NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAM 

     ~~~~~~*~~~~~~

PUBLIC FINANCE
ANALYZE THE REALITY OF STATE BUDGET
DEFICIT IN VIETNAM TODAY

Studen : Nguyễn Ngọc Đức

t Hoàng Ngọc Lan
Đinh Phúc Lâm
Nguyễn Diệu Linh
Phạm Diệu Linh
Trương Thị Khánh Ly
Nguyễn Thị Phương Mai
Phạm Nguyễn Diệu Minh
Group 4
Grade : 62
Class : Corporate Finance AEP 62B

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 HÀ NỘI – 2022

Contents
I. GENERAL:........................................................................................................................................2
II. CURRENT SITUATION OF STATE BUDGET DEFICIT:.......................................................3
1. State budget deficit:.......................................................................................................................3
1. Current situation:......................................................................................................................3
2. Main causes of state budget deficit:..........................................................................................5
2. Advantages and limitations in the management of the State budget deficit:............................5
1. Advantages and Results:...........................................................................................................6
2. Constraints and challenges:......................................................................................................6
III. REASONS FOR THE STATE BUDGET DEFICIT:...................................................................7
IV. DEALING WITH THE CURRENT STATE BUDGET DEFICIT PROBLEM IN
VIETNAM:................................................................................................................................................8
1. What has the state been doing to improve this problem?...........................................................8
2. How to overcome and solutions to improve the efficiency of state budget revenue and
expenditure 9

I. GENERAL:

a) What is the state budget deficit?

 It is a situation when the total revenue is not enough to cover a Government’, a locality, or a unit
in a certain period (usually a year). When it comes to the state budget overspending, it means the
shortfall between total revenue and total state budget expenditures in a year.
b) Basic features:
State budget overspending is only calculated in one period of the state budget: That period can be
a budget year or an economic cycle and the actual budget deficit is determined only at the end of
the budget period. 
State budget deficit reflects the interaction relationship between state budget revenue and
expenditure in a state budget period.
c) Classification:
According to Clause 1, Article 4 of the 2015 State Budget Law, the state budget deficit includes
the central budget deficit and the provincial budget deficit.

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In there:
 The central budget deficit is determined by the difference between the total central
budget expenditure (excluding principal debt payments) and the total central budget
revenue.
 The provincial budget deficit is the sum of the provincial budget overspending of each
locality, determined by the larger difference between total provincial budget expenditure
excluding principal debt payment and total budget revenue. provincial level of each
locality.
d) Cases of state budget deficit:
Modern public finance classifies the state budget deficit into two categories: structural
overspending and cyclical overspending.
 Structural overspending:
 They are deficits that are determined by customized government policies such as tax
rates, social insurance subsidies, or the size of spending on education and defense, etc.
 Ex: Total state budget expenditure in 2013 was estimated at 986.2 trillion dong,
equaling 100.8% of the yearly estimate, of which development investment expenditure
was 201.6 trillion dong, equaling 115.1% (only for construction investment
expenditure. basically 196.3 trillion dong, equaling 115.4%); expenditure on socio-
economic development, national defense, security, state management, the Party and
mass organizations (including expenditure on salary reform) was estimated at 679.6
trillion VND, equaling 100,8%; debt payment and aid 105 trillion dong, equal to
100%. (According to Banking Times).
 The subjective cause is unreasonable management and administration of the state
budget.
 Cyclic Overspending: 
 They are deficits caused by the state of the business cycle, i.e. high or low levels of
output and national income.
 Ex: State budget overspending rate in 2019 was at 5.3% of GDP, exceeding the
estimated 4.8%. The main reason is that enterprises face many difficulties in capital,
and slow consumption of inventory products, leading to losses.
 Usually due to objective reasons: Due to the economic recession and crisis, the
demand for spending increases.
(In addition, based on the time factor, there is a division of budget overspending into short-term
overspending and long-term overspending).

II. CURRENT SITUATION OF STATE BUDGET DEFICIT: 

1. State budget deficit: 

1. Current situation:

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In the 20 years our country has carried out the innovation process so far, 1993 is the year that
Vietnam's budget has the highest level of overspending, up to 6.5% of GDP. The main reason is
that the State focuses on building the North-South 500 KV power transmission line. In the
following years, overspending was kept at a low level of less than 5% of GDP. On average,
during this period, the State budget deficit reached about 4% of GDP, and at the same time, the
revenue from taxes, fees, and charges for development investment was increasing, specifically,
in 1991 it was 0.2% to 0.2%. in 2000 it was 1.8% and in recent years it is approximately 3& of
GDP. Since 1993, our State has advocated ending the issuance of money to offset the state
budget deficit.
In recent years, the state budget situation has improved and some encouraging achievements
have been achieved. Budget revenue has grown rapidly, revenue structure has changed
positively, and the financial system has become more and more autonomous. State budget
revenue has increased from 13.1% of GDP in 1991 and is increasing in the following years, up to
now, domestic revenue is increasingly accounting for a high proportion of total budget revenue,
specifically accounting for about 97% of total budget revenue, which not only meets the demand
for recurrent expenditure but also sets aside an increasing amount for development investment
and debt repayment. The tax has really become the main source of revenue in the country,
accounting for about 90% of the total state budget revenue. The state budget expenditure has
been gradually restructured in the direction of eliminating subsidies, implementing the
mechanism of autonomy and self-responsibility, and increasing spending on social investment in
infrastructure, human resource development, hunger eradication, and poverty reduction. Paying
attention to debt payment according to commitments, and improving capacity to ensure budget
spending is more and more economical and effective. Administration of the State budget has
gradually become more proactive and flexible, the budget's reserve has contributed positively to
stabilizing production, business, and life processes when the economy has abnormal fluctuations,
such as financial and monetary crises, natural disasters, and floods... Therefore, the budget
deficit in recent years has improved significantly, making an important contribution to the
stability and development of the economy.
However, besides these achievements, we have also encountered many mistakes and limitations
that need to be learned and overcome. Although the financial potential has increased
significantly, it is still small and still cannot keep up with the need to increase spending to solve
the pressing needs of the economy. The foundation of budget revenue is really solid, and the
revenue structure has been innovated but not really comprehensive. While the demand for
infrastructure construction, education development, science and technology, poverty alleviation,
and implementation of the process of industrialization and modernization of the country is
putting great pressure on the State budget.
In addition, the allocation and use of the State budget are still inadequate, the efficiency has been
improved but not high, and there is still a state of loss in the use of budget resources. Spending
on capital construction investment is still scattered, planning, investment preparation, and project
formulation have not been focused on, so the quality of work is not high. The standard regime
and norms of budget expenditure are both inadequate and outdated compared to reality, causing
difficulties in funding, inspection, and control of budget expenditure. In the recurrent

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expenditure of the State budget, the salary expenditure still accounts for a large proportion
(accounting for 50% of the total recurrent expenditure), which is because the downsizing of the
staff in the administrative and non-business sectors is still low.
The practice of anti-waste and thrift has not been paid enough attention by all levels, there are
still many ostentatious activities, unnecessary meetings, and receptions still taking place in many
places. The inspection work is still formal, and not really effective. This has contributed to
making the budget not enough to spend, the state budget deficit still occurs in many localities
and many fields in socio-economic life.

2. Main causes of state budget deficit:

In recent years, the budget deficit situation in our country has complicated developments, which
are caused by many factors.
There were periods when our country's economy was affected by the financial and
monetary crisis in the region, which led to a decline in the economy in the years 1997-2000. To
stimulate the economy, our State has used the national budget to spend on development
investment.
Budget expenditure still ensures that spending on investment and development is stable at
6.4% of GDP, ensuring due debt repayment obligations. After the crisis, our country fell into a
state of prolonged deflation, down to 0.1% in 1999, and even -0.6% in 2000, the situation of
domestic investment faced many difficulties, and production was slow. fell into a crisis, many
businesses went bankrupt, the total social product was reduced, the economy declined… That's
why the Government could not stand by the side, in order to remove the deadlock, the
Government had to Our country has actively increased spending, stimulating domestic goods
demand. Doing so is very necessary to accelerate the investment speed, and stop the prolonged
deflation rate, thereby promoting economic development.
Moreover, the State also ensures the important tasks of recurrent expenditure such as
spending on education, health care, science and technology, environment... these are very
important and necessary expenditures for the economy, but they also accounted for a fairly large
proportion of the total expenditure of the State budget, especially in the difficult situation of our
country at that time, this spending also caused a significant impact on the state budget. State
budget deficit.
On the other hand, the high rate of overspending in recent years is also due to the impact
of the decrease in the rate of State budget mobilization due to reduced growth. Due to the bad
effects of the crisis, our country's economic development rate decreased from 9.5% in 1995 to
4.8% in 1999. Therefore, the State budget has been saved. use more.
Another very important reason is that our country is a developing country, and the
economy is still facing many difficulties, if we want to build and develop the country to keep
pace with other countries in the world, we must have a huge amount of capital to build facilities,
train human resources as well as expand domestic industries. Therefore, the budget expenditure
is always high, while the revenue source is limited and not really strong enough to meet the
spending needs of the country, so the state budget is always at a certain level of overspending.

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 2. Advantages and limitations in the management of the State budget deficit:
1. Advantages and Results:
Managing the budget deficit in recent years has met the needs of macro management,
contributing to stabilizing and healthy national finance. The level of the budget deficit has
always been kept at a reasonable level over the total GDP, which has made an essential
contribution to helping the State better control its revenue and expenditure. As we all know, one
of the important tasks of the State is to run the economy really effectively, maintain the level of
inflation at the allowable level, and create more jobs. for workers, speeding up economic
development, improving people's lives step by step…and to achieve these important goals, the
first important condition is to have a financial background. solid, stable budget. To do so, the
State must manage revenue and expenditure in a way that is balanced, and in the past time, the
State has had quite effective policies in managing its budget, significantly reducing the deficit
situation. By expanding more revenue sources, attracting more domestic and foreign investment
capital, and stimulating production activities to be expanded more and more. In the field of
expenditure, the State has invested more focused, checked and supervised its recurrent spending
activities, minimized the loss and waste in capital construction, made significant investment
points, avoiding the situation of spreading without a clear purpose... all of these measures have
contributed positively to helping the State manage the economy more effectively, and have
brought a number of achievements. remarkable achievement
The basic principles of balancing the State budget, including the local budget, and specific
views on the management of the State budget deficit, which are concretized in the budget law,
have made an important contribution to the actual management of the state budget, contributing
to the restructuring of the State budget. Recurrent expenditures have been adjusted appropriately,
saving maximum but still ensuring the best efficiency, thereby creating an internal accumulation
of the State budget for development investment and settlement. harmoniously determine the
relationship between accumulation and consumption. The State budget has been gradually
restructured in the direction of minimizing rampant subsidies. The State only manages the
economy at the macro level, not intervening and subsidizing businesses as before. , to give them
more autonomy in their business activities, and at the same time have priority policies to develop
a number of areas where the State needs to intervene such as education and training, universal
health, scientific development, etc. study technology, protect the environment….
It is also very important that the well-managed budget deficit in recent years has also actively
contributed to reducing inflation. Since the overspending situation is significantly reduced, the
State will not have to cover the deficit by borrowing from the public, raising taxes, issuing
money, or using other monetary measures…(All of these measures are the major causes of a
country's inflations).

2. Constraints and challenges:

Our country is still developing, the economy is still in the early stages of development,
the scale of the economy is still small, while the need to spend on building infrastructure,

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technical materials technology, carrying out industrialization and modernization… very big. On
the other hand, because our current level is limited, production and business haven’t been
efficient, the quality of our products are still poor, and the types and model designs are still not
rich, which makes our country's products often unable to compete with foreign goods, even in
our own country. That's why many businesses have not been able to stand firm in the market,
leading to bankruptcy, and production facing many difficulties. In addition, our country's
businesses are still fragmented and have not yet formed a solid association, so they have not
created great strength to be able to dominate foreign markets. Our budget revenue is not really
stable, or passive, some major sources of revenue depend on world market prices (revenue from
crude oil, import and export tax, etc.) will have a strong impact on the budget deficit situation in
our country in the coming time.
At present, the world is undergoing a very strong international economic integration
process, the globalization trend is having a significant impact on the socioeconomic life of
countries around the world. Participating in the ASEAN free trade area, especially recently our
country has joined the World Trade Organization (WTO), will lead to the fact that we will have
to cut taxes on many items. that we have committed when participating in these organizations
and forums. Which, there are items that have brought a significant source of revenue for the State
budget for many years. In this situation, it will cause the State budget revenue to be significantly
reduced, making it difficult for the State to spend in the future.
The state of revenue loss, tax evasion, lack of strict control of revenue sources, and laxity
in supervision, inspection, and supervision of budget revenue and expenditure are also causes
that adversely affect the State budget deficit.
Loan interest rates in the past time are still high, the loan period is still short, and there
are few long-term loans, while many loans are used to build capital investments with a long
payback period, causing difficulties for budget collection. On the other hand, there are many
ineffective investment projects, many project owners are unable to repay debts, embezzlement,
and corruption at many levels, and many common areas are also common problems. causes of
loss and waste in the use of state budget resources.
As for foreign loans, although they are favored with low-interest rates, long-term loan
periods, and relatively large volumes, these are loans under the program, complying with the
terms set out in the loan agreements and contracts that the partner offers, so if we do not have a
thorough preparation, carefully consider the feasibility of each project, appraise and approve the
project clearly, it can cause serious problems, causing loss to the budget.
Regarding the current state budget balancing method, the central budget still balances local
budgets with the norms and norms prescribed for each locality. This has led to the loss of
initiative and creativity in local revenue and expenditure activities. Causing they to always be
mechanical, it is difficult to find out which way is suitable for their locality in budget collection
and expenditure. On the other hand, there is still the item of principal payment in the balance of
revenue and expenditure of the State budget. country, misrepresenting the nature of financial and
budgetary operations, causing cumbersome procedures, and causing delays in budget revenue
and expenditure.

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III. REASONS FOR THE STATE BUDGET DEFICIT:

A state budget deficit is a total expenditure greater than the total revenue in the budget year,
which is an imbalance of the budget. The reason for the state budget deficit comes from many
aspects. There are many causes of state budget deficit, but we can distinguish two main groups of
causes as follows:
 Objective reasons for the state budget deficit include:
Due to the cyclical economic recession: The economic recession will cause the state budget
revenue to decrease, and the demand for spending will increase (social allowances, expenditures
to restore the economy), As a result, the state budget may be overspent. The level of State budget
overspending caused by this group of causes is called cyclical overspending because it depends
on the stage of that economy. If the economy is in a prosperous stage, the State budget revenue
will increase, while the state budget expenditure does not have to increase accordingly. That
reduces the state budget deficit. And vice versa, if the economy is in crisis, it will make the
State's income decrease, but the State's spending demand will increase due to solving new
difficulties of the economy and society. festival.
Natural disasters and instability of world security: The unstable situation of world security
and complicated developments of natural disasters will increase the demand for spending on
defense and security and social order, increasing the need to spend the state budget to overcome
the consequences of natural disasters.
 For example The war between Russia and Ukraine 
The Ministry of Finance of Ukraine announced that in April-May, 2022 an increase in the state
budget deficit from $2.7 billion in March to $5-7 billion. Ukraine’s infrastructure losses due to
the war are estimated at $270 billion, while at the end of March losses amounted to $120 billion.
 Subjective reasons for the state budget deficit include:
Due to unreasonable management and administration of the state budget: Unreasonable
management and administration of the state budget are reflected in the poor assessment and
exploitation of revenue sources; the allocation and use of the state budget are still inadequate,
causing loss and waste of state financial resources; Decentralization of state budget management
has not encouraged localities to make efforts in exploiting revenue sources and effectively
allocating expenditures. As a result, state budget revenue is not enough to cover spending needs.
Because the state actively uses overspending as a tool of fiscal policy to stimulate demand and
overcome the recession of the economy.
The method of measuring overspending is unreasonable

IV. DEALING WITH THE CURRENT STATE BUDGET DEFICIT PROBLEM IN

VIETNAM:

1. What has the state been doing to improve this problem?

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The State has issued a number of decrees and resolutions to gradually settle and overcome the
state budget deficit, including:
The State promulgates Decree No. 163/2016/ND-CP - detailing a number of articles of the state
budget law.
In this Decree, the state sets out the revenues and expenditures in the state budget in
Articles 2 and 3 as well as how to handle when the state budget deficit occurs in Article 4 of the
Decree.
In 2021, the Government issued Decree No. 60/2021/ND-CP stipulating the financial
autonomy mechanism of public non-business units and amending and supplementing a number
of articles of the Law on Government Organization and the Law on Organizations. local
government office on November 22, 2019.
In the decree, the state has outlined public non-business services that are funded with the
state budget in Article 4, more closely stipulating the classification of financial autonomy of
public administrative units.
2. How to overcome and solutions to improve the efficiency of state budget revenue
and expenditure:
Improve the capacity of management and administration of economic development, state
budget revenue, and expenditure so that the State plays a decisive role in prosperity, accelerates
the national economy, and increases the efficiency of state budget revenue and expenditure.
Completing the apparatus, streamlining the payroll, promulgating and organizing the
implementation of policies conducive to economic development as well as to genuine businesses.
The General Department of Taxation needs to closely inspect and control the tax declaration of
taxpayers, as well as implement the task of inspection and inspection plans at the tax office's
headquarters. The law requires organizations and individuals to fully fulfill their tax obligations
for incomes from business activities and e-commerce and business on digital platforms arising in
the territory of Vietnam according to regulations (especially large foreign organizations such as
Facebook, Google, and Youtube,...).
Step up measures to combat loss of budget revenue; review and identify sources of
revenue that are still lost in order to promptly propose effective management solutions, focusing
on a number of areas such as Land revenues; e-commerce business; basic construction;
petroleum business
Strengthen inspection for units whose revenues from fees are converted to service prices
that the State does not set prices; non-state enterprises and business households.
Improve the quality of state budget revenue and expenditure plans and enhance the efficiency of
state budget revenue and expenditure activities. Anti-corruption, groups are interested to
minimize the loss and waste of state capital.
Renovating state budget spending. Striving to spend the state budget on development
investment at an acceptable level, i.e. less than 30% of the total state budget expenditure.
Expenditure on education and training development is at 17-20% and expenditure on scientific
development is about 1.8-2% of the total state budget expenditure.
At the same time, in the coming years, Vietnam should still implement the "austerity
policy" to increase the budget spent on implementing socio-economic development tasks.

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Strongly develop a team of businesses, including large, global enterprises (striving to have about
10% of large enterprises by 2025). Strive to have 1 business for every 60 people. In addition, all
levels and industries remove difficulties for businesses to make more profits.
Allocating budget expenditures centrally, avoiding spread and waste, and complying with
the Law on Public Investment.
Thoroughly save public investments and recurrent expenditures from the state budget:
Resolutely transfer capital from projects that are behind schedule and disbursed to other
projects to pay for the completed volume; minimize the transfer of sources, and generate
outstanding debts for new capital construction. Strengthening measures to speed up the
implementation and disbursement of public investment projects; strictly manage investment
costs, use economically and efficiently allocated capital, improve investment efficiency of
projects Allocate an adequate budget for research and development of laws and policies.
Increasing the efficiency of state budget spending is of particular importance. Issuing Resolution
105/NQ-CP to support businesses, cooperatives, and business households in the context of the
Covid-19 epidemic
Improve the efficiency of the settlement of investment capital for completed projects using state
capital and have strict sanctions for cases of violations by investors according to current laws. At
the same time, strictly implement the investment in the construction and procurement of cars and
public assets in accordance with the regime, standards, norms, and requirements, ensuring thrift,
publicity, and transparency.
Digital transformation and the digital economy must be strongly developed. Striving for
the GDP growth rate to reach above 6.5-7%/year and go hand in hand with increasing the ability
to mobilize GDP into the state budget so that the state budget revenue rate is about 23-24% of
GDP in the near future. In the next few years, it is associated with reducing public investment
spending (only investing in projects that the private sector does not work as efficiently,
increasing the form of PPP investment, rearranging the contingent of civil servants and public
employees to streamline the administrative apparatus). ...).
Reducing compliance costs for taxpayers and creating favorable conditions for taxpayers to
fulfill their tax obligations to the State. Further improving the convenience and efficiency in
handling tax and customs administrative procedures to contribute to facilitating production and
business development.

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 Improve the quality of state budget revenue forecasting at local and central government
levels; as well as strengthen decentralization in the field of state budget revenue and expenditure
for localities. Limit subjective factors to distort the forecast of state budget revenue. Besides, it is
possible to study to add the target of total real budget revenue and expenditure after excluding
annual inflation when evaluating annual budget work results.

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