Increase resources for businesses to regain momentum

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Prof. Hoang Van Cuong

In your opinion, what are the impacts on business activities at the end of this year and the beginning of next year?

The results of Vietnam's economic growth have been spectacular. This also predicts that this year, Vietnam will likely become a bright star in the world's economic growth again and clearly show that it is going against the spiral of inflation and the risk of the recession of the world economy. It is not a random outcome, but rather thanks to operating the economy very flexibly on maintaining macroeconomic stability.

Looking at the context from now until the end of the year, I think inflation pressure will not be as intense as in the previous period. Because the cost-push factors and the input factors have been relatively controlled, the recent monetary policy operation is also quite good if we continue to maintain tight control, it is likely that keeping inflation low is not a good thing in the context of volatile global developments.

However, the biggest risk at the end of this year and next year is the risk of an economic recession in some major economies in the world, leading to a slowdown in overall economic growth, which will adversely affect the Vietnamese economy. The economic downturn causes a decrease in consumption, narrowing the world market. Vietnam is an exporting country, so it will be affected by the decline in the consumption market.

This impact is the strongest for the foreign-invested enterprise (FDI) sector, as many of its export-related products are more strongly affected. As for the domestic business sector, this impact is probably lower because most domestic enterprises' products are essential consumer goods and the degree of adjustment is not as strong as that of electronic products.

Given the difficulties, what should be the focus of business support?

In the face of such challenges, we need to take measures to support and strengthen more resources for domestic enterprises so that these enterprises can continue to catch up with the recovery momentum and create momentum for development; make a position and maintain a foothold in the market.

Because if the world economy goes into recession or crisis, we will also keep the available market, at least keep the domestic market. In supporting domestic businesses now, I think that it is necessary to increase resources for businesses to restore activities that have stalled after the pandemic and expand investment, that is to provide capital for businesses because the problem of accessing capital is currently very difficult.

In terms of capital, in your opinion, how should this issue be improved?

Because inflation pressure is not as high as before, the control measures for the period from now to the end of the year should only focus on strictly controlling factors that can affect input prices and increase prices. At the same time, it is necessary to loosen monetary policies in a prudent and flexible manner to increase the supply of credit capital in the right direction in three key priority areas.

Regarding the source of capital for businesses so far, we rely mainly on credit and partly on bonds. In the 2016-2020 period, the economic growth rate is about 6%, but the credit growth rate is also about 16% on average. In 2021, the economy will grow by 2.58%, the corporate bond market will develop quite actively, but the credit growth rate is also close to 14%, so the capital source is quite good for businesses.

But from the second quarter of 2022 until now, the bond market has no longer supported businesses well, businesses now only rely on credit sources, if hard regulations are to increase 14% will be very difficult for businesses, not in line with the spirit of the program to support credit interest rates to increase resources for economic recovery.

Therefore, I think, we need to properly implement a flexible but not tight monetary policy; it is necessary to add tools and expand factors to control credit growth.

Specifically, banks with average lending interest rates lower than the general average must have a higher growth rate than other banks. Banks that can maintain a low difference between deposit and loan interest rates will also enjoy high credit growth. If in addition to the safety control criteria, we use these criteria to control credit growth, it will encourage banks to implement good governance, high interest rates, and low operating costs. Low provisioning rates should maintain low lending rates and high deposit rates. It is a solution to motivate banks to determine a reasonable cost and profit level to have a higher level of business support, to be able to mobilize deposits to attract idle money to reduce cash in circulation, at the same time to reduce inflation; there is no situation where banks race to raise interest rates. Of course, this job is extremely difficult, so it requires investing more resources for the State Bank to control the banking system through digitizing all information and data and automatic control.

Although the pressure on inflation is not great, the biggest challenge for us from now until the end of the year is the pressure on exchange rate control. The demand for foreign currencies will eventually increase as the US and Europe continue to raise interest rates.

Vietnam should not break the currency exchange rate, but it does not mean that it is rigid but must be flexible with the market. If we do not stabilize the exchange rate, the risk of the state's foreign currency reserves turning into foreign currency reserves of individuals and businesses will result in us losing the ability to take the initiative in foreign currency sources to stabilize and stabilize the exchange rate balance.

In addition, management agencies need to strengthen solutions to remove obstacles to increase public investment and solve solutions to increase business investment. Many bottlenecks and difficulties for private investment need to be removed such as the system of policies to encourage green economic development, wind power, and solar power. The bottlenecks in the implementation of real estate projects that are stalled will not only affect economic growth in the immediate future but also affect the balance of real estate supply and demand in the future.