Politburo’s Resolution on guidelines and measures to manage public debts

The Political Bureau on November 18, 2016 issued Resolution No. 07-NQ/TW on guidelines and measures to restructure state budget and manage public debts to ensure the safety and stability of the national finance.

The following is the translation of the Resolution for reference:

I – CURRENT SITUATION AND REASONS

1- Over the past few years, the Party and the Government have attached importance to directing the implementation of a number of measures to enhance efficiency of the state financial-budgetary and public debt management, thus making significant contributions to ensuring the socio-economic development, national safety and security, realizing social justice and progress, addressing urgent issues related to natural disasters, diseases, environmental protection, climate change adaptation, and acceleration of international economic integration. Legal system, mechanisms and policies on the state financial-budgetary and public debt management have gradually improved towards openness and transparency to comply with international practices and standards, to meet the requirements of macro direction and management of the country during each specific period of time.

2. In addition to these achievements, there remain a number of limits and weaknesses in the state financial-budgetary and public debt management such as: The ratio of state budget revenue over gross domestic product (GDP) fell rapidly over the past few years. Structure of state budget revenue still has some irrationalities and remains unsustainable. Land resources, natural resources and public assets have not been mobilized, managed and used effectively. Tax evasion, tax losses and tax arrears remain rampant. Budget needs increase constantly, exceeding the State capability to balance resources. Revenues are insufficient to cover expenses. Accumulation of State budget for development investment remains low. Expenditure structure remains irrational. The proportion of recurrent expenditure out of the total state budget spending increases. Investment for development drops. The proportion of central budget expenditure out of the total state budget reduces while that of local budget spending increases. State budget balance faces numerous difficulties such as high deficit, calling for swap-covered borrowing. Many localities are unable to balance the budget and regulate their repayment to the central budget. Public debt and debt repayment obligations increase. Short-term repayment pressure is relatively high, underlying highly potential security risks, which have not been strictly controlled. Capital construction debts and advances from the state budget remain large. The management and use of loans still have many limitations. Coherence between investment decisions and debt repayment balance remains missing. The use of the state budget and public investment remains wasteful and inefficient, causing excessive loss.

3. The above mentioned limitations and weaknesses partly take their root from objective reasons including difficulties and weaknesses of our country’s economy and the impact of the world economic situation. However, subjective reasons are largely attributed to these limitations and weaknesses. Awareness of the role of socialist-oriented market economy to the state financial-budgetary sector and public debt management remains incomplete, inconsistent, leading to no drastical and inconsistent actions taken to renovate and improve the institutions, mechanisms and policies, which fails to meet the requirements of the practice. Fee and tax management system remains inadequate. Price policy for many types of goods and essential public services are not in accordance with market-based mechanisms. Aids, grants, subsidies and support remain rampant. Awareness to comply with financial disciplines remains weak. There remain a lot of weaknesses and limitations in the collection and payment to the state budget, and state budget management and use. Resources have not been exploited actively. Passiveness and dependence on support from the State budget still exist. The implementation of the direction of economic restructuring, growth model innovation remains slow and has not reached the set targets and requirements. Public sector has been slow in innovation and possesses many inadequacies. The implementation and promulgation of policies encouraging financial socialization, autonomy, self-responsibility have not met the set requirements. The promulgation and implementation of policies of social security, salary reform are necessary, but also contribute to the rapid acceleration of recurrent expenditures. Functions and tasks on state budget management, public investment and public debt management remain overlapping. Responsibilities of maintaining state budget balance, loan borrowing and repayment have not been associated with responsibilities of the allocation and use of public investment. Financial order and disciplines remain loose. There are many weaknesses in inspection and testing activities. Sanctions on violations are not serious enough. Capacity to follow-up, make analysis and forecasting of developments remain limited.

II- OBJECTIVES AND DIRECTION VIEWPOINTS

1- Objectives

1.1- Overall objectives

Restructure the state budget and public debt management in the direction of ensuring security and stability of the national finance, contributing to macroeconomic stability. Strengthen the mobilization, management, allocation and efficient use of financial resources, promote socio-economic development, implement the tasks of cultural and people development, ensure social security, strengthen social welfare, environmental protection, respond to climate change, guarantee national defense, security and international integration, thus contributing to enhancing the position and prestige of our country in the region and the world.

1.2- Specific objectives

– State budget revenues are set to account for average about 20-21% of the gross domestic product (GDP) in 2016 – 2020, or 1.65 times higher than the total amount of the period 2011 – 2015. Domestic revenue is expected to represent about 84-85% of the total State budget income while revenue from crude oil and import-export activities is estimated at 14-16 percent. The central budget collection is targeted to be 60-65%. From 2020 onwards, the State budget revenue is expected to remain at a stable and reasonable ratio in comparison to GDP.

– The State budget expenditure between 2016 and 2020 is expected to account for 24-25 percent of GDP on average. About 25-26 percent of the total expenditure will be allocated to development investment meanwhile regular spending will account for up to 64 percent of total GDP. Special attention will be made to ensure spending for debt repayment and national reserves. From 2020, the expenditure scale will be defined in accordance with socio-economic development objectives and the capacity of resource balance to ensure safety in the public debt.

– For the maintenance of national financial security: The Resolution requires a positive budget balance, gradually reducing the budget deficit to 4% of GDP by 2020, and 3% of GDP by 2030 to balance state budget spending – revenue. The yearly public debt during the 2016-2020 period must not exceed 65 percent of GDP, while Government debts and national foreign debts will not exceed 55 percent and 50 percent of GDP, respectively. By 2030, public debts, Government debts, and national foreign debts will be maintained below 60 percent, 50 percent, and 45 percent of GDP, respectively.

2- Guiding viewpoints

– Restructuring of state budget and public debt management should be part of the overall economy restructuring associated with growth model innovation to ensure effectiveness, comprehension, equality, sustainability and rational mobilization of resources. Thrift practice and waste combat should be implemented. Saving will be identified as a top national policy. Spending will only be made within the capacity of the economy and the ability to repay loans. The state financial-budgetary order and disciplines will be tightened. Transparency and accountability will be enhanced at all levels of state budget collection and spending, loan use and debt settlement. Actions will be taken to reduce and work towards eliminating “ask-give” mechanism.

– Important and urgent problems will be addressed in harmonious combination with principal and long-term issues for sustainable development targets. Ensure the leading role of the central budget; promote initiative and creativity of ministries, agencies and localities; and maximize mobilization of social resources. Adjustments will be made in the relationship between savings and spending, between recurrent spending and investment for development. Recurrent spending will be reduced to increase the proportion of investment for development and spending for debt repayment. Mobilization, allocation and utilization of state budget resources will be made in close association with strategic priorities of the economy.

– Innovation in the state financial-budgetary management will be carried out in line with international standards and practices to effectively support the international economic integration process and ensure independence, self-reliance and sovereignty of the country.

III- GUIDELINES AND MAJOR SOLUTIONS

1- To develop a socialist-oriented market economy, create favorable environment and motivation for socio-economic development, and create solid revenues for the state budget. Focus on promoting economic restructuring associated with growth model innovation, improving productivity, efficiency and competitiveness. Effectively coordinate fiscal policy and monetary policy to control inflation, stabilize the macro economy, and strive to achieve the minimum GDP growth rate as outlined. Pursuit a market-based pricing roadmap with the administration of the state for essential goods, adopt a full market-based price mechanism for public services, electricity, water, land and vital resources as soon as practical.

2 – Strengthen communication and education to create broad awareness and unified action in the entire Party, the people, army and the business community about the fulfillment of obligations to pay taxes, regulations on the state budget, public debt management, thrift practice and corruption and waste prevention and fighting in order to generate powerful changes in the political system, highlight responsibilities of heads of agencies and strictly handle violations.

3. Focus on restructuring state budget revenues and expenditures, strengthening public debt management to ensure security and sustainability of the national finance. Strictly comply with the principle that requires loans secured to offset state budget deficit only be used for development investment, not for recurrent expenditures, improve the state budget balance, and gradually increase accumulation for development investment and debt repayment. Develop and implement medium-term fiscal plan in association with strategies on public debt management, budget deficit control and public investment plan for the same period.

Complete policy on state budget collection associated with state revenues restructuring towards overarching all sources of revenues, expanding revenue base, especially new revenue sources, in line with international practices, increase the proportion of domestic revenues and ensure a reasonable proportion between indirect taxes and direct taxes, make the best use of tax revenues from state assets, natural resources while protecting the environment, minimize the integration of social policy in regulations on taxes and tax exemption and reduction, tax breaks, ensure neutrality of tax, contribute to creating an investment and business environment favorable, fair and encouraging investment, reasonably regulating income. Strengthen the management, exploitation, and mobilization of resources and improve efficiency of public asset use.

Gradually restructure the state budget spending towards increasing rationally the proportion of investment spending, decreasing the proportion of recurrent expenditures associated with strong innovation of the public service sector to promote autonomous mechanism and streamline organization structure, staffing, and perform salary reform. Innovate state budget expenditures management in line with the socialist-oriented market economy. Clearly define roles and functions of the State and the market. Review social and welfare policies to ensure focused and highly effective use of the state budget. Accelerate a mechanism on spending limits and monetization. Introduce a number of policies and mechanisms based on cost standards and norms. Improve efficiency of state budget spending, gradually implement result-based budget management mechanism associated with the implementation of socio-economic development objectives.

Focus on institutional improvement, especially the perfection of policies, instruments, and public debt management apparatus in compliance with the Constitution and related laws to ensure comprehensive risk control and efficiency of public debt management. Study to adjust the scope of public debt in line with international practices and standards. Continue to restructure public debt towards lengthening debt duration, reducing pressure on short-term debt repayment and borrowing costs. Strictly control the country’s public debt, foreign debt, budget deficit and debt of local governments, ensure provision for potential risks. Closely monitor lending and use of investment funds outside the state budget for purposes of the State budget, including the use of foreign exchange reserves of the State and loans from the State Bank of Viet Nam. Improve efficiency of loan use and ensure due and timely repayment of loans. Remain determined not to use loans for investment purposes and projects which have low or unclear socio-economic efficiency. Strengthen inspection and supervision of the use of loans for relending. Minimize government guarantee for new loans, control guarantee limits for two policy banks with the obligation on annual repayment.

4. Promote the restructuring and efficiency improvement of public investment. Focus state budget investment in key projects which have wide-spread spill-over effects and could solve national, regional and inter-regional development problems to facilitate the attraction of private investment and foreign direct investment. Effectively implement the restructuring of state-owned enterprises, accelerate the equitization and divestment of state capital in non-key sectors and state capital in enterprises in which the State does not need to hold capital contributions for other use for development investment and addressing imperative socio-economic issues. Handle thoroughly and comprehensively bad debt issues and poor credit institutions. Strengthen innovating public service areas, create breakthroughs in terms of quality and efficiency. Gradually correctly and sufficiently calculate costs in public services price and develop proper policy to support policy objects, the poor, and the disadvantaged in the society.

5. Strengthen order and disciplines. Enhance effectiveness and efficiency of state financial-budgetary and public debt management. Effectively implement the decentralization and delegation of power to localities. Prevent and strictly punish tax evasion, tax losses and tax arrears.

Study and apply methodologies to develop budget revenue estimates based on tax management database and tax expenditure estimates based on objectives, tasks, technical and economic norms, unit prices and spending commitments. Maintain the state budget revenues and expenditures within the estimates. Ensure lending and disbursement within the planned quota and limits granted by the competent authorities. Restrict spending outside the limits of estimates and financial source transfer. Avoid transferring loans and Government guarantees into the State budget fund. Strengthen state budget expenditure control in the direction of ensuring the ability on debt collection and repayment, unified processes, centralization and improvement of mechanisms to manage and control spending commitments. Focus on inspection, testing, auditing, and implementation of publicity, transparency, accountability of the state budget and public debt.

Study, review and adjust functions, tasks and organizational structures of ministries, central agencies and localities to streamline organization, mount responsibilities on budget spending and public debt decision-making with responsibilities on state budget management and public debt repayment. Continue to innovate the management of public officers, building clear and transparent duty regulations, regularly providing professional training for financial officers. Improve capacity to forecast and make financial-budgetary and public debt planning.

6. Study and develop a strategy and roadmap for restructuring the state budget and public debt management after 2020 towards:

– Develop a revenue collection system synchronous, transparent, and consistent with international best practices, develop a sustainable revenue structure, and ensure state budget collection that is full, proactive and appropriate while promoting sustainable economic development in the context of broader and deeper international integration.

– Improve legal regulations, innovate principle result-based state budget management based on the implementation of medium-term, long-term, and annual socio-economic development goals. Improve the efficiency of budget development, auditing, settlement, and monitoring of the implementation of the state budget targets. Couple delegation of autonomy with delegation of accountability to units using the state budget.

– Closely incorporate public debt management with fiscal policy – monetary administration. Construct a legal framework and develop and adopt tools and practices on public debt management comprehensively and synchronously. Study to innovate and raise effectiveness and efficiency of public debt management agencies by appropriate models.

IV- ORGANIZATION OF IMPLEMENTATION

1. Action plans shall be developed to implement the Resolution based on functions, duties and the real situation of each sector, locality, agency and unit. Specific agenda will be identified to restructure the state budget within authorized competency in observance of the principle of comprehensive thrifty and waste combat, restructure the organization and staffing towards enhancing focus and streamlining the organization structure, step up the reform of public service areas, promote socialization, strong attraction of non-public investment resources for development, focus on inspection and supervision of the implementation of the Resolution, and promote the roles of heads of party committees, governments, agencies and units.

2. Party Committees of the National Assembly and the Government will lead the review, amendment, and improvement of stipulations on the management of state budget revenues and expenditures, public debt, and public properties; on administrative and public service areas; on price management, finance, investment, accounting, and audit, etc.; on the review and adjustment of functions, tasks and organizational consolidation of ministries, central agencies and localities towards enhancing lean organization, attaching responsibility on making budget spending and public debt decisions with responsibility on public debt management and repayment of public debt.

3. Party Committees of Ministries of Finance, Planning and Investment, Home Affairs, Health, Education and Training, the State Bank of Viet Nam will focus on leading the implementation of the following tasks:

3.1- The Ministry of Finance will lead the implementation of tasks on state budget restructuring and public debt management.

3.2- The Ministry of Planning and Investment will lead the implementation of measures to improve the quality and effectiveness of the development of strategies, planning and socio-economic development plans, develop and manage medium-term and annual public investment plans, fortify the implementation of economic restructuring, growth model innovation and public investment restructuring.

3.3- The State Bank of Viet Nam will lead the implementation of monetary policy in line with socio-economic development plans, manage foreign debts borrowed and paid by enterprises, ensuring consistency with the management of public debt and national debt, and accelerate the restructuring of credit institutions, basic and comprehensive handling of bad debts and poor credit institutions.

3.4- The Ministry of Home Affairs will lead the review, supervision and proposal of solutions for the continuous downsizing and restructuring of cadres, civil servants and public officers, study and develop plans to restructure the state apparatus towards enhancing lean organization, clearly defining responsibilities on state budget management, public debt repayment, financial and state asset management in enterprises.

3.5 The Ministry of Health, Ministry of Education and Training will coordinate with relevant agencies to develop and implement solutions to innovate public service areas within the scope of their assigned authorities.

4- The CPVCC Propagation Commission will guide the learning and dissemination of the Resolution, direct the communication and improvement of awareness inside both the political system and the people. The Vietnam Fatherland Front and other socio-political organizations will launch a movement to implement thrift practices, organize the learning and dissemination of the Resolution among union members, members and the people in order to build consensus in terms of awareness and action to implement the Resolution.

5. The CPVCC Economic Commission will lead and coordinate with the Office of the Party Central Committee and other Central Commissions to regularly monitor, inspect, supervise, and conduct preliminary and final reviews of the implementation of the Resolution and provide periodic reports to the Politburo and the Secretariat of the Party Central Committee.

Source: ONLINE NEWSPAPER OF THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIET NAM

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