Vietnam’s growth rate in Q3/2021 was the lowest in recorded history. During this time, the number of unemployed workers has been the highest. Vietnam faces the risk of not fulfilling its growth targets. The situation requires extraordinary efforts and solutions.

Since Hanoi lifted social distancing measures in early October, the capital city’s streets have become bustling again. It is similar for other cities throughout the country. Generally, people, however, have become more cautious about spending.

According to the General Statistics Office, total retail sales of consumer goods and services for four months from August to October are -19.8%, - 33.7%, - 28.4% and -19.5%, respectively, compared to the corresponding months of last year. This is a huge decrease as this index always increased by 10% in the previous years.

In Ho Chi Minh City, where a strict lockdown was implemented for more than four months, people's livelihoods stalled and production and business activities were suspended. During that long period, there were only about 2,000 businesses operating, accounting for 0.7% of the total number of enterprises in the city, which means that 99% were inactive and 99% of workers lost or reduced their income for more than three months. Ho Chi Minh City has been severely affected and its growth rate this year is forecast to be -5%.

A survey conducted by a business association shows that up to 94% of enterprises in the country are facing difficulties. In 19 southern provinces and cities, 98% of enterprises suffered heavy damage. In the Southeast region and the Mekong Delta, businesses are operating at about 5-10% of their capacity.

A street in Hanoi.

These figures show that the financial health of Vietnamese enterprises in general and the economy in particular has never been as bad as it is now.

Regrettably, support packages to restore the economy have yet to be outlined and revealed, even during the last session of the National Assembly.

Meanwhile, many countries in the world have introduced stimulus packages. The US House of Representatives has passed a $1.8 trillion social security bill, and the Senate will continue to consider it. Earlier, on November 15, President Biden signed into law an infrastructure bill worth $1.2 trillion. This is the fifth US stimulus package in the past two years.

Recently, Japan announced a record-high $490 billion economic stimulus package, the third package in two years, to boost the recovery momentum. ASEAN countries have also launched stimulus packages.

With those stimulus packages, Barclays Bank forecasts that growth drivers will be developed countries and global GDP will grow by 6% this year.

Meanwhile, institutions like the World Bank (WB) and the Asian Development Bank (ADB) have reduced their growth forecasts for Vietnam to only 2%.

Breakthrough solution

In Vietnam, a number of financial support packages have been launched, such as reducing electricity prices, interest rates, Internet and telecommunications charges, and petrol prices... All of these packages are in the form of businesses supporting businesses.

So, what is the role of the State? What is the role of fiscal and monetary policy in supporting businesses to recover and break through, rather than supporting them to survive in difficulties with half-hearted policies of delay, tax and fee extensions?

The State needs to have fiscal and monetary growth support packages to help businesses survive.

Economist Nguyen Dinh Cung said: “In the world, many countries, especially developed countries, have spent 20-40% of GDP on financial packages. They increased spending on healthcare, supported businesses' production and business, and helped people."

He added: "We need to stimulate both supply and demand, not saving. The more difficult the situation, the more private investors hesitate to spend, the more the State has to spend. For that reason, the support package must also be at a breakthrough rate of 10% of GDP.”

Economist Tran Dinh Thien agreed, even suggesting a higher financial support package at 15% of GDP. “Unusual economic circumstances require drastic and breakthrough solutions; otherwise, we can't get over it," Thien said.

“We have to implement a countercyclical fiscal policy, that is, when the economy is ailing and budget revenue is difficult, we still have to pump money out to stimulate. Later, when things are healthier, we have to tighten our belts,” he said.

Such proposals show that the State needs to have fiscal and monetary growth support packages to help businesses survive after a long period of hibernation.

However, the obsession about macroeconomic instability and inflation 10 years ago is still lingering in the minds of officials when maintaining macroeconomic stability is still the most important task in management.

Macro-level obsession

At the latest National Assembly session, Governor of the State Bank of Vietnam Nguyen Thi Hong cited that commodity prices had risen greatly, inflation in developed countries had reached high levels, and central banks around the world had stopped easing monetary policy.

The government is considering support packages to ensure macroeconomic stability and help restore the health of businesses. Such packages must be available early and effectively implemented.

"In 2022, inflation risks are under great pressure... Inflationary pressure as well as pressure on monetary policy management in the coming time will be huge," she said, implying that reducing interest rates to support enterprises will be difficult.

Inflation in the US in October increased by 6.2% year on year, the highest in 30 years; inflation in the UK rose to the highest level in the past 10 years and its CPI in October increased by 4.2% year on year. Inflation in Canada rose to the highest since 2003 and its October CPI rose by 4.7% year on year, and the October CPI in the Eurozone increased by 4.1%.

The problem is that domestic demand in Vietnam is weak, and both people and businesses are still "tightening their belts" after more than four months of lockdown.

Dr. Thien said that demand should be stimulated to increase purchasing power for people and liquidity for businesses, rather than worrying too much about inflation from a cost-push perspective.

“The CPI increased by only 1.81%, the lowest since 2016, which shows that the economy and businesses are more dead than alive. If the government does not pump money for people and businesses, we will be chronically ill, even unable to recover, while inflation is clearly still a risk, and difficult to avoid from a cost-push perspective," he said.

Clearly, the balance between stimulus and stability is the most difficult issue.

Bailout packages needed

The government is considering support packages to ensure macroeconomic stability and help restore the health of businesses. Such packages must be available early and effectively implemented.

Vietnam’s growth rate in Q3/2021 was the lowest in recorded history. During this time, the number of unemployed workers has been the highest. Vietnam faces the risk of not fulfilling its growth targets. The situation requires extraordinary efforts and solutions.

Epidemics and diseases are still a constant concern, and each person needs to know how to protect themselves and their loved ones so that extreme anti-epidemic measures can be removed.

Tu Giang