Vietnam’s Ministry of Finance is still using current data after the revision of calculation, for the country’s upcoming five- to ten-year financial plans.
Overview of the conference.
Vietnam’s GDP revision would pose no change to short-term state budgetary strategy, but it is difficult to determine in the long term, according to finance expert Vu Sy Cuong from the Hanoi-based Academy of Finance.
In the short term, specifically for 2020, the estimation of national budget, including the threshold for public debt, state budget revenue and expenditure, among others, are dependent on micro-economic aspects, rather than the GDP growth rate, Cuong said at a workshop discussing the impact of GDP revision on state budget estimates on October 29.
“In other words, the limit of fiscal deficit at 3.5% of GDP, public debt of 65% and capital mobilization of 23%, remain unchanged in a foreseeable future,” Cuong added.
Late in August, Head of the General Statistics Office (GSO) Nguyen Bich Lam announced the GDP revision that resulted in an enlargement of 25.4% annually of Vietnam’s economy in the 2010 – 2017 period compared to the previous data.
Lam added revising GDP is a common practice globally, and countries such as the US, Canada, Germany, Russia, Italy, Indonesia, among others, have made similar moves since 2010.
Lam attributed new GDP data to an inclusion of 76,000 enterprises into the revision.
Finance expert Pham Dinh Cuong said GDP revision only serves the purpose of comparison with other countries, instead of having a substantial impact on the economy itself.
“For instance, an increase of 25.4% in the GDP does not equally mean a similar increase in state budget revenue,” Cuong said.
According to Cuong, the GSO may have left out 76,000 enterprises in their calculation, but it would not be the case with tax authority, “as tax revenue is not collected at enterprises’ address, but through economic activities.”
Cuong argued that at the current GDP growth rate, a capital mobilization rate of 23% is quite high compared to international practices, but with an increase of 25.4% in the GDP, the capital mobilization rate would decrease to around 17%, which may lead to a question of whether to raise the target for capital mobilization.
“The answer is no, particularly with the current GDP per capita of US$2,590 or even US$3,000 after revision. Moreover, the tax authority is pursuing an agenda of gradually reducing tax rates for greater capital accumulation in the economy,” Cuong continued.
“The government may target an increase in excise taxes for alcohol drinks and cigarettes, but the primary objective is to discourage people from consuming these products, and higher tax revenue comes as a secondary objective.”
Moreover, the target for state budget revenue is determined on a number of factors, including economic growth rate, not the size of the GDP, inflation rate, Vietnam’s progress in global economic integration, and crude oil prices, among others.
Cuong refutes the opinion saying that Vietnam could borrow more thanks to higher GDP growth rate, arguing that the ceiling for public debt depends not only on GDP, but also on the country’s economic performance, the safety nature of the loans, and efficiency in using these loans.
Nevertheless, economist Vo Tri Thanh said GDP revision may impact the economy in the long term by leading to changes in a number of economic targets.
“The government must revise its national financial strategy and other economic plans on the basis of new GDP growth rate,” said Thanh.
At the conference, a representative of the Ministry of Finance said the ministry is using the current data, not the revised one for the five to ten-year national financial plans.
In a press conference on August 16, GSO Head Nguyen Bich Lam said this was not the first time the GSO revised the GDP. His agency in 2013 revised the GDP in the 2008 – 2012 period.
Six years ago, the revision only focused on certain sectors such as banking, finance, insurance and real estate, Lam stated, noting this time the GSO would include all economic groups in the economy, except the illegal and shadow economies, due to the lack of data.