Flexible and effective coordination of policies for economic recovery

Public investment will continue to be key in economic development in the next period. Photo: N.Thanh

There is still space to expand fiscal policy

Dr. Can Van Luc, Chief Economist of BIDV, member of the National Monetary and Financial Policy Advisory Council, said that there are many big challenges in the country. First is the pandemic with uncertain vaccine supply. Along with that, institutional reform, investment-business environment and economic restructuring are still slow, disbursement of public investment is slow while bad debt increases.

“In 2020, Vietnam's GDP growth rate at 2.91%. GDP for the whole of 2021 is forecast to increase only about 2%; in 2022, GDP may increase by only 4-4.5%. The challenges show the urgency to issue fiscal and monetary policies to support economic recovery and development," said Mr. Can Van Luc.

Mr. Can Van Luc said that there is still space to expand fiscal policy and it is more favorable than monetary policy. Major balances (budget deficit/GDP, public debt/GDP, debt repayment obligation/state budget revenue, inflation, etc.) are still within safe limits.

In addition, the major balances and restructuring of public debt have created a policy space that can be maintained and expanded in the 2022-2023 period; the size of fiscal support (nearly 3% of GDP) is still quite modest. The space for other support packages such as reducing electricity bills and telecommunications charges is still available.

Meanwhile, the money market and banking conditions are now also better than in the previous period (low inflation; successful experience in restructuring and dealing with bad debts in the previous periods helps to improve productivity, strength and resilience of the banking industry; the roadmap for vaccine coverage achieved positive results, creating favorable conditions for economic recovery, increasing the economy's ability to absorb capital and repay debts).

However, Mr. Luc said: "There is not much space to lower interest rates and increase credit growth as interest rates have been low for the past 20 years; capital absorption of the economy is still weak; inflationary pressure and bad debt increases.”

According to Assoc. Dr. Vu Sy Cuong, Chief Economist of the Institute of Technology and Financial Development (Academy of Finance), there are many things to pay attention to. In terms of advantages, in recent years, fiscal policy has been more cautious, and room has also supported growth and development. In addition, the public debt ratio is below the threshold; term interest rates increase, average loan interest rates decrease.

Besides advantages, the obvious challenge is the uncertainty of the Covid-19 pandemic. If fiscal space is used up, there will be risks.

“It is estimated that on average, Vietnam has to spend from 0.8-1% of GDP on medical expenses, especially preventive medicine in the next 2-3 years. Therefore, if the fiscal package is too large, the remaining space is not much," said Vu Sy Cuong.

Ensuring national financial security

Regarding the proposal of implementing a fiscal policy package to support economic recovery and development, Mr. Nguyen Minh Cuong, Chief Economist of the Asian Development Bank (ADB) in Vietnam, said that fiscal support is essential during the period when the economy is affected by the pandemic and equally important when the economy enters a transition period towards recovery. It is important to define appropriate goals for each period to build a support package with a large enough scale, meeting the criteria of being timely, for the right audience, long enough, and inclusive enough.

Mr. Nguyen Minh Cuong said that public investment will continue to be the "pillar" of economic development in the next period. “Investing in sustainable infrastructure will support the post-Covid-19 economic restructuring process. Therefore, it is necessary to continue to consider public investment disbursement a key task in 2022 - 2023 to realize the sustainable development goal. In addition to prioritizing the disbursement of large projects, important national projects with great spillovers are in the process of being implemented, which can speed up the implementation of local works, restoration, maintenance of existing infrastructure as experienced by some other countries in the region,” said Mr. Cuong.

Specific proposals on fiscal policy will be made in the future, Mr. Can Van Luc said that continuing to reduce value-added tax, reduce social insurance premiums, environmental protection tax; reduce taxes and fees for automobile registration in the country. There are loan guarantees for small and medium-sized enterprises, along with advances in expenses such as wages, pandemic prevention for small and medium-sized enterprises, increased infrastructure investment in the next two years.

With monetary policy, Mr. Luc proposed to continue implementing Circular 14/2021/TT-NHNN to restructure the repayment term, exempt and reduce fees and maintain the same debt group for customers affected by Covid-19 of the State Bank; using open market operations tools (including appropriate reserve requirement ratio) to assist credit institutions to maintain low interest rates; study and maintain the ratio of using short-term capital for medium and long-term loans; continue to improve institutions and regulations for non-bank credit institutions to participate in safe and healthy consumer lending; proposing a method to legalize bad debt handling.

Paying a lot of attention to the implementation stage, Mr. Can Van Luc suggested that institutional barriers should be removed to increase absorption capacity and ensure effective policies. In addition, it is necessary to calculate the impact and have solutions to control the risks of large balances (public debt, budget deficit, debt repayment obligation); checking, monitoring against waste and group benefits.

In the long term, Mr. Nguyen Minh Cuong said when the economy has gradually recovered, the supporting role of fiscal policy will also decrease, it is necessary to take measures to expand the revenue base, strengthen revenue management and improve the efficiency of state budget spending to re-establish fiscal discipline within the next 3-5 years, ensuring the national financial safety targets in the 2021-2025 period.

Giving an overview, Chairman of the Economic Committee of the National Assembly Vu Hong Thanh said that in order to improve the efficiency of economic recovery and development, it is necessary to coordinate flexibly and harmoniously, the efficiency of fiscal policy, monetary policy with other macroeconomic policies such as investment, trade and service policies.

“Only with harmonious and effective coordination of these macroeconomic policies can we effectively use resources to support the program of socio-economic recovery and development. Proposed policies must be evaluated for their impacts carefully, acceptable in the short term, the indicators may change, but in the long term, they must ensure national financial security and balance with the ability to borrow, repay, and absorptive capacity of the economy. Policies on resource mobilization, allocation and use must also ensure publicity, transparency; avoid abuse, policy profiteering, group interests, corruption,” Chairman Vu Hong Thanh said.