To ensure comprehensive, uniform, and strict management of the state budget (NSNN), the 2015 State Budget Law was enacted to overcome the inadequacies and existing issues of the 2002 State Budget Law and to meet the new requirements set forth in the ongoing process of economic management mechanism renovation, administrative reform, and international economic integration.
Article table of contents
Local Budget Deficit is Part of the State Budget Deficit
According to the regulations in the Law on the State Budget 2002, the state budget deficit is offset by domestic and foreign borrowing. Borrowing to offset the state budget deficit must adhere to the principle of not being used for consumption, only for development purposes, and ensuring budget allocation to proactively repay the debt when due. In Article 4 of Decree 60/2003/ND-CP (a document that is no longer in effect), the state budget deficit is defined as the central budget deficit, which is determined by the shortfall between the total central budget expenditures and the total central budget revenues of the fiscal year. The local budget is balanced so that total expenditures do not exceed total revenues as stipulated in Clause 3, Article 8 of the State Budget Law. However, the Law on the State Budget 2015 stipulates that the state budget deficit includes both the central budget deficit and the provincial local budget deficit. Specifically, the determination of the central budget deficit and the provincial local budget deficit is as follows:
- The central budget deficit is determined by the excess of total central budget expenditures excluding principal debt repayment over the total central budget revenues.- The provincial local budget deficit is the combined deficit of the provincial budgets of various localities, determined by the excess of total provincial budget expenditures excluding principal debt repayment over the total provincial budget revenues of each locality.
Thus, for the first time, the Law on the State Budget stipulates that local budget deficits are a part of the state budget deficit. According to the Law on the State Budget 2015, only provincial local budgets are allowed to incur deficits. Local budget deficits are to be used solely for investment in projects included in the medium-term public investment plan approved by the Provincial People’s Council.
Strict Management of the Financial Reserve Fund
The Government of Vietnam, the People's Committees of provinces and centrally run cities will establish financial reserve funds from increased revenues, budget surpluses, budget allocation for annual expenditures, and other financial sources as per legal regulations.
The balance of the financial reserve fund at each level shall not exceed 25% of the annual budget expenditure estimate at that level.
The financial reserve fund will be used in the following cases:
- To temporarily advance funds to the budget to meet expenditure needs according to the budget estimate when revenues are not yet sufficiently collected and must be repaid within the fiscal year;- In the event that state budget revenue or borrowing to offset deficits does not reach the estimate approved by the National Assembly or the People’s Council, and to perform duties related to the prevention, control, and mitigation of natural disasters, catastrophes, large-scale epidemics, national defense, security, and other urgent tasks that arise unexpectedly outside the budget estimate, after reallocating the budget and utilizing all budget reserves but still lacking funds, the financial reserve fund may be used to meet expenditure needs, but the maximum usage in a year should not exceed 70% of the beginning balance of the fund.
Narrowing the Budget Reserve for Central and Local Budgets
The Law on the State Budget 2002 stipulates that the central and local government budget estimates should allocate a reserve fund ranging from 2% to 5% of total budget expenditures at each level for spending on the prevention and mitigation of natural disasters, fires, important national defense and security tasks, and other urgent tasks arising outside the annual budget estimate. Under the Law on the State Budget 2015, this reserve allocation has been narrowed from 2% to 4% of total budget expenditures at each level instead of the 2% to 5% range as per the Law on the State Budget 2002.
The Community Will Oversee the State Budget
The state budget is overseen by the community. The Vietnam Fatherland Front Committee at all levels will organize the community's supervision of the state budget. The content of the community’s state budget supervision includes:
- Compliance with legal regulations on state budget management and use;- The status of state budget estimates implementation annually;- The implementation of state budget transparency according to the provisions of Article 15 of this Law.
More details can be found in the Law on the State Budget 2015, which took effect from the fiscal year 2017.
