Budget Deficit in Vietnam from 2008 - 2012

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I. Definition and Current Situation in Vietnam3
I.1.What is budget deficit3
a.      Definition3
b.      How to measure3
I.2.Overview the budget deficit in Viet Nam for the latest 5 years4 II. Factors influencing budget deficit in Vietnam4
II.1 State Budget Revenue4
a.High tax rate4
b.Revenues from unsustainable non tax resources5
II.2 State Budget Spending6
a.High public spending continuously6
b.Widely spread public investment6
c.Low investment efficiency from the SOE sector7
III. Impact of Budget Deficit to Macroeconomic Variables in Theory and Practice8 III.1 Inflation8
III.2 Interest rate8
III.3 Trade balance & exchange rate9
III.4 Economic Growth10
IV. Recommendations for budget deficit in Vietnam10
IV.1. Accurate number of budget deficit10
IV.2 Healthy and active budget deficit to ensure the sustainability of the budget11 IV.3 Central Bank and the Ministry of Finance should be coordinated in determining priority11 IV.4 Establish a mechanism for the provision of information, transparency and policy expectations and accountability of agency policy11 IV.5 Reformed tax system12

IV.6 Better management in SOE activities12

Macroeconomic Report 2012 titled “From macroeconomic instability to restructuring” released by the National Assembly’s Economic Committee in September 2012 announced that Vietnam’s state budget deficit and public debts have increased rapidly for more than a decade. Particularly, the average state budget deficit (excluding repayments for Vietnam’s original debts) in the 2003 – 2007 period was only 1.3 percent of GDP, but this figure had more than doubled to 2.7 percent of GDP in the 2008 – 2012. The reason of budget deficit is mostly due to desire of economic growth from the government who accept to increase their spending. However, there are a lot of inside elements influencing the high budget deficit in Vietnam. Consequently, the Vietnam debt is rapidly forging which is undeniably the burden for economy and the future also. Our research is working with data collected mostly from the duration 2008 – 2010. We are trying to summarize and analyze: The current situation of budget deficit in Vietnam, Which factors are influencing this; How does deficit impact on macroeconomic variables like inflation, trade balance, interest rate, economic growth and finally some recommendations for deficit in theory as well as in practice of Vietnam. I. Definition and Current Situation in Vietnam

I.1.What is budget deficit

a.      Definition

The budget deficit is when the difference between revenues and expenditures of the government in a year is negative. It is important to notice that the debt and the deficit are different things. Indeed, the debt is sum of the previous deficits and surplus. As a result, the government must borrow each year the amount of the deficit. Deficits lead to increased debt loads, which in turn lead to even higher deficits.

b.      How to measure

There are two components of the deficit: structural and cyclical.

- The structural deficit
In this component, things are so out of balance that a country will have a deficit whatever how well the economy is doing. If things don’t change, expenses will always outpace revenues.It is quite hard to manage this deficit because the only approaches to remove this shortfall are explicit and direct government policies such as reducing spending, increasing the tax base, increasing tax rates, or even creating more money.This is a more accurate indicator of fiscal positions in the medium term.

- The cyclical deficit
It is the part of deficit due to the recession. The revenue of the government declines (for instance,income tax)while the expenditures increase (for instance,unemployment insurance). But as soon as economic growth returns to normal, the cyclical components go...
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