Expansionary fiscal policy prevents recession, boosts aggregate demand

	Aggregate demand surges, putting high pressure on inflation in 2022
	Policy breakthrough to revive aggregate demand and promote growth

Ms. Nguyen Thanh Nga, Deputy Director of the Institute of Strategy and Financial Policy (Ministry of Finance).

What are the solutions that the National Assembly and the Government have implemented recently to promote aggregate demand and support economic development, madam?

In recent times, the National Assembly and the Government have had many financial policy solutions to promote aggregate demand such as fiscal policy, monetary policy, etc. In 2023 and the first months of 2024, financial policies will be operated in a loose but controlled manner, contributing to supporting aggregate demand, promoting reasonable economic growth and stabilizing the macro economy.

In particular, fiscal policy is implemented in a reasonable, focused and key expansion direction to prevent the decline, promote aggregate demand and economic recovery.

In 2023 alone, the total amount of tax and fee exemptions, reductions, and extensions is estimated to be about VND191.5 trillion; in 2024, it is expected to be about VND189.6 trillion. Thanks to the flexible, focused, and timely expansionary fiscal policy, difficulties in production and business have been promptly resolved, helping the economy grow while still ensuring a balance between state budget revenue and expenditure.

Along with that, the loose monetary policy is reflected in the increase in money supply, the exchange rate is actively and flexibly managed to adapt to unpredictable developments and great pressure from the international market, contributing to stabilizing the value of the domestic currency and the price market; the exchange rate margin has been promptly adjusted, ensuring the stability of the domestic currency value, creating confidence in business and consumption.

It can be said that through flexible adjustment of financial policies along with expansion and diversification of export markets, promotion of administrative reforms, and investment attraction in recent times, exports and investment have tended to recover, and consumption of goods and services has been promoted.

In particular, in the context that many small and medium enterprises are facing challenges, the implementation of exemption, reduction and extension of payment deadlines for state budget revenues has become a practical support, helping to have more investment resources and improve the efficiency of production and business activities. In addition, the reduction of VAT also helps increase product consumption, thereby increasing revenue and profits for enterprises.

What are the challenges in promoting aggregate demand and supporting Vietnam's economic development in the current period?

Although financial policies in recent times have been adjusted flexibly and promptly to support and promote aggregate demand, there are still problems.

Regarding consumption, inflationary pressure remains one of the major risks due to the increase in raw material prices and fluctuating transportation costs. CPI in 2023 and 10 months of 2024 has ensured the target set by the National Assembly, consumer demand generally tends to recover, however, although inflation is controlled within the target threshold, inflation fluctuations are quite unstable compared to previous periods.

In addition, global economic and political fluctuations and political instability in some countries and regions increase the need for savings and limit consumption. These fluctuations are likely to cause instability in consumer psychology and affect import and export activities. This may lead to disruptions in the supply chain of goods. Meanwhile, the overall income of the people remains low.

Regarding investment, with its important role in aggregate demand, the slowdown in investment growth, especially in 2023, has significantly affected the economy's GDP growth. In the first 9 months of 2024, although investment improved compared to the same period last year, the growth rate was still low compared to the same period in 2018 - 2019. In particular, private investment is still weak and public investment has not yet strongly promoted its role as a driving force for aggregate demand and economic growth in 2024.

In that context, what direction should fiscal policy support to boost aggregate demand go in, madam?

I think that, in order to boost aggregate demand and support economic development, it is necessary to continue to effectively implement policies on tax, fee, charge exemption and extension to reduce costs; effectively implement newly supplemented and amended tax laws; laws amending many laws in the fields of budget, investment, capital management, and public asset management to resolve urgent problems, contributing to removing difficulties in production and business activities.

In addition, it is necessary to improve the efficiency of public investment, making public investment a driving force for private investment. Accordingly, it is necessary to study and comprehensively evaluate the quality of public investment management institutions through amending legal regulations on public investment in the direction of promoting decentralization and delegation of authority, ensuring unified management.

At the same time, develop the infrastructure system according to the public-private partnership (PPP) investment method, create a breakthrough in attracting investment capital in the form of PPP; organize the practical and effective implementation of these forms in investing in key infrastructure development, connecting economic regions, large cities, etc.

Finally, it is necessary to continue to promote the implementation of management, allocation and use of financial resources - the State budget in conjunction with perfecting the mechanism of decentralization and delegation of authority, promoting the responsibility of ministries, central and local agencies, and improving social security expenditure. Along with that, urgently coordinate to review and complete the promulgation of the list of public career services using the State budget, promulgate technical and economic norms, and cost norms to serve as a basis for determining the price of public career services using the State budget.

Thank you!