Growing Fiscal Deficit Presents a Major Risk for Vietnam

Abstract

Vietnam’s fiscal position has deteriorated rapidly in recent years. For example, its budget deficit in 2015 increased 14 per cent to reach 256 trillion dongs (US$11.47 billion), equivalent to 6.1 per cent of its GDP (CafeF, 2016). The country’s increasingly precarious fiscal position has been identified by experts as an urgent matter that can generate potential risks for its long-term macro-economic stability (see, for example, Financial Times, 2016; VnExpress, 2015b). It also poses a considerable challenge for Vietnam’s new government in achieving socio-economic targets set by the recent twelfth congress of the Communist Party of Vietnam (CPV). If the fiscal imbalance persists or worsens, it will generate serious economic, political and strategic implications for Vietnam. Solving or mitigating the problem, however, will require not only sound economic policies but also political determination to embrace challenging reforms on the part of the CPV. This essay seeks to examine this particular problem and its implications. It provides first an overview of Vietnam’s worsening fiscal position and its underlying reasons, and then an analysis of the economic, political and strategic implications that can be expected in the coming years.