Oil price slump a rare opportunity for Vietnam's economy: experts
Oil price slump a rare opportunity for Vietnam's economy: experts
As global oil prices have steadily fallen recently, many Vietnamese experts are concerned about the gloomy prospect of declining oil export turnover and reduced import tariffs, which all badly affect state revenues.
But other experts, including economists Bui Quang Thai and Bui Trinh, look at the other side of the coin, and think that the local economy will generally benefit from the falling oil price, which will help raise more money from taxes for the state budget.
The calculations to estimate the impact of oil prices show two scenarios, the economists said in their latest research paper, which was published on the government website chinhphu.vn.
In the first scenario, declining oil prices directly reduced the costs for the economy, which led to an increase in value added in the next production cycle.
Assuming oil prices fall by 20 percent, the total direct costs of the economy will decrease 1.41 percent, and GDP will increase approximately 1.8 percent. However, the GDP growth is basically due to increased profits, and will not have much spillover impact on the next economic cycle, and the economy does not benefit much in general.
In the second scenario, if gasoline prices led to a reduced production price index (PPI) that would have a more meaningful impact on the economy.
Seen from a general equilibrium model, if fuel prices fell 20 percent, the PPI would drop in the first production cycle by about 0.8 percent.
When the economy uses the products with reduced prices in the first cycle, the cost of the new cycle, which will take place in the next 6-8 months, will go down 0.3-0.5 percent.
As a result, the price of oil falling in the world market will cause PPI in 2015 to fall 1.1-1.3 percent. Meanwhile, GDP will increase 2.2 percent and indirect taxes will soar 3.2 percent, the two economists said in the paper.
If inflation is included, indirect taxes will increase eight percent.
Currently, gasoline prices have fallen about 40 percent. Calculations show that, during the first three months of 2015, the value added to the economy is estimated to rise from two to 2.3 percent, and PPI will fall 0.95-0.98 percent.
By the next production cycle in the next 6-8 months, GDP will increase two to 2.13 percent due to the price reduction of the economy.
Thus, even if oil prices plummet to under US$50 per barrel it will not affect the growth of the economy. In other words, while the oil industry is facing a tough time, the decline in global oil prices is a real boost, a rare chance to build momentum for the economy in 2015.
The fact that the Vietnamese Ministry of Finance late last month decided not to raise the import tax on oil products and asked transport enterprises to drastically cut their price is a very welcome signal.
This may lead to the ability to reach or even exceed the economic growth target that has been set by the National Assembly and the central government, the two economists said in the paper.
The intervention in the taxation regime in an appropriate manner will not only stabilize prices, but also help reduce production costs, enabling businesses to develop in a comprehensive and sustainable way, they said.
One more thing is that the Prime Minister has recently rejected the plan to raise electricity prices for the state-run Vietnam Electricity group (EVN), and asked them to postpone until after the Lunar New Year.
