The solutions must be combined synchronously to achieve growth target

Assoc.Prof.Dr. Ngo Tri Long

Could you please tell us your assessment of the results of the socio-economic situation in the first quarter of 2023?

First of all, through the socio-economic development results of the first quarter of 2023, just announced by the General Statistics Office, Vietnam's economy is facing many difficulties. Although the growth in 2022 is very high, at 8.02%, by the first quarter of this year, we have not been able to break through. Looking at the results in the past twelve years, the GDP growth rate in the first quarter of this year can be considered very slow, while the growth target set by the National Assembly for 2023 is 6.5%.

Thus, the remaining nine months are too challenging to achieve this goal. According to the General Statistics Office, if you want to achieve 6.5% growth, the remaining three quarters, on average, need to achieve at least 7.5% growth each quarter. The low GDP growth rate in the first quarter was due to economic difficulties; orders dropped, input production costs increased, and fuel, transportation and logistics increased... so businesses are complicated. In addition, rising costs increase inflationary pressure, which poses risks to the macroeconomy.

However, in an overall and objective assessment, although the socio-economic results in the first quarter compared to the same period last year were not positive, and there were still many "bumps" compared to the difficult general trend of the region and the world, we also need to recognize that this is still a positive result and should not be too pessimistic.

Many forecasts show that the US Federal Reserve (FED) and the European Central Bank (ECB) will continue to raise interest rates; In 2023, if international trade declines, the world economy may fall into recession. How do these affect the Vietnamese economy, sir?

High-interest rates will create exchange rate pressure on the Vietnamese dong, forcing the State Bank to have the policy to adjust the exchange rate while our goal is still macroeconomic stability. When interest rates increase, causing the USD and EUR to appreciate, imported raw materials and input fuels will also increase in price, leading to higher costs. When interest rates rise and the USD increases, the pressure on the capital costs of businesses will increase, leading to high prices and very difficult consumption. Therefore, the resilience of enterprises faces many challenges.

When the world economy declines, and it is forecasted that there is a possibility of a recession, the demand for goods from other countries or international orders for Vietnam will undoubtedly decrease, making import and export activities worse. Ours also decreases. Export activities decreased very clearly in the first quarter. Such a situation will be very difficult for the operation of some industries in the coming time, especially those with a large proportion of exports such as leather and footwear, textile or electronic component manufacturing industry and industries that require a lot of capital to operate such as real estate.

World inflation is still high, the USD interest rate continues to increase and also at a high level, domestically produced raw materials depend on outside sources. In that context, the pressure on domestic inflation is huge. How does this affect Vietnam's monetary policy management?

In principle, when inflation is high, interest rates must be increased. Therefore, the program of economic recovery and development in the context of high world inflation to reduce interest rates must be reconsidered.

This year's credit growth target in Vietnam is set higher than last year's. But in the last quarter, why were money supply and credit growth only half of the same period last year? The first reason is that the operation of enterprises is very difficult. But when it is difficult, the capital source for the business to operate does not need much because it is difficult to borrow a lot of capital, then it will take on debt to pay high interest. Secondly, businesses are facing many difficulties, so the loan conditions are also very difficult to meet, leading to banks being unable to supply money and credit not increasing.

In the past, there has been a contradiction that despite controlling inflation, deposit interest rates are very high. When deposit interest rates are high, lending rates will certainly be high. In that situation, there has been a remarkable adjustment of the State Bank recently, when it decided to reduce the operating interest rates, effective April 3, 2023. This is an effort and flexibility of monetary policy. In general, to help stabilize the macro-economy, monetary policy plays an extremely important role. Banks must also be proactive and flexible, focus on keeping exchange rates stable, and reduce deposit interest rates, but lending rates must also be reduced. In fact, deposit interest rates have recently decreased, but lending rates at many banks are still high. This is an issue that needs to be considered and resolved more urgently.

Reducing interest rates will be very difficult for State Banks and commercial banks. But, according to you, can we reduce interest rates from now until the end of 2023 or not? If interest rates are still high, cannot be lowered or are very low, what is the solution to support businesses and the economy to achieve the set growth target?

The reduction of operating interest rates is a remarkable move of the State Bank. But to keep this operating trend is not easy because, in the current context, the challenge of inflation is still very big. The world economy is still fluctuating very strongly, with many risks. It is forecasted that fuel and gasoline prices in 2023 will decrease compared to 2022 but remain high. The cost of input materials will continue to increase, orders will be low, and the production of enterprises will be difficult, so the growth rate will also face barriers. At this point, GDP growth in the second quarter may be brighter, but the forecast is only about 6%. Therefore, this year's GDP growth target of 6.5% is very challenging. Following the trend, deposit rates will continue to decrease. When the money supply for the economy starts to go into orbit, production recovers and develops, the money supply will certainly increase, and interest rates will decrease. Therefore, the high-interest rate trend like 2022 will not repeat. The general trend is down, but gradually.

In the current context, we must combine solutions to support businesses and the economy. For example, the fiscal policy directly supports reducing input costs for people and businesses, mainly taxes and fees. Fiscal policy must be effective, reduce unreasonable expenditures, and balance supply and demand when affecting inflation. Trade policy needs to regulate supply and demand, especially for input materials.

Another important issue is the reform of administrative procedures, which should facilitate people and businesses, reduce troubles, and minimize negatives. Besides, it is also necessary to have solutions to deal with some problems that will occur in the near future, such as rising electricity prices, salary increases, etc., causing other commodities to increase as well. It is necessary to control well to avoid "slapping the water with the rain", leading to an explosive domino phenomenon that increases the prices of commodities, affecting the general trend. In summary, there must be many synchronous solutions in which the two main policies, monetary policy and fiscal policy, play a key role in stabilizing the macro-economy, controlling inflation and economic growth.

Thank you!