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GDP revision must be used effectively

Released at: 19:19, 31/10/2019

GDP revision must be used effectively

Photo: Minh Do

"Revision of the economy's GDP: Issues raised from multi-dimensional perspectives" policy dialogue held in Hanoi.

by Minh Do

The government and the National Assembly should increase the limit of economic indicators without relying on GDP figures, to make concrete decisions in governance issues, local experts told the “Revision of the economy’s GDP: Issues raised from multi-dimensional perspectives” policy dialogue held on October 31 in Hanoi.

The dialogue was co-organized by the National Economics University (NEU) and the General Statistics Office (GSO). Delegates had a common view that updating national accounting systems is a normal and recommended practice in compiling national accounts.

“Reasons for GDP revisions include re-basing, new surveys or administrative data, and capturing emerging industries,” said Mr. Francois Painchaud, IMF Resident Representative, Laos and Vietnam. “The major factors driving data revision depend on country circumstances. This estimate is to ensure that the compilation process is aligned with the 2008 SNA and that the methodology employed for estimation is consistent and coherent.”

According to GSO Director General Nguyen Bich Lam, the revision would bring Vietnam’s GDP calculation more in line with international standards. This is the second time the GSO has conducted a review of GDP calculations.

The reading may change key indicators such as end consumption, wealth accumulation, gross national income (GNI), total per-capita GDP, and incremental capital-output ratio (ICOR). The revised GDP increased to $275 billion from the current $220 billion as at the end of 2017. The economy’s size at the end of the first half of 2019 exceeded $300 billion on the new calculation. Vietnam’s revised per-capita GDP is $3,000 instead of $2,590.

The revision could boost the country’s total GDP and per-capita GDP, bringing changes to the government’s socioeconomic development policies in the future and have an impact on household spending as Vietnam approaches the upper-middle income level.

Local enterprises would make projections of demand for products from which to make investment and production decisions. The re-evaluation of GDP size will also help international organizations rank national credit.

“This revision has two sides - if spending and investment is effective, the economy will benefit,” local economist Ngo Tri Long said. “Conversely, if spending increases, rising but ineffective debt will create a heavy burden on the economy.”

Revising GDP, he went on, would be risky if the NA kept the old economic development targets on the basis of the new GDP. The NA has previously approved a budget deficit of 3.6 per cent of GDP, but if GDP increases and the NA does not change this target, the room for spending will increase.

“The basis of an increase in spending must be total revenue from the economy, but re-evaluating the size of GDP does not mean that revenue will increase,” Mr. Long said.

Of a similar mind, Mr. Pham The Anh from the NEU said that adjustments are meaningless at present and their impact on the future is the major concern. Public financial criteria associated with GDP will drop significantly, including public debt, government debt, and foreign debt. The revaluation of GDP will also create a false sense of security but in fact revenue does not increase.

According to the GSO, Vietnam’s GDP growth targets and its socioeconomic development plans will not change as adjustments to GDP growth rates have been minimal in recent years.

Mr. Lam emphasized that the statistics industry has changed its methods to meet international standards, so the 25.4 per cent increase in GDP is completely authentic and in line with Vietnam’s economic outlook.

There will be opportunities to expand State budget income and government spending. In addition, increased total GDP and per-capita GDP may boost Vietnam’s activities and efforts in organizations to which it is a member.

Mr. Lam said the revision will help the NA, the government, businesses, and individuals make important decisions.

For the NA, the new GDP figures will help it set annual national economic and financial plans, including indicators such as economic growth, the budget deficit, and limits on public debt.

Meanwhile, based on new GDP data, the government will also make more appropriate policy decisions on interest rates, investment, and trade. The GSO will report to and consult the government on assessing the impact of GDP revisions.

Mr. Nguyen Tien Phong, UNDP Program Officer in Vietnam, told VET that the revision is correct and is the most important measure of how to use GDP data effectively. “Increasing GDP may increase the ceiling on public debt, but the increase in debt is reasonable, which is the operating story of the government,” he said.

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