Economic Analysis - Budget 2018 Signals A Pause To Fiscal Consolidation - FEB 2018


BMI View: Vietnam ' s National Assembly has approved the government ' s budget for 2018 which targets a fiscal deficit of 3.7% of GDP (compared with 3.5% in 2017), but this figure excludes principal debt repayment. This signals a pause in the government ' s fiscal consolidation resolve. Accordingly, we now forecast the budget deficit as a share of GDP to widen to 5.5% in 2018, from an upwardly revised forecast of 5.3% in 2017, versus our previous expectation for the budget deficit to narrow.

Vietnam has announced a budget deficit target of 3.7% of GDP for 2018, versus a budgeted 3.5% in 2017, and if achieved, would mark a significant reduction from the 6.3% shortfall recorded in 2015 and the official estimate of 5.6% in 2016. However, the smaller projected budget deficit is not a result of a planned massive cutback in spending or an expected surge in revenue, but largely due to changes in calculation which are misleading. It appears that from 2017 onwards, principal debt repayment has been excluded from the budget deficit computation. In our view, the approved 2018 budget signals a pause to the government's resolution to consolidate its fiscal position, and combined with its rising public debt load (which is approaching the National Assembly mandated ceiling of 65%) are likely to pose downside risks to growth ( see ' Fiscal Constraints Raising Risks For Businesses ' , July 27). We now expect Vietnam's budget deficit as a share of GDP to widen to 5.5% in 2018 (versus 4.6% previously), up from an upwardly revised forecast of 5.3% in 2017, versus our previous expectation for the fiscal position to improve.

Government Still Lacks Commitment To Fiscal Prudence

Current Expenditure Has Risen Rapidly
Vietnam - Budget Balance And Current Expenditure
Ministry of Finance

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