HCM City needs help to rise up after the pandemic

According to the Ministry of Planning and Investment, Ho Chi Minh City and five provinces in the Southeast region will likely have negative growth in 2021.

HCM City needs help to rise up after the pandemic

In January-August 2021, HCM City’s industrial production index decreased by 6.6%, FDI attraction decreased by more than 43%, disbursement rate of public investment was only 30%.

According to the Ministry of Planning and Investment, the growth of gross domestic product (GRDP) in the southeastern region and the Mekong Delta in 2021 is forecasted to be -0.13%, much lower than the expected growth rate of 6.2 - 6.5% for the Southeast region in 2021.

The Southeast region includes Ho Chi Minh City, Tay Ninh, Binh Duong, Binh Phuoc, Dong Nai and Ba Ria - Vung Tau provinces.

At a recent online conference on developing plans for socio-economic development and public investment in 2022 of the southeast region and the Mekong Delta, HCM City Vice Chairman Vo Van Hoan was reported to say that in January-August 2021, the city’s industrial production index decreased by 6.6%, FDI attraction decreased by more than 43%, disbursement rate of public investment was only 30%, 3,000 enterprises were dissolved, 12,000 enterprises were temporarily suspended, and budget revenue only reached 70% of the estimate. Normally, HCM City collects 1,400 billion VND/day, but it dropped to 800 billion VND/day in August.

Vice Chairman Hoan made four recommendations to help recover the city’s economy.

Firstly, the Ministry of Planning and Investment will advise the Government to set up a special working group on economic recovery after the pandemic. In order to recover the economy, it is necessary to make decisions involving many industries, fields and localities, requiring huge resources.

Secondly, the Ministry of Planning and Investment should advise the Government to soon submit to the National Assembly for approval a scheme to allow HCM City to keep 23% of the budget revenue that the city has to transfer to the national budget instead of 18% in 2022.

Thirdly, the Ministry of Planning and Investment should advise the Government to promote private investment in health, culture, education, etc. by allowing Ho Chi Minh City to pilot auctions for public land in order to have more capital for epidemic prevention and control.

Fourthly, the Ministry of Planning and Investment will advise the Government to prioritize the allocation of capital from the state budget for three key projects that the city has proposed.

The University of Economics and Law (HCM City National University) cites Ho Chi Minh City as the largest city in Vietnam. Its population accounts for 9.4% of the country and 50.44% of the southeastern region. Statistics in 2020 showed that the migrants accounted for 21.9% of HCM City’s population, equivalent to more than 2 million people. It is estimated that the total number of people living in the city is more than 11.5 million.

Ho Chi Minh City is the largest economic center of Vietnam with 254,699 enterprises operating as of December 31, 2020, accounting for 31.4% of the total number of enterprises in the country.

In recent years, HCM City's GRDP accounts for about 24%-25% of the country's GDP.

Previously, budget revenue in Ho Chi Minh City accounted for nearly one third of the national budget. Since the General Statistics Office adjusted regulations on statistics and reallocation of contributions of economic groups operating in many localities, the budget revenue in Ho Chi Minh City fluctuates around 25%-27% of the national budget.

The tax revenue per capita in HCM City in 2019 was estimated at over 45 million VND/person, 2.7 times higher than the national average, while the budget expenditure per capital in the city was about 7.3 million VND/person, equal to about 51% of the national average.

The rate of budget revenue allocated for HCM City has continuously decreased from 33% in 2000-2003 to 29% in 2004-2006, 26% in 2007-2010, 23% in 2011-2016 and 18% in 2017-2021. With a 5% decrease compared to the previous period, it is estimated that in the period 2017-2021, the allocated budget revenue for the city decreased by about VND 9,000 billion per year.

According to the Law on State Budget 2015, Clauses 1 and Articles 13 and 15 of Decree 163/2016/ND-CP dated December 21, 2016 on the implementation of a number of the law's articles, State budget revenue in any province and city consists of three groups: revenue collected for the central government (temporarily called group 1); revenue collected for the local budget (group 2); and revenue to be shared with the central government (group 3).

Based on these regulations, the allocated budget revenue for HCM City mentioned above belongs to group 3. Recently, the city has proposed to the central government to keep from 23% of the budget, which means revenue in group 3, not the total budget revenue.

According to the HCM City Business Association, when the 4th Covid-19 wave occurred on a large scale and became serious, the vast majority of 288,333 businesses with 3,240,000 employees in the city had to stop operation. Only 715 out of 1,527 enterprises in high-tech industrial parks and export processing parks have maintained operation at different levels, with about 65,000 employees still working out of a total of 345,000 employees.

Based on available statistics, the research team of the University of Economics and Law believes that economic damage in HCM City is serious, occurring in all sectors of the economy.

 

Even if the city can control the epidemic from September 15, disadvantages will continue to spread, creating negative impacts, severely depleting financial capacity in both individuals and households and the business sector, if the Government and Ho Chi Minh City do not quickly create a large enough and timely motivation.

If HCM City is slow in economic recovery, the growth of the entire southern key economic region will decrease, the unemployment rate will increase, and national budget revenue will be negatively affected.

HCM City needs help to rise up after the pandemic

Stores on a HCM City street are all closed during the time of social distancing.

Creating a driving force for HCM City’s economic recovery will have a positive impact, pulling the whole southern key economic region to stability and recovery, the University of Economics and Law commented.

The economic recovery strategy of HCM City is not limited to purely economic aspects, but requires coordination with policies on social security and health, labor-employment, transport, education-training and others.

Powered by recovery programs

The University of Economics and Law’s experts say that solutions are needed to help HCM City recover after the pandemic.

First, a Government special working group is needed on economic recovery in Ho Chi Minh City and the southern key economic region.

Second, central budget allocation is needed for HCM City with at least 13,200 billion VND for a welfare support package worth VND50,000/person/day for more than two months ending in mid-October 2021.

The Ministry of Finance should issue government bonds to raise capital for HCM City to enable the city to promptly disburse capital for approved public investment projects.

The central government should also allow HCM City to keep 23%, instead of 18% as present, of the budget revenue of group 3 to have resources to create a driving force for effective economic recovery.

Other suggestions: Raise the public debt ceiling of Ho Chi Minh City and to allow the city to issue local government bonds to finance projects in health infrastructure; transport infrastructure, especially transport projects connecting HCM City with the southern key economic regions; and digital economic infrastructure and digital transformation.

Based on statistics until the end of August 2021 and assumptions about the city’s ability to control the pandemic, the University of Economics and Law proposes three scenarios on HCM City’s economic prospects in 2021 as follows:

Scenario 1 (expected): To basically control the epidemic by September 15, 2021 and an additional 2 weeks of buffer before establishing a "new normal" from October 2021. Estimated GRDP of 2021 at current prices will be 1.74% lower than 2020.

Scenario 2 (worse): The epidemic lasts until the end of September 2021, the "new normal" state to be established in the late second half of October 2021. Economic damage is very serious, with estimated GRDP 2021 to decrease deeply by 13.48% compared to 2020. The economy is very likely to fall into a recession.

Scenario 3 (good): The epidemic is controlled better than scenario 1, accompanied by adequate and thoughtful preparation for the end of the social distancing, resuming activities from 15 September 2021. It is estimated that 2021 GRDP will decrease by about 0.85% compared to 2020.

Lan Anh

HCM City looks towards new normal after September 30

HCM City looks towards new normal after September 30

Ho Chi Minh City, the epicentre of the country’s prolonged COVID-19 outbreak, is taking drastic actions aimed at curbing the spread of the virus and getting its ailing economy back on track after September 30.

 
 

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