Economic growth in 2023: Flexible coordination of fiscal and monetary policies

	Fiscal policy to promote economic growth
	IMF optimistic about Vietnam"s economic growth

GDP in 2022 will reach about 7-7.5%

According to Deputy Minister of Planning and Investment Tran Quoc Phuong, in 2022, the economy had a positive recovery right from the beginning of the year, when GDP growth in six months increased by 6.42% over the same period last year. If we continue to strive, GDP is likely to reach and exceed 7-7.5% in the whole year 2022; and the macroeconomy remains stable.

Regarding the situation in 2023, the leader of the Ministry of Planning and Investment said that this would be a year with many difficulties and challenges, both internationally and domestically. World economic growth is forecast to slow down and the risk of recession increases. Inflation continues to be high, likely to persist in the medium term in some countries. The trend of fragmentation, regionalization, and economic competition is increasing.

In the first eight months of 2022, Vietnam's average consumer price index (CPI) increased by 2.58%, equivalent to the years from 2018-2021; State budget revenue was at 85.6% of the estimate, up 19.4% over the same period last year; trade surplus was estimated at US$3.96 billion. This result was recognized and highly appreciated by Fitch, Moody's, S&P, international financial institutions, and foreign enterprises.

Currently, the Ministry of Planning and Investment is advising and developing a plan for 2023. It is expected that the ministry will identify 15 socio-economic development targets, on the basis of sticking to development goals for the whole 2021-2025 period, striving to control inflation at an appropriate level to create room for economic growth.

Domestically, the economy continues to recover, but economic growth is likely to be more difficult. The general trend of many international organizations is to raise the growth forecast for 2022 but lower the growth forecast for 2023 in Vietnam. Specifically, the World Bank (WB) forecasts that the country's GDP would increase by 7.5% in 2022 and 6.7% in 2023. The International Monetary Fund (IMF) forecasts that Vietnam's growth would be 7% in 2022 (up from the forecast of 6% as of May 16, 2022), 6.7% in 2023 (down from the forecast of 7.2% as of May 16, 2022).

“With a large economic openness, while the economy's autonomy and domestic production capacity are still modest with many potential risks, challenges to our economic growth and macroeconomic stability are huge. Difficulties and challenges are increasing, especially inflation pressure, increased production costs, supply chain risks; and demand in large and traditional export markets has weakened," said Tran Quoc Phuong.

Assessing Vietnam's stable economic development prospects, Nishad Majmudar, the main credit rating expert for Vietnam at Moody's, gave a more optimistic assessment. Vietnam's economy and exports are becoming stronger and stronger. Although the world has been experiencing many economic shocks such as the Covid-19 pandemic, the US-China trade tension, and the military conflict between Russia and Ukraine, FDI continues to "flow" into many industries of Vietnam, especially the manufacturing sector. He expected that Vietnam's growth momentum would continue despite world and global finance going through a period of decline.

Prefer to use a safe fiscal policy

Looking back at Vietnam's economic recovery, many economic experts highly appreciated the effectiveness of fiscal policies. Vu Sy Cuong, Chief Economist of the Institute of Financial Technology and Development (Academy of Finance), said that in 2022, Vietnam had an unprecedented series of fiscal policies. Much has been achieved in the implementation of fiscal and monetary policies. Specifically, tax reduction and fiscal support helped stabilize the macro situation. Several support packages related to businesses as well as employees contribute to socio-economic stability and job creation.

However, according to Cuong, except for the tax reduction support policy, other policies have not been as effective. The implementation of the housing support package is still limited. The slow public investment program will pose certain challenges in the fiscal year 2023-2025. “During the 2022 – 2025 period, it is necessary to review the policies designed to adjust as needed. In particular, it is necessary to carefully consider the coordination between fiscal policy and monetary policy, to implement policies that are simple, easy, and suitable to the actual conditions in Vietnam," said Cuong.

From the perspective of import-export enterprises, Le Tien Truong, Chairman of the Board of Directors of Vietnam National Textile and Garment Group, said that the end of 2021 and the first eight months of 2022 were the development period, taking advantage of the opportunities of the textile industry. In the first eight months of 2022, the textile and garment industry exported about US$31.2 billion, an increase of more than 20% compared to the same period last year. This is the highest growth rate in the past 10 years. This result has an important impact on supportive policies in macro regulation.

However, the policy areas that Vietnam implemented early, bringing benefits to the textile and garment industry and other export industries, have been applied in other countries. Meanwhile, the world market has the opposite trend, suddenly becoming "cold". World demand fell sharply due to the economic recession.

Regarding the policy approach in the future, Truong suggested that when resources were limited, priority should be given to focus. In the medium term, it is necessary to invest in innovation towards a green and circular economy, which needs a large investment rate and high operating costs. “Special attention should be paid to export industries that bring a good surplus, have large labor resources, and reach more than 50% of added value in the country. This will ensure jobs, surplus, and growth," said Truong.

According to Prof. Andreas Hauskrecht, Indiana University (USA), Vietnam has effectively prevented and controlled the Covid-19 pandemic. Based on the international situation and the context of Vietnam, he suggested that Vietnam should not raise interest rates or use financial instruments but should use prudent fiscal policies.

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According to the World Bank's Chief Economist in Vietnam, Andrea Coppola, based on statistics, surveys, and data, while countries around the world are concerned about the inflation situation, Vietnam is still implementing flexible economic policies and controlling inflation well. Vietnam is aiming for sustainable development and macroeconomic stability through supportive fiscal policy, flexible monetary policy, and a strengthened banking system. To achieve that goal, Vietnam needs to renew its growth model, accelerate accumulation, and improve the efficiency of capital use. Vietnam also needs to be aware of and focus on green growth; join and speed up the implementation of digital transformation to quickly increase productivity.