lOMoARcPSD|50713028
What does Vietnam do when the deficit spending occur +
Impact on the economy ? SLIDE CONTENTS NOTE SLIDE 1 SOLUTIONS:
When Vietnam faces a budget deficit, the government
o8en applies a number of Solusuch as: 2.Increasing taxes and budget
1. CutÝng down public spending: revenues
2. Increasing taxes and budget revenues 3.Domes3. Domes2
1.CutÝng down public spending:
1.CutÝng down public spending: *Measures: *Measures:
The government can reduce unnecessary spending, cut - reduce unnecessary
investment in public projects with low economic spending
efÏciency, or adjust the budget for administra- cut investment- adjust the acbudget
About spending , Vietnam strictly controls regular
spending of state agencies, limispending such as purchasing equipment, organizing
conferences, seminars, and overseas trips that are not real y urgent.
=>This is an important measure to reduce the burden of
public spending while maintaining the operaadministra*Impacts:
About public investment, Vietnam reviews and - PosiBve impacts:
reevaluates the effec+ reduce the budget deficit
projects, thereby priori+ control inflahigh socio-economic efÏciency and cutÝng or
+ maintain financial stability - postponing ineffec NegaBve impacts:
This helps save resources and ensure that public + reduce aggregate demand spending is used reasonably. + increase unemployment rate
About budget management, The Government
+ reduce producstrengthens the management, supervision and
inspeccorrup=> Using the budget more effecbudget deficit without excessively cutÝng necessary expenditures. lOMoARcPSD|50713028 *Impacts:
CutÝng down public spending can help reduce the
budget deficit, control inflastability; but at the same economic growth, especial y when cutÝng investment in
infrastructure or important development projects.
CutÝng spending can reduce aggregate demand in the
economy, leading to a decline in producemployment. 3
2. Increasing taxes and budget revenues
2. Increasing taxes and budget revenues
??QUESTION: The government wil increase budget
revenue mainly through which types of taxes ?
*Measures: Vietnam can increase taxes (such as value *Measures: -
added tax, corporate income tax, special consumpincrease taxes
tax) or expand the tax base to increase budget revenues. -
Increase value-added tax (VAT): The
government can increase VAT rates or adjust taxable
items, thereby increasing budget revenue. However,
increasing VAT can affect people's purchasing power, especial y lowincome groups. -
Increase special consumpBon tax: Special
consumpalcohol, beer, and cars is adjusted to increase revenue.
This both helps increase the budget and has the effect *Impacts:
of limi- PosiBve impacts:
Adjust corporate income tax and personal income tax: + increase short-term revenues
Vietnam can adjust tax rates or expand the scope of
-NegaBve impacts: + pressure
applicaon people and businesses + Nega*Impacts:
Increasing taxes can help increase short-term
revenues,especial y in the context of budget deficits or
the need for addiat the same and businesses. Increasing taxes can reduce people's
spending ability and reduce business investment, thereby negacrea4
3.Domes1.CutÝng down public spending: lOMoARcPSD|50713028 *Measures: *Measures: lOMoARcPSD|50713028
The government can issue bonds or borrow capital - Issuing goverment
from internabonds- Borrowing capital from budget deficit. abroad
-Issuing goverment bonds: This is the main form that
Vietnam uses to mobilize capital from the domesmarket. Government bonds are sold to banks,
businesses, investment funds and people. These bonds
have terms from 1 year to 30 years, depending on the
borrowing needs and the government's ability to repay.
( In 2021, the Vietnamese Government issued more
than VND 318,000 bil ion in government bonds to offset
the budget deficit and development investment *Impacts: spending. - PosiBve impacts:
In the period of 2020-2022, when facing the COVID-19
+ maintain public spending in the
pandemic, the government bond issuance rate short-term
increased sharply to finance economic recovery
+ control inflaprograms, maintaining the budget deficit below the
+ maintain financial stability -
safety threshold of about 4% of GDP.) NegaBve impacts: + a burden of debt repayment
-InternaBonal loans: Preferen+ financial risks
internaborrows from the World Bank, the InternaMonetary Fund (IMF), and the Asian Development Bank
(ADB) with low interest rates and long repayment
periods. These loans are mainly used for infrastructure,
health, and educa( In 2020, Vietnam successful y issued 1 bil ion USD in
internaVonal bonds with a term of 10 years, an interest
rate of 3%, to support deficits due to the COVID-19 pandemic.
By the end of 2021, Vietnam's total outstanding foreign
debt was about 45.7 bil ion USD, mainly preferenVal
loans from internaVonal organizaVons.) *Impacts:
Borrowing can help maintain public spending in the
short term, but leads to increased public debt, creaa burden of debt repayment in the future. If not
managed wel , high public debt can lead to financial
risks and a decline in na=> The Vietnamese government has adopted a flexible
approach to borrowing, using a combinadomesbudget deficit. Despite many challenges, these lOMoARcPSD|50713028
measures have helped Vietnam maintain fiscal stability
and support economic growth during difÏcult lOMoARcPSD|50713028 lOMoARcPSD|50713028
such as the COVID-19 pandemic.