Vietnam's fiscal deficit will stay high at 5.7 percent (including interest repayment) in 2019 due to delays in the divestment of State-owned enterprises (SOE) and lower import tax revenues (Photo: enternews.vn) Hanoi (VNS/VNA) - Vietnam's fiscal deficitwill stay high at 5.7 percent (including interest repayment) in 2019 due todelays in the divestment of State-owned enterprises (SOE) and lower import taxrevenues, according to Fitch Group’s Fitch Solutions forecast.
The rate is slightly lower than the Government's 5.8 percent deficit estimatein 2018.
Under a report released this week, Fitch Solutions said its forecast reflectsits expectation for fiscal revenue growth to remain under pressure due topersistent delays in SOE divestment and lower import tax revenues.
“We expect the headwinds to revenue growth to constrain the Government'scapital spending.” Fitch noted. We believe that the slowpace of SOE divestment will continue weighing on fiscal revenue growth.”
The Government set a target to divest 406 SOEs by 2020, with 135 SOEs plannedfor divestment in 2017 and 181 in 2018. However, the State only managed todivest 13 in 2017 and 52 in 2018.
According to the Ministry of Finance’s Corporate Finance Department, the Governmenthas identified 18 SOEs to be divested in 2019, and will continue the process ofdivesting 41 SOEs from the 2018 list.
Dang Quyet Tien, the department’s general director, said key challenges to thedivestment process include poor investor interest, SOEs’ scale of business andassets – which require careful valuation to avoid losses to the State budget –and land issues as some SOEs did not complete their land use plans beforesubmitting them to Government agencies.
According to Fitch, should the stock market see a downside or volatility due tofears of slowing global growth, this could also weigh on investor appetite forVietnamese SOEs looking to divest by means of an initial public offering.
Investor interest in Vietnam’s SOEs has been weak. In September last year,State-owned Vietnam National Shipping Lines managed to raise only 2.3 million USDfor its 35 percent stake sale, far underperforming the company's target of 200million USD. State-owned Viglacera Corp failed to attract any investors when itannounced a 19.97 percent stake sale in July last year.
Vietnam's drive to foster greater bilateral and multilateral trade relationswill also weigh on import tax revenue.
“In particular, we believe that the gradual removal of import tariff linesunder the Comprehensive Progressive Trans-Pacific Partnership (CPTPP) willweigh on import tax revenues over the coming quarters,” Fitch Solutions said.
According to Fitch, Vietnam’s high debt burden will likely constrain capitalspending. The Ministry of Planning and Investment estimated the country'spublic debt-to-GDP ratio was 61.4 percent at the end of 2018.
The Government has set a public debt ceiling of 65 percent of GDP for 2018-20.Although the estimated ratio in 2018 fell from 63.7 percent in 2017, it nonethelessremains near the limit.
Fitch Solutions noted that funding a high-speed rail project to link the northand the south would weigh heavily on the Government’s finances, given that theGovernment has to bear 80 per cent of the total bill.
“Risks to our forecast are for a larger fiscal deficit,” Fitch Solutionsconcluded. “The Government could decide to prioritise growth over fiscalprudence amidst slowing economic growth. This could see the Government borrowmore to fund its expenditures, with the increase in interest repayments puttingfurther downside pressure on the fiscal deficit over the long term.” – VNS/VNA
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