it have?

A steep drop of crude oil, oil and diesel will of course have serious impacts on our expenditure plan for 2015 – for both recurrent expenditure and debt services. This is a heavy task on the shoulders of the government and particularly the Ministry of Finance.

What measures should we adopt to cope with the situation?

While we do not have a strategy to restructure our 2015 national budget collection, it is imperative that all functional agencies work out their own response measures. The Ministry of Finance needs to develop various scenarios based on several ways the oil price might fall in 2015. At the same time, the ministry should work closely with other agencies to come up with comprehensive plans for dealing with the adverse impacts of low crude oil price on business production in Viet Nam, as well as on exports and consumption. These projections should be as precise as possible, as they are the foundations for the Ministry of Finance to develop their plans. In the meantime, Viet Nam should think carefully about the possibility of not increasing the volume of crude oil extraction or exports or petrol/diesel imports. — VNS