Eye of the tiger can inspire path to growth

In 2021, the Vietnamese government made tremendous efforts to underpin an economic rebound as well as support the business community. Later last year, the government enacted a wide range of measures showing its great attention towards containing the COVID-19 pandemic, helping businesses to weather the storm as well as aiding businesses in their digital transformation process.

For their part, the ministries made concerted endeavours. For instance, the Ministry of Planning and Investment was proactive in crafting the programme for economic rebound towards 2023; the Ministry of Justice strived to perfect revised laws; the Ministry of Industry and Trade engaged in study and presenting diverse measures to support businesses and to ensure effective implementation of free trade agreements (FTAs); the Ministry of Finance (MoF) came out with diverse measures to help businesses fix entanglements in tax; and the Ministry of Construction presented positive measures to tackle housing issues for labourers. Significantly, the Ministry of Agriculture and Rural Development also presented a range of measures to fix issues in rural areas and for those running businesses in agriculture and rural areas in general.

The State Bank of Vietnam (SBV) guided commercial banks to concentrate capital resources into helping the business community, particularly small- and medium-sized enterprises (SMEs), and joined efforts with the MoF to encourage banks to provide credit guarantee to SMES.

But it is noteworthy that in 2021 we did not have big bailout packages as in 2020, when we had a $13 billion package assigned to commercial banks to lend a helping hand to businesses, a $7.8 billion package associated with tax support for the business community, and the $2.95 billion package to support labourers losing jobs.

Instead, 2021 marked the presence of big government resolutions that were enacted from day one, along with programmes to support rebound efforts.

The set target of 6-6.5 per cent in 2022 presents a big challenge, given that last year Vietnam’s economy just expanded 2.58 per cent, even lower than 2.91 per cent for 2020. To achieve such an ambitious target depends largely on our success in controlling the pandemic.

Of the three pillars of the macro economy which are agriculture, industry, and services, industry would continue to grab the lion’s share of driving economic growth by around half. A quarter is held by the agricultural sector, and the remaining quarter is taken by the service sector.

Agriculture continues to be one mainstay; and as Vietnam has important agricultural export markets, this sector continues to hold a decisive role in driving exports. However, like the industrial sector, it is important to avoid disruptions to the agricultural supply chain.

The service sector remains a big puzzle. In 2021, the pandemic took a big toll due to a sharp drop in consumer spending. Only two segments – medical supplies provision and banks – performed well last year, and these two sectors should retain growth momentum in 2022. The rest of the sectors including tourism, transportation, retailing and food services and entertainment suffered a major blow in 2021.

However, with the banking sector, bad debt threats may come back from the middle of this year after the SBV’s decree allowing banks to reschedule and restructure debts for corporate clients will expire in June 30, 2022. The services sector, particularly tourism, will continue facing difficulties. From the outset of this year, the government has allowed the opening of international aviation with some countries, but this takes place with much caution and slow pace.

In my view, the nearly $15.2 billion bailout package passed by the National Assembly to support the economic rebound is considered modest. I agree with some government officials and experts that the package should have a value of $37 billion, equal to 10 per cent of Vietnam’s GDP. Many countries around the world adopted bailout packages that are around 10 per cent of the country’s GDP.

Of the larger package, about $13 billion would be directed towards supporting businesses, particularly SMEs, whereas the SBV should preside and facilitate to form an unprecedented loan syndication with the participation of all banks to lend out businesses. This syndication should have separate rules with a credit limit of up to $13 billion contributed by banks, rather than from the state budget. Any banks including foreign banks operating in Vietnam are mandated to participate in the loan syndication. Further, to mitigate the lending risk for banks, such a loan syndication should work together with the government loan guarantee programme.

We already had a government decree issued in 2018 on loan guarantee to help SMEs get loans from the banks. However, the loan guarantee programmes formed under this decree are local and have not developed well to serve the business community. The government should develop a plan for a national credit guarantee agency with a statutory capital fund of around $1.3 billion and allowing the agency to guarantee up to 10 times their statutory capital funds. Generally, monetary policies and fiscal policies need to work closely together, which was not always the case in 2020 and 2021. Of course, the government should continue with its concerted efforts with diverse ministries, continue to foster implementation of the national digital transformation programme, and continue to direct banks to further lower interest rates, and to push the MoF to come up with stronger tax policies.

Last year it seems that the burden was on monetary policies. This year fiscal policies are expected to deliver stronger measures, joining efforts with monetary policies to enable a rebound for the economy.