Budget Deficit in Vietnam from 2008 - 2012

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I. Definition and Current Situation in Vietnam 3
I.1.What is budget deficit 3
a. Definition 3
b. How to measure 3
I.2.Overview the budget deficit in Viet Nam for the latest 5 years 4
II. Factors influencing budget deficit in Vietnam 4
II.1 State Budget Revenue 4
a. High tax rate 4
b. Revenues from unsustainable non tax resources 5
II.2 State Budget Spending 6
a. High public spending continuously 6
b. Widely spread public investment 6
c. Low investment efficiency from the SOE sector 7
III. Impact of Budget Deficit to Macroeconomic Variables in Theory and Practice 8
III.1 Inflation 8
III.2 Interest rate 8
III.3 Trade balance & exchange rate 9
III.4 Economic Growth 10
IV. Recommendations for
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Deficits are financed by borrowings that itself increase the debt. If the ratio debt-to-GDP gets too high, investors will worry that the government will either default on this debt or will devaluate by monetising its debt and in this way engineer a high inflation rate. According to the Maastricht Treaty, the EU countries should not have a budget deficit higher than 3% of the GDP and a debt higher than 60% of the GDP.

I.2.Overview the budget deficit in Viet Nam for the latest 5 years
Macroeconomic Report 2012 titled “from macroeconomic instability to restructuring” released by the National Assembly’s Economic Committee announced that Vietnam’s state budget deficit and public debts have increased rapidly.
The report (Figure 1 Annex) pointed out that the country has suffered constantly increasing the state budget deficit for more than a decade. Particularly, the average state budget deficit (excluding repayments for Vietnam’s original debts) in the 2003 – 2007 period was only 1.3 percent of GDP, but this figure had more than doubled to 2.7 percent of GDP in the 2008 – 2012 period.
Especially in recent years, ongoing budget deficits have led to the rapid growth of public debt. Vietnam’s total public debts have increased from about 40 percent of GDP in late 2007 to 57 percent of GDP at the end of 2010 and only declined slightly in 2011. At the same time, Vietnam’s foreign debts have surged
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