Vietnam looks to cushion economy from shocks of new virus outbreak

Tuesday, 2020-09-01 16:12:36
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This year is perhaps the first time in history when growth is not considered the main target in economic governance.
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NDO - Projections for Vietnam’s economy in 2020 have become less upbeat since the resurgence of the coronavirus in Da Nang in late July. In order to cope with new developments, the government’s economic policy has seen numerous changes as compared with previous years.

Nhan Dan had an interview with Nguyen Duc Kien, head of the Prime Minister’s economic advisory group on the matter.

Q: The new wave of Covid-19 in Vietnam is very different from the previous one. What has the government been doing in response?

A: In the previous wave, Vietnam managed to contain the outbreak by tracing the sources of infection and preventing community transmission by putting social distancing measures in place.

Economic policies and targets were also adapted to the outbreak’s developments, moving from the dual goals of curbing the virus and ensuring economic growth to preventing slowdown and ensuring the restoration of growth once the disease was brought under control in June.

But unfortunately the virus re-emerged on July 24 in Da Nang just as the economy was showing signs of recovery. Due to this development, Vietnam is unlikely to see a V-shaped recovery but rather a W-shaped recovery.

Perhaps this year is the first time in history when growth is not considered the main target in our economic governance. Instead, the current targets are ensuring social security, macroeconomic stability and preventing economic downturn so that when the global economy recovers in 2021, Vietnam’s economy can benefit immediately.

Q: What is the current state of the business community?

A: Vietnamese enterprises have never faced such great difficulty. During the Asian financial crisis of 1997-1998 and the global economic crisis in 2008, as long as they ramped up exports, they could bring in cash to improve their financial position and workers’ incomes.

But this time is different. The Covid-19 pandemic has caused disruption to global demand and if enterprises try to maintain production, they will face high inventory levels because what they produce cannot be exported. The pandemic has thrown enterprises into a state of desperation but also opened golden opportunities for digital transformation, corporate restructuring and overall economic realignment.

Previously, logistics was thought of as air, maritime and road transport only but now it is present in everyday life thanks to a change in consumer habits as a result of Covid-19.

For example, food businesses must carry out their transactions online through mobile apps if they want to sell their products. This new form forces business owners to streamline their staff and connect with delivery services and packaging providers to ensure food safety. On the other hand, the government is facing the difficult task of upgrading the digital infrastructure.

Q: Does this new wave of Covid-19 change the key measures previously set out by the government to revive the economy?

A: The second wave is dangerous in that it is dealing a severe blow to a weak economy which was just beginning to recover. The immediate impact is a domestic market contracting to a minimum, causing all manufacturing and service sectors to shrink because of falling demand. In the meantime, exports are facing stricter conditions from importing countries.

But now the government has more information about the virus and its transmission mechanism so localised isolation is mostly adequate to contain the virus and keep the economy running without too much of an impact.

Among the main policies, public investment remains the most crucial since there is still much flexibility and it can be proactively administered. When the economy slows down, as the largest spender, the government must bolster spending on infrastructure in order to create jobs and income, which in turn will drive consumption and production activities. Only when the economy returns to a situation of stability should the government retreat and let the market play its role.

Q: The pandemic is expected to continue for a long time while the resiliency of the people and enterprises is limited. What measures are needed to make the government’s support packages reach them faster and more effectively?

A: We all want the support to reach those in needed as soon as possible but there is always a lag from the introduction of a policy to its full implementation. Such packages are being implemented across 63 provinces and cities and 24 ministries and agencies and each has their own specifics.

After four months, the PM has now asked the ministries concerned to assess the strength of implementation in order to work out the appropriate orientation for the remaining months of the year.

Q: Amidst the current uncertainty, what has the government done to prepare for even worse scenarios?

A: Firstly I want to affirm that the government has sufficient resources and tools to support enterprises and ensure social security. With the second outbreak, the government formulated a new scenario with the goal of cushioning the economy against shocks by proactively controlling the rate of slowdown. The scenario has been prepared so that the government can ask for a raise in the spending deficit when necessary.

Concerning tax policies, it is not very effective to carry out tax exemption and reduction as normal because enterprises will not have the revenue to pay taxes if they do not operate. Therefore a stronger measure is needed and we are looking into a plan under which tax refunds in 2020 will be lent in advance to support enterprises’ liquidity. This is an unprecedented measure and its feasibility and impact need more evaluation. The measure’s coverage may not be extensive but the support will be more focused. It is still under examination in advance of a final solution being worked out and it will be truly revolutionary if it can be implemented.

Thank you very much.