Vietnam’s public debts this year may temporarily slow down: VEPR says

In the following years, Vietnam’s public debts are expected to increase gradually at about 64 percent of GDP in 2015 and 80 percent of GDP by 2020.

According to the annual report 2011 on Vietnam’s economy with theme “Economy at the crossroad” launched by Vietnam Centre for Economics and Policy Research (VEPR) under Hanoi National University on May 17, averagely over past decade the total budget collection from taxes and fees accounted for about 21.5 percent of the country’s GDP (gross domestic product), much higher than that of other regional countries.

The report also showed that taxes coupled with annual inflation at over 10 percent, and protectionist policies of superimposed taxes and duties are making each Vietnamese citizen bear a tax rate on income of about 1.4-3 times higher than that of many Asian nations.

In comparison with domestic public debts, Vietnam’s foreign public debts have quite low interest rate risk because nearly 85 percent of the Vietnamese government’s foreign public debts are enjoying the preferential loan rate of 3 percent per annum. However, Vietnam will be hard to attract low-interest loans in the future because Vietnam has become a low middle income country.

An important risk aspect of public debts related to forex rate fluctuations. However, there is the fact that according to the real value, the value of these debts has been decreasing as Vietnam’s inflation in 2002-2010 period has been up to 110 percent. This implies that the government’s debt burden is being shared to the people through the inflation tax system.

With reasonable assumptions on inflation, economic growth, the devaluation of the local currency, the standard scenario in the forecasting model of public debt for showed Vietnam’s public debts will temporarily slow down in 2011 due to the surging inflation.

However, in the following years, the public debt will increase gradually and reach 64 percent of GDP in 2015 and 80 percent of GDP in 2020. This scenario requires the government to bring down the overall budget deficit from 7.7 percent in 2009 to 4.3 percent in 2011, 3.1 percent in 2015 and 2.8 percent in 2020.

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