Vietnam's state treasury has failed to raise much money through bond issues this year, sparking concerns about how Hanoi will fund a budget gap which could widen to a tenth of gross domestic product (GDP). In an attempt to dig the country out of an economic hole that caused first quarter GDP growth to stumble to its slowest pace in a decade, the state has unveiled a string of economic stimulus measures that the government says will cost around $8 billion.
But the economic slowdown has staunched the flow of its main revenue sources - proceeds from crude oil exports and taxes - raising questions about how the shortfall will be met. "It's a really big question, if not the biggest one for the economy," said Vu Thanh Tu Anh, director of research at the Fulbright School in Ho Chi Minh City.
Parliament, which opened on Wednesday, will take up the budget deficit when it meets over the next month, and state media have already reported some debate among members over how much of a deficit is acceptible. The government projects the 2009 budget shortfall at 8 percent of GDP, although the Asian Development Bank estimates it will be closer to 10 percent.
The fiscal deficit was at 4.7 percent in 2008 and 5.5 percent in 2007. Other Southeast Asian countries also face ballooning budget shortfalls due to increased spending and falling revenue, but they still compare significantly lower than Vietnam. The Philippines and Indonesia, which have tapped the global bond market this year to secure funding for their budgets, have both forecast a shortfalls of 2.5 percent of GDP.
"In our view, some adjustments to the fiscal strategy for 2009 are needed to contain the size of the deficit and safeguard macroeconomic stability," said Benedict Bingham, the International Monetary Fund's senior resident representative.
YIELD MISMATCH So far this year Hanoi has sold about $236 million in dollar- and dong-denominated bonds, a fraction of what the Communist Party's newspaper Nhan Dan said in March was the government's fundraising target of 55.2 trillion dong ($3.11 billion). On Wednesday, the government asked parliament to approve the sale additional bonds worth 20 trillion dong ($1.13 billion).
In latest bond auction last week, the Treasury failed to sell 2 trillion dong worth of three- and five-year bonds with bidders seeking yields that were 70 and 80 basis points higher than the state was prepared to go. The series of unsuccessful auctions come as state revenues fell 20 percent to 86.27 trillion dong in the first quarter from a year earlier.
"The tricky part is how long can they sustain this shortfall. Clearly, they are in need of money," said Khalil Belhimeur, fixed income strategist with Standard Chartered Bank. "Eventually they will have to raise their stop out rates and that's what will happen in the near to medium term."
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