Need support package large enough for the economy to recover quickly

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Four factors affect the recovery chances of Vietnam's economy, including: the recovery of the world economy; rapid growth in FDI recovery; FTAs come into force; change in approach to Covid-19 control measures. Photo: Nhat Nam

According to economic experts, Vietnam needs to urgently implement the announced support packages as well as study and deploy more growth recovery packages in the medium-term with a large enough scale and wide coverage, with a focus on industries and fields with a large degree of damage.

According to the General Statistics Office, in the first 10 months of the year, the number of enterprises suspending business for a definite time was 48,500 enterprises (up 16% over the same period last year), economic growth also decreased deeply.

Economist Assoc. Dr. Nguyen Thuong Lang said that it is difficult for the economy to recover as quickly as expected after the negative impacts of the 4th wave of Covid-19 and cannot achieve the growth target of economy in 2021 at 6.5%.

According to Dr. Tran Toan Thang, Head of Sectoral Economics, National Center for Socio-Economic Information and Forecast (NCIF), there are four factors that affect the chances of Vietnam’s economic recovery, including the recovery of the world economy; rapid growth in FDI recovery; FTAs coming into force; and a change in approach to Covid-19 control measures. Notably, the entry into force of FTAs such as RCEP (from January 2022) will greatly affect Vietnam in the 2022-2023 period, especially the structure of production and supply chain in Vietnam.

Also according to Dr. Tran Toan Thang, the economy in the fourth quarter of 2021 is unlikely to recover quickly. Growth according to NCIF's forecast will range from 2.02% to 3.17% and the whole year will reach 1.9% (positive scenario), 1.52% (baseline scenario). In case of slow recovery and bad situations due to disease control, Vietnam's economy in 2021 could grow at about 0.43%. Entering 2022, NCIF forecasts Vietnam's GDP growth at about 5.8% (base scenario) and can reach 6.7% if factors positively support the recovery of the economy.

Expecting recovery momentum from new economic support package

Dr. Tran Toan Thang said it is necessary to urgently implement the announced support packages as well as study and implement the recovery package in the medium term, develop strategies and production and business scenarios in new conditions; especially it is necessary to approach new policies.

“Measures to promote public investment, especially investment in improving digital infrastructure and promoting digital transformation of businesses are essential. In addition, it is also necessary to take advantage of the support package to develop a number of key industries, improve supply chains and develop supporting industries in Vietnam," said Dr. Tran Toan Thang.

Currently, the Ministry of Planning and Investment has submitted to the authorities an economic recovery program, including a proposal for an economic recovery support package for the second period from 2022 to 2023. There is no specific information yet in terms of scale and object of this economic recovery support package, however, according to Dr. Vo Tri Thanh, former deputy director of the Central Institute for Economic Research, the Government's economic recovery program needs to be large and deep enough with a focus on industries and fields with high levels of damage.

Regarding resources, Dr. Vo Tri Thanh said that it can be used from many sources. Accordingly, it is possible to increase spending, budget deficit and borrowing; savings (specifically, recurrent expenses); partial use of foreign exchange reserves; creating resources through reforming administrative procedures, cutting transaction costs for businesses. Especially, if the budget deficit is 2%, from 4-6% of GDP, there will be US$7 billion for the program.

However, this expert also said that although money is a difficulty, it is not the most difficult. The most difficult thing is where the money is. Because if money is invested incorrectly, the consequences will happen like the stimulus package in 2009, the economy falls into a spiral of “high inflation – low growth – business failure”.

In addition to quickly deploying such a large enough support package, the Government needs to accelerate economic reform and restructuring. At the same time, taking advantage of integration and exploitation of FTAs; attracting quality FDI; promoting innovation, digital transformation.

Learning from world experience, Professor Jonathan Pincus, senior international economist at UNDP, said that most countries focus on policies to enhance long-term financing for public and private investment.

Maintaining a high investment rate will be a key factor in helping the country respond to the crisis, and the Government will play a decisive role. Even countries with extensive financial markets such as the US and Germany have established development banks and national welfare funds to provide long-term capital to specific groups of investment projects and borrowers through direct lending, loan guarantees and other instruments.

“Vietnam needs to prioritize reforming development banks such as the Vietnam Development Bank and the Bank for Social Policies as the country recovers from Covid-19 and develops a strategy to accelerate growth in the coming years," Professor Jonathan Pincus said.