Although social distancing was imposed on only 19 southern provinces and cities, Vietnam's economy was affected seriously. The GDP fell from 6.61% in the second quarter to -6.1% in the third quarter of 2021.
Strategy changed as vaccines were available. From being at the bottom in terms of vaccination coverage, Vietnam has risen to the top 10 in the world.
Now is the time when Vietnam's economy is forecast to have passed its darkest moment. But to resume its growth momentum to the level before the pandemic, support is needed.
The Ministry of Planning and Investment, the World Bank and many other organizations forecast Vietnam's GDP in 2022 to be higher than in 2021, but it will still below 6%. That is not enough to achieve the growth target for the 2021-2025 period when GDP of 2020 and 2021 were both below 3%.
In that context, the National Assembly approved the Economic Support and Recovery Program of over 350 trillion VND in support.
Economic expert Vu Dinh Anh said this support package is not called a demand stimulus package or an economic stimulus package but a support package for economic recovery and development and the whole society.
“With the two most important macroeconomic policy tools, namely fiscal and monetary, this time the fiscal policy is built as a pillar. The content of the two areas has been designed with coordination,” he said.
The expert also emphasized tax support. "If in the past, we took tax reduction as the main pillar, this time we reduced the tax revenues of the state budget. The most important factor is that in the past, we also had policies to exempt and reduce taxes and fees but these only focused on direct taxes such as corporate income tax for affected businesses. This time, we reduced indirect taxes - Value Added Tax (VAT). The current VAT rate is 10%, and although the new rate is down to 8%, it has an impact on all transactions in the market,” he said.
This, according to expert Vu Dinh Anh, helps sellers to be able not to increase prices when the pressure on costs is high and the challenges are still many. As income and employment are strongly affected by the epidemic, the reduction of VAT will directly help consumers save 2% of their spending, and thereby have confidence and better conditions to increase consumption.
The reduction of VAT will help control the rise of the consumer price index when domestic consumption has better prospects. Thus, the VAT reduction will help achieve two goals: one is to support economic growth from the side of production and business and the consumer; the second is to stabilize the macro-economy and control inflation.
Concerns and warnings
Dr. Hoang Van Cuong, a National Assembly deputy, Vice Rector of the National Economics University, said the recently issued policy package is a support package for the people. Most people and businesses are entitled to the support policies. For example, everyone who buys goods benefits from the reduction of VAT.
Cuing said the policy must be put into practice as soon as possible.
“The policy is well designed. It does not specify who is supported, but who is not supported. This is very few, only including the group of businesses that are having advantages during the pandemic, such as financial-banking businesses, securities, real estate, telecommunications. The remaining are certainly entitled to the support,” said Cuong.
However, he noted that a policy is only good when it directly reaches beneficiaries.
Dr. Vu Dinh Anh pointed out problems related to the policy package on public investment. The disbursement and implementation of public investment projects have been slow. It is necessary to solve issues related to the progress of projects as well as disbursement progress. Only then will the VND 167 trillion package for public investment come into play in practice, thereby creating infrastructure for the growth of the economy.
National Assembly deputy Hoang Van Cuong said the resolution of the National Assembly is just a resolution. Whether it comes to life or not depends a lot on the action plan to implement that resolution.
Without solutions to support the economy, the average growth rate in the 2021-2025 period is forecast to only reach 5.4%/year, lower than the target set from 6.5-7%/year.
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.