Pumping money to restore the economy: time is running out
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.
Economist Le Xuan Nghia said that in 2021 Vietnam's economy reached the bottom of a U-shaped graph, contrary to the recovery trends of other countries, which were V-shaped. The country’s GDP growth reached 2.58%, but up to 0.5% was generated by the health sector and roughly 0.5% came from the education sector. This is a matter of concern.
Lack of recovery momentum
During the two years affected by the pandemic, Vietnam did not have a significant economic stimulus measure nor any stimulus package that was large enough to create a demand effect, so demand-pull inflation was almost nothing. The core inflation rate was also very low, which showed that Vietnam did not have the momentum to recover quickly, because the country did not have cumulative demand like other countries, expert Le Xuan Nghia said.
Meanwhile, other countries launched large support programs from the very beginning. In the US, many support packages were issued with a total budget of about 27.9% of GDP so far, including cash subsidies for people, increase in unemployment benefits, loan support for businesses, and social security tax deferral for employees.
In Japan, the scale of support accounted for about 44.8% GDP, including giving cash to people, deferring tax and social security duties, and subsidizing rent and providing preferential loans.
In Thailand, the scale of support has reached 15.6% of GDP so far, including cash support for workers, farmers and business households affected by the pandemic, preferential loans and tax breaks, reduction of electricity and water charges and social security contributions, spending to promote tourism through direct support for tourists, cash support, and co-payments for purchase bills for people.
The decline in aggregate demand will not create a driving force for production and business, thereby affecting economic growth. The decrease in aggregate demand was among the major reasons why Vietnam’s economic growth in 2021 only reached 2.58%.
Affected by the pandemic, total retail sales of consumer goods and services fell sharply. In 2020, this index, excluding the price factor, decreased by 1.2%, while in 2019 it increased by 9.5%. In 2021, the decline was even higher, up to 6.2% if the price factor is excluded. The decrease in purchasing power was not only due to difficulties in goods circulation, but also because people's incomes were significantly affected.
Experts say that exports, domestic consumption and public investment are the "three pillars" to promote economic growth. However, for Vietnam, only exports have achieved positive results, while domestic consumption is flat and disbursement of public investment is slow.
The pandemic will not only cause effects in the short term, but also in the medium and long term. 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. Expert Le Xuan Nghia said there has been no foundation or momentum for Vietnam’s economic recovery, while there is not much time left for implementation.
Fear of losing momentum
The fiscal and monetary policy scheme to support the socio-economic development and recovery program that the Government has just submitted to the National Assembly extraordinary session, with total value of nearly VND 340,000 billion, consists of important factors to promote demand.
These include a 2% reduction of value-added tax on consumer goods, along with a number of fees; and spending of VND 176 trillion from the budget for development investment. With this program, the Government expects to increase the GDP growth rate by about 2.9% in 2022 and 0.2% in 2023, facilitating the achievement of the target of reaching GDP growth rate of 6.5-7%/year in the 2021-2025 period.
According to economic experts, it will take time for National Assembly deputies to discuss and approve the program until it is implemented. Among these solutions, the reduction of value-added tax and fees is the easiest to implement, but other solutions such as spending on development investment or giving support to workers are very challenging to implement. Meanwhile, solutions need to be carried out quickly to promote economic development.
Expert Le Xuan Nghia is afraid that it will take up to six months for the program to be implemented. For such a long time, it is easy to lose momentum.
“I very much hope that after the National Assembly passes a resolution on the fiscal and monetary policy package, the Government will urgently issue an action plan. For every day late, businesses, people and the economy will face more difficulties and it may affect the effectiveness of the program," said Phan Duc Hieu, a member of the National Assembly Economic Committee.
According to Hieu, the Government needs to establish a specialized agency to direct, coordinate, implement and supervise the program.
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.
There is still room for Vietnam to implement bailout packages and restore the economy, but there is not much time left.