Public Debt Sustainability of Vietnam

Abstract

　　Vietnam has recorded remarkable economic growth in recent years that is driven by buoyant export performance—one of the strongest among South East Asian Countries.　In tandem with greater integration of the global economy, external vulnerabilities have elevated.　Improvement of the macroeconomic policy framework is required to consolidate a sound macroeconomic foundation for stable and resilient growth in the mid- and long-run.

　　To ensure fiscal sustainability, the government has established a statutory public debt ceiling of 65% of the Gross Domestic Product （GDP）, which includes public debt guarantees by the 2017 Law on Public Debt Management.　Public debt per GDP is on a path of reduction because of fiscal consolidation efforts in recent years.　More efforts warrant widening fiscal space to ensure stable growth during the mid-term, while addressing unexpected external shocks.

　　Results of debt sustainability analysis implied that a sound fiscal consolidation strategy is required to stabilize the public debt ratio per GDP and half the primary deficit from the current level.　Going forward, to sustain growth in the long run, Vietnam needs to promote infrastructure development and to allocate public funds to human capital development such as education and vocational training.　In addition, the pressure on fiscal expenditures is expected to increase for strengthening social protection with the progress of the rapid ageing of Vietnam.

　　To promote fiscal consolidation, a set of measures aiming to increase tax revenue is required with prioritization and streamlining of overlapping tax incentives for investment promotion as well as enhancement of tax collection capacity in the informal sector activities.　On the expenditure side, reform on the public governance, including streamlining the overlapped functions across the government and ensuring transparency of government procurements needs to be prioritised.　Additionally, strengthening corporate governance of state-owned enterprises is necessary to reduce the risk of contingent liabilities.

JEL Classifications:H68, H63, H2, H50