Falling oil prices adversely affect Vietnam economy
Falling oil prices adversely affect Vietnam economy
Many economic experts argue it is difficult for global oil prices to go up again and with the worst scenario, oil prices may drop a mere US$30/ barrel, causing a huge loss for this year’s budget revenue and heavily weighing against economic growth.
Over the past two months, the world oil price chart constantly went down, even sliding to below US$40 / barrel – the ten-year lowest level.
As a crude oil exporting nation that also imports refined oil, fluctuated raw material prices have a significant impact on Vietnam’s budget revenue and its economic growth.
According to the General Statistics Office, the nation’s crude oil exports grew in the 8 months leading up to September but export turnover reached only more than US$2.7 billion due to crude oil price down nearly 48% from last year’s same period.
Additionally, reduced global oil prices have made import duties, special consumption tax and value added tax levied on oil products run up a deficit of thousands of billion of VND.
Institute of Finance and Economics Deputy Head Nguyen Duc Do said this year’s estimated budget revenue from crude oil exports would hit VND93,000 billion at US$100/barrel. So when crude oil prices fell by US$1/barrel will result in a budget deficit of VND1.000 billion, he said, adding that it is only relative numbers.
Revenue from crude oil sales is not only a profit-related issue that also involves other things such as import-export duties and falling oil prices leading to decreased tax collection, Do noted.
In addition to the negative effects, the steep decline in crude oil prices has delivered immediate benefits to citizens and businesses as a result of constantly lowered retail petrol prices over recent weeks.
The drop in domestic gasoline prices for five times in a row as of mid-June, and even 7 times since early this year with a total reduction of VND5,588 per liter has helped reduce input costs of the production and business sectors, thus bringing about better business performance in tandem with higher economic growth and increased budget revenue.
Central Institute for Economic Management (CIEM) Deputy Head Prof. Vo Tri Thanh said the sharp decrease in world oil prices has impacted Vietnam both positively and negatively when the national economy is partly based on oil exports. Short medium and long-term positive impacts will enable to lower input costs, thereby increasing business productivity and improving the competitiveness of the economy and businesses, he said.
According to calculations by the National Center for Socio- Economic Information and Forecast under the Ministry of Planning and Investment, with the worst scenario, world oil price down to US$30/barrel would reduce Vietnam’s GDP by 2.43% in the final quarter of this year.
The nation’s GDP in the fourth quarter is predicted to drop by 1.1% and by 0.29% in 2016 due to lower economic growth of Vietnam’s major partners leading to reduced import demand which would negatively impact the national economy.
World Economy Department Head and Dr. Luong Van Khoi from the National Center for Socio- Economic Information and Forecast suggested the Vietnam government should take stronger measures to fully exploit the benefits from lower oil prices.
"The significant decline in oil prices will greatly affect the central budget, so we have to work out a comprehensive solution for intensifying economic restructuring with a focus on the business sector. Currently, domestic petrol prices have not fallen in line with those of global oil. In my opinion, the government should adopt intervention measures aimed at lowering gasoline prices as the best way to encourage more petrol using industries to promote economic growth," Khoi said.
Experts also said the State budget should focus more on revenues from domestic production activities and trade to obtain ensured stability. Besides, to cope with falling crude oil prices, the oil industry should consider measures to stop exploitation of oil fields having higher costs than global oil prices.
Also, it is essential to manage to reduce domestic oil prices as equally as world prices to stimulate production and consumption as a contribution to strongly speeding up economic recovery.
