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Falling oil price scenarios released

Released at: 14:27, 10/02/2015

Falling oil price scenarios released

Conference hears what lower oil prices may do to Vietnam's economy.

by Nguyen Hung

At a scientific seminar entitled “Fluctuations in oil prices and the economic impact for Vietnam”, held by the National Center for Socio-Economic Information and Forecasting, three scenarios for lower oil prices this year of $50, $40 and $30 were put forward by its economic experts

Oil prices in the range of $30-50 a barrel would have a positive impact on GDP but experts believe authorities should adjust interest and taxes to improve State budget revenue.

If the average oil price in 2015 is around $50 a barrel, Vietnam’s GDP would increase by 0.48 percentage points compared to a situation where there were no price shocks. This figure is calculated based on the National Institute Global Econometric Model (NiGEM) model, developed by the National Institute of Economic and Social Research since 1987. Tax revenues would fall by over VND6.6 trillion ($314 million), however, according to Mr. Luong Van Khoi, Chief Economist at the National Center for Socio-Economic Information and Forecasting.

At $40 a barrel, tax revenues would fall by about VND1 trillion ($47.61 million) but GDP would increase by 0.13 percentage points compared to the previous scenario. Oil prices of $30 a barrel, meanwhile, would result in tax revenue declining by nearly VND8.7 trillion ($414.28 million) but GDP would increase by 0.75 percentage points.

The researchers also indicated that if interest rates were cut by 1 per cent and if the Ministry of Finance increased the value added tax (VAT) rate by 1 per cent, GDP would increase and the total tax take would also be higher. Budget revenues would increase VND3.1 trillion ($147.61 million) if the price was $50 a barrel, VND4.16 trillion ($198.09 million) at $40, and VND5.23 trillion ($249.04 million) at $30 a barrel.

Scenario

Percentage point increase

Tax revenue decrease (VND trillion)

Foreign exchange reserves ($ billion)

GDP

Exports

Imports

Inflation

Under $50 a barrel

0.78

2.9

1.8

0.23

3.137

-0.477

Under $40 a barrel

0.91

3.45

2.12

0.26

4.160

-0.635

Under $30 barrel

1.04

4.02

2.45

0.29

5.228

-0.779

Source: Research from the National Center for Socio-Economic Information and Forecasting

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