Even though the real development of oil prices has thrown out estimates, Vietnam has already prepared itself for different scenarios to deal with the new reality, Minister of Finance Dinh Tien Dung said Sunday.
Last year the lawmaking National Assembly approved the 2016 budget plan based on an estimated oil price of US$60 a barrel. In the last few days, prices have fallen to below $35 a barrel.
“Such a price collapse has greatly affected state revenue collection,” Dung said during a televised Q&A session.
However, he added, the finance ministry has already considered scenarios in which the price of oil is estimated to be as low as $55, $50, $45, $40 and $35 a barrel, and factored that into a budget plan.
“The latest estimate is $30 a barrel, which is significant enough to provide the basis for the budget plan to be carried out,” he said.
The minister added that besides the falling oil price, state revenue this year is also expected to be adversely affected by a number of tax reductions Vietnam will release as per the various trade pacts it has signed.
“The tax reductions will cause an approximate VND10 trillion [$446.43 million] reduction in budget collection,” he elaborated.
Dung said the finance ministry will continue enacting measures including reducing the government's regular spending and preventing trade frauds to ensure revenue for the state coffers.
The ministry has “experience in doing so,” because it successfully implemented these measures last year, Dung underlined.
Oil prices on Monday hit new 12-year lows amid concerns about slow demand and an oversupply - including U.S. shale oil production and a likely supply increase from Iran after the end of sanctions on its oil exports, according to Reuters.
U.S. crude futures yesterday fell to a 12-year low of $30.88 per barrel, and previously stood at $31.19, down almost 16 percent so far this year, Reuters said on Tuesday.
International benchmark Brent futures dropped to $31.17 per barrel, also a 12-year low.
With crude oil among Vietnam’s export stables, the Southeast Asian nation has been hugely impacted by the price collapse.
A drop in world oil prices last year resulted in losses of tens of trillions of Vietnamese dong (VND1 trillion = US$44 million), though overall tax collection rose 12 percent year on year, Prime Minister Nguyen Tan Dung said at a meeting on December 31.
As the oil price is expected to fall further in 2016, PM Dung asked the trade ministry and state-run oil and gas giant PetroVietnam to brace themselves for the time ahead and find the best ways to cope with the trend.
PetroVietnam general director Nguyen Quoc Khanh said at the same meeting that for every $1 reduction in global oil prices, the firm will suffer a VND5.4 trillion ($237.6 million) revenue drop based on current production capacity.
This will in turn cause a VND1.5 trillion ($66 million) decrease in tax payments and a VND560 billion ($24.64 million) decline in post-tax profit, Khanh added.