Vietnam's economy has suffered losses from COVID-19 but international organisations have forecast that the country is still one of the fastest growing in Southeast Asia.
Unprecedented pressure and challenge
COVID-19 has been a catastrophic epidemic and medical challenge, creating unprecedented pressure on social management and economic development for communities and businesses around the world, including Vietnam.
In the first quarter of 2020, in the generally difficult trend of countries around the world amid COVID-19, Vietnam's economy also suffered more losses and difficulties than the same period last year. For the first time in decades, the number of enterprises withdrawing from the market is larger than the number of those newly registered, combined with a reduction in international visitors and total retail sales of goods and consumer services. Social investment and export revenue in Q1 saw its lowest growth rate during the 2016-2020 period. A series of festivals, tourism activities and gatherings have been set aside. State budget revenue has also decreased, inverse to the spending on disease control. In particular, the increasing disruption of some supply chains and output consumption of some key products has made key Vietnamese industries highly dependent on external markets.
However, according to the World Bank's “East Asia and the Pacific in the Time of COVID-19 – Regional Economic Update”, Vietnam's economy in the first quarter this year achieved a growth rate of 3.82%. Although it was the lowest level in 11 years, it is still the highest figure among all the countries with available data so far. These positive signals reflect the joint efforts to improve the investment environment since 2019, as well as showing market and investment confidence.
Vietnam has been highly praised by the international community for both its ability to deal with the pandemic and its efforts to maintain the momentum of economic growth and social security. The pandemic has also offered an opportunity for the public to experience and believe in the leadership of the Party and State, as well as the capacity and high professional responsibility of the health sector and the trusted image of the army.
Under the motto "Fighting the epidemic like fighting against the enemy" and "Leaving no one behind”, the Government has targeted twin goals of fighting the epidemic to protect people’s health and maintaining economic stability to be ready to make breakthroughs when the epidemic subsides.
The Government has been and will continue to issue additional financial and credit support policies to the business community and people affected by the pandemic, including the exemption of or reduction in interest rates and debt restructuring, extension of deadlines for tax, land leasing and social insurance payments, and offering welfare policies, such as issuing monetary support packages (a VND300 trillion and a VND180 trillion package), a social security support package worth over VND62 trillion, an electricity bill support package (worth about VND12 trillion) and a telecommunication-price assistance package valued at VND15 trillion.
Bright economic prospects
According to the International Monetary Fund, the losses caused by COVID-19 to the global economy in 2020 may be greater than in 2009. The global economy is at risk of facing negative growth that requires unprecedent reactivity.
Currently, the Government has not decided on its adjustment of socio-economic planning targets for 2020. Nonetheless, the General Statistics Office of Vietnam said that GDP growth of 5% in 2020 would be a success.
The Asian Development Bank forecast Vietnam's economy will grow by 4.8% in 2020, with inflation at 3.3% facing an increase thereafter to 3.5% by 2021. The current account deficit is expected to be at 0.2% of GDP this year, before recovering to a surplus of 1% of GDP next year. Vietnam is still one of the countries with the fastest economic growth in Southeast Asia. The driving force of economic growth is still a growing middle class and a dynamic private sector. The domestic business environment is still being enhanced, but policies need to be improved to support innovation.
In early April, Fitch Ratings maintained Vietnam's credit rating at BB and revised its outlook from “positive” to “stable”. The outlook demonstrates that Vietnam's bright spots on credit remain unaffected, including the potential for solid development in the medium term, while the macroeconomic environment continues to be stable. The government debt burden is steady at a low level and access to external financial resources is more convenient than other countries in the same group in terms of rankings. Fitch also forecasts that Vietnam's economic growth momentum will return in 2021, with an expected growth rate of 7.3% as domestic and foreign demand gradually recover following global and regional trends.
In the immediate future, the socio-economic situation still faces multiple difficulties, associated with the COVID-19 fight both domestically and around the globe. According to the Vietnam Chamber of Commerce and Industry, along with short-term solutions such as focusing on disease prevention and control, it is necessary to support the maintenance of production and business using fiscal, credit, labour, salary and trade union policies.
As the pandemic reduces the total supply and aggregate demand for each nation and the whole world, experts suggest that economic support solutions in the post-COVID-19 period are needed for each country should focus on uniform solutions to increase linkages, prevent supply chain fractures, and increase both total social supply and aggregate demand.
In particular, it is necessary to identify and deepen changes in thinking and in the mode of State management and corporate governance, as well as macroeconomic and microeconomic structures towards actively adapting to the epidemic for "safe business". Accordingly, it is necessary to increase activities and applications of digital transformation and develop non-contact services, while minimising disruption during social distancing. In other words, IT with home-based working support, online learning and home delivery are essential activities both during and after the pandemic.
Under the direction of the Government, post-COVID-19 economic recovery scenarios are being promoted at all levels based on the presumption of the end of the epidemic. However, new thinking on proactive adaptation to COVID-19 needs to be formed and requires new adaptive capacity of each management apparatus, the business community, as well as every citizen. Experts say that it is not strictly financial potential but an adaptation to the changing market and the new context requires technology to be applied quickly, thereby boosting e-commerce, e-payments and online work, as well as rearrangement of global supply chains and a greater focus on the domestic market.
Regardless of these, Vietnam needs to continue improving its business and investment environment, combined with eliminating cumbersome administrative procedures and reducing inspection, while accelerating the disbursement of VND700 trillion worth of public investment in 2020, thereby attracting social investment capital, including both domestic and foreign capital.
Monetary policy needs to be implemented in a more specific and drastic manner, with more clarified solutions and a spirit of the banking sector accompanying enterprises through the debt postponement/rescheduling, interest rate reduction and commercial banks’ profit reduction partly offset with businesses’ losses.
In addition, it is important to grasp new opportunities from free trade agreements, while re-organising the domestic market to focus on strongly developing production areas, industrial parks and economic zones to be more active in domestic raw material supply, as well as encouraging the production of components and intermediaries to replace imported ones.
Source: https://en.nhandan.org.vn/