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Economic recovery: expectations and warnings

The Government has submitted to the National Assembly a fiscal and monetary policy scheme to support socio-economic recovery and development, including a proposed support package worth nearly VND347 trillion.

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National Assembly deputy Vu Thi Luu Mai, Vice Chairwoman of the National Assembly’s Finance and Budget Committee proposed responsibilities on the effectiveness of the support package. One of the important principles of the Law on Public Investment, the Law on State Budget, and the National Assembly’s resolutions on budget allocation is to ensure resources, efficiency and output results, she said. “With more than VND346 trillion, what results will we get?” she said.

Mai said that although the draft Resolution sets three general objectives - GDP growth of 6.5 -7%; restoring production and business and ensuring social security – this is not enough.

“If there is no commitment to the results achieved, it is difficult to have an accurate measure to evaluate the actual results later. Therefore, it is necessary to make specific commitments. It may be tangible or intangible products, but all of them can be calculated," said Mai.

According to the Government, in case these fiscal and monetary policies are not implemented, assuming economic growth rate at 6% in 2022, 6.5% in 2023 and economic growth to recover in 2024-2025, the average economic growth rate in the period 2021-2025 is estimated at 5.4%/year, failing to meet the target set by the 13th National Party Congress.

If the fiscal and monetary policies are implemented, the Government calculates that GDP growth rate will increase by about 2.9% in 2022 and 0.2% in in 2023, facilitating the targeted average GDP growth rate of 6.5-7%/year in 2021-2025, to ensure stable employment and income for workers, and maintain an unemployment rate at 2-3%.

In order to have resources to implement these policies, the Government asked the National Assembly for permission to increase the state budget deficit, public debt and government debt in 2022 and 2023.

Risk of inflation

In fact, the support package will not be 347 trillion VND. If the amount of money pumped into the economy to realize the interest rate support policy for businesses, cooperatives and business households is included, the total figure is very high. An economic expert estimated that if 40 trillion VND is used to cover the 2%/year interest rate support for commercial loans to enterprises, cooperatives and business households in 2022-2023, it means that there will be about 2 quadrillion VND pumped into the economy by credit institutions.

When a lot of money is pumped into the economy and is not used effectively, it will cause inflation, experts said. The Government also anticipated that inflation would increase in 2022-2023 as a result of loose measures in 2020-2021. During the implementation of the above support policies, it is possible to increase pressure on inflation.

Lessons learned from the implementation of the economic recovery support package for the period 2009-2013 are worth mentioning, the Government noted.

At that time, the economic stimulus package and social security guarantee program worth about 122 trillion VND (6.9 billion USD), including about 100.6 trillion VND (5.7 billion USD), equivalent to 5.6% of GDP in 2009 alone, was disbursed.

The economic stimulus package helped Vietnam overcome the crisis, being one of the few countries in the world to maintain a positive growth rate (5.7% in 2008, 5.4% in 2009). But a few years later, the economy faced high inflation of over 20%.

The lessons learned by the Government is that there needs to be a comprehensive program with closely coordinated fiscal and monetary policies to support the economy on a large enough scale, suitable to internal capacity and debt repayment capacity of the economy, while ensuring macroeconomic stability, budget and national finance.

Luong Bang

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