Vietnam: Financial reserve fund and 05 things you should know

Vietnam: Financial reserve fund and 05 things you should know (Internet image)

1. What is financial reserve fund?

According to Clause 17, Article 4 of the Law on State Budget 2015, the financial reserve fund means a fund of the State derived from state budget and other financial sources prescribed by Law.

2. Establishment of financial reserve fund in Vietnam

The government, the People’s Committees of provinces shall establish financial reserve funds from sources of revenue, budget surplus; include them in annual budget expenditure estimate and other financial sources. The balance of the financial reserve fund at each level must not exceed 25% the annual budget expenditure estimate that the same level.

(Clause 1, Article 11 of the Law on State Budget 2015)

3. Use of financial reserve fund in Vietnam

Financial reserve funds are used in the following cases:

- Advance funding to cover necessary expenditures according to the budget expenditure estimate before aggregating enough revenue. Such amount must be returned within the budget year;

- In case state budget revenues or loans taken to cover budget deficit fail to reach the estimate decided by the National Assembly or the People’s Council, budget reserve is used up but still not sufficient for disaster recovery, response to widespread and serious epidemics, performance of tasks related to national defense and security, and other urgent tasks that are unplanned, the financial reserve fund may be used. However, the amount used in the year must not exceed 70% of the opening balance of the fund.

4. Power to use financial reserve funds in Vietnam

The power to use financial reserve funds is specified in Clause 5, Article 8 of Decree 163/2016/ND-CP as follows:

- Advance funding to cover necessary expenditures according to the budget expenditure estimate before aggregating enough revenue. Such amount must be returned within the budget year;

In case state budget revenues or loans taken to cover budget deficit fail to reach the estimate decided by the National Assembly or the People’s Council, budget reserve is used up but still not sufficient for disaster recovery, response to widespread and serious epidemics, performance of tasks related to national defense and security, and other urgent tasks that are unplanned, the financial reserve fund may be used. However, the amount used in the year must not exceed 70% of the opening balance of the fund.

- With regard to provincial financial reserve funds, People's Committees of provinces shall decide to use them in the cases prescribed in Clause 4 of Article 8 of Decree 163/2016/ND-CP.

5. Sources of financial reserve funds in Vietnam

A financial reserve fund is established from the following sources:

- Annual budget expenditure estimate;

- Budget surplus:

+ Surplus of central and provincial government budgets shall be used for payment of principal and interest of loans of state budget. If surplus still remains, 50% of it will be transferred to the financial reserve fund at the same level, the other 50% will be transferred to the next year’s budget; if the financial reserve fund has reached 25% of annual budget expenditure estimate, the remaining surplus shall be included in next year budget revenue.

+ Surplus of budgets of districts and communes shall be included in next year budget revenue.

- Revenue increase prescribed in Clause 2 Article 59 of the Law on State Budget 2015;

- Interests of deposits of financial reserve fund;

- Other financial sources as prescribed by law.

(Clause 2, Article 8 of Decree 163/2016/ND-CP)

Diem My

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