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Inflation management must be flexible and adaptive

20:20 | 04/08/2021

VCN - In order to cope with the worsening situation of the pandemic and ensure GDP growth in the last months of the year, Dr. Nguyen Bich Lam, an economic expert and former Director of the General Statistics Office, said that it was necessary to maintain an expansionary fiscal and monetary policy in the short term.

Inflationary pressure still present: GSO official Inflationary pressure still present: GSO official
Continuing to manage prices, supporting the implementation of Continuing to manage prices, supporting the implementation of "dual goals"
Inflationary pressure still present: GSO official Inflationary pressure still present: GSO official
Dr. Nguyen Bich Lam, economist and former Director General of the General Statistics Office.
Dr. Nguyen Bich Lam, economist and former Director General of the General Statistics Office.

The pandemic is having a great effect on Vietnam's economy. How do you assess the factors affecting Vietnam's economic growth in the last months of the year?

Due to the large openness, the increase in global inflation in 2021 may affect the Vietnamese economy in increasing prices of goods and services for domestic consumption. Rising crude oil and food prices will increase production costs, transportation fees, and domestic feed and food prices; affect the balance of trade because the value of imports increased more than the value of exports because exports faced difficulties due to the pandemic; affecting public investment and construction investment in general due to the high price of raw materials causing interruption of construction activities.

Recently, the World Bank (WB) has forecasted the global economic outlook for 2021 and 2022 with a strong recovery of major economies. For emerging markets and developing economies, the World Bank has forecasted growth of 6% in 2021 due to increase of aggregate demand and commodity prices. However, the economic recovery of countries in this group (excluding China) would be delayed due to the Covid-19 pandemic and slow implementation of vaccinations.

In addition, the price increase of some items due to a supply shortage may be in the long run, such as a shortage of semiconductor chips for automobile production and electronic goods.

In your opinion, to achieve the goal of GDP growth in 2021, what will the Vietnamese economy need to do?

Bringing the economy back to the growth rate of the years before the pandemic, and implementing the socio-economic development orientation for the 2021-2025 period with an average GDP growth rate of 5 years about 6.5-7% requires us to implement flexible and expansionary fiscal and monetary policies, accepting inflation exceeding the National Assembly's target of 4%, but still within the inflation threshold.

It needs to be done in the context that countries around the world are trading off targeted inflation to boost growth and create jobs, and bring the economy back to the normalcy of the pre-pandemic period.

Accordingly, in order to recover and promote economic growth while controlling inflation, the Government needs to study and implement a number of solutions.

Firstly, it is necessary to speed up the process of vaccinations to achieve the rate of herd immunity as soon as possible, creating an important basis for returning the economy to normal, promoting economic activities, domestic and international production and tourism.

Secondly, continue implementing expansionary monetary and fiscal policies to promote growth. The complicated development of the pandemic caused aggregate demand to decline, the labour market has not recovered, and the economy has not taken advantage of its potential.

Meanwhile, the CPI remains at a low level. Therefore, in the short term, it is necessary to maintain an expansionary fiscal and monetary policy. At the same time, continue to strictly supervise and control cash flow into investment channels such as foreign currency, gold, real estate, to control risks affecting the macro economy, and promote resources and capital in production and business activities.

Thirdly, urgently develop and implement an economic recovery program, stimulate demand in the service and tourism sectors, and have specific solutions to support the recovery of production and business activities of enterprises and business households.

At the same time, promoting disbursement of public investment capital is associated with increasing capital efficiency. Accelerating the disbursement of public investment capital plays an important role in promoting growth, not only increasing aggregate demand but also improving the capacity and total supply of the economy, creating a favourable infrastructure for manufacturing enterprises.

Therefore, public investment must be effective, highly pervasive, create favourable conditions for production and business to promote the supply side of the economy in the long term.

You mention that we should reduce inflation pressure, in your opinion, what should we do?

In my opinion, it is necessary to study the suitable "inflation threshold" for each stage of economic development, in order to set a medium-term inflation target instead of an annual inflation target.

When the economy is in the recovery phase, policies to stimulate aggregate demand will boost production, business, and economic growth. Inflation may increase in the short term because aggregate demand increases, but there is a delay from the supply side because enterprises need time to grasp market demand and adjust production and business activities. Inflation will fall again as the economy's supply increases. Therefore, inflation management needs to be flexible and adaptable to each stage of the economy.

Besides, it is also necessary to actively prepare conditions to promote production and business, ensure the supply and circulation of goods, and reduce inflationary pressure. For short-term shortage of goods, it is necessary to study policies to cut production costs, import raw materials for production; at the same time, strengthen inspection and examination activities, resolutely handle if detecting acts of speculation, hoarding or manipulating prices, especially for commodities that have shown signs of decreasing prices on the international market.

For long-term shortages such as semiconductor chips, it is necessary to have preferential policies and investment incentives to promote the production of the above items, take the initiative in the source of raw materials, increase the independence and autonomy of the economy.

In addition, it is also necessary to closely monitor price movements and inflation around the world, promptly warn about risks affecting domestic prices and inflation. In particular, it is necessary to carefully evaluate and distinguish which items and materials are likely to be short-term temporarily or in the long-term so as to have appropriate policies to meet production and consumption demand. At the same time, effectively and flexibly implement the role of the State in regulating and stabilizing prices such as gasoline, health services, and education.

Studying the timing and level of price adjustment of petrol and services managed by the State to avoid resonance with cost-push inflation, creating expected inflation of the economy.

Effectively implement communication activities to promptly, accurately and clearly inform the Government's direction and management policies and solutions in order to eliminate false information about market prices and prevent psychological inflation caused by misinformation.

Thank you, Sir!

By Xuan Thao (recording)/ Binh Minh