Stimulus package rides on budget

Prime Minister Nguyen Xuan Phuc addressed the National Assembly last week

Prime Minister Nguyen Xuan Phuc summitted to the National Assembly (NA) last week that the legislative body consider and enact new incentives and policies to beef up economic recovery and development, besides the current fiscal and monetary measures implemented in favour of the public and business community. Notably, he stressed, “it is proposed that the government should consider the issuance of a new economic stimulus package amid the pandemic still raging across the globe. This will help stimulate domestic consumption, spur on production and business, generate more employment, and reduce unemployment, ensuring sufficient resources for preventing and fighting the pandemic and ensuring social security. Also, this will further consolidate the confidence of people and the business community.”

It is expected that asides from the existing packages worth dozens of billlions of US dollars, in the new economic stimulus package, the NA will provide special fiscal incentives regarding reduction and exemption of many types of taxes, and this fiscal package will also likely be worth billions of US dollars. The new package aims to help the government to effectively implement its dual task of combating the pandemic and developing the economy.

“Vietnam is quite open to the global economy, so there may be a very high risk of the pandemic resurging. The fight against the pandemic is unprecedented, requiring strong and synchronous measures that can help us cope with it swiftly and flexibly in a timely and effective manner,” PM Phuc stated.

Do Van Sinh, member of the National Assembly Economic Committee, told VIR that this is the first time he heard about this newly-proposed package, and he said it is “quite necessary given enterprises are facing massive difficulties.” However, he said, for the package to be realised, it is necessary to have a close look at the existing state budget situation, as revenue is expected to suffer from a reduction of VND70-75 trillion ($3-3.26 billion) this year compared to the initial plan.

“This figure is calculated based on an expected 4.5 per cent in economic growth this year. In case this rate is not reached, the revenue loss will be bigger,” Sinh said. “Thus, if another economic stimulus package is enacted, how much will it be, especially given numerous difficulties in the state budget? I think it is necessary to first effectively carry out the existing packages.”

Chairman of the committee Vu Hong Thanh also told the legislature that it is necessary to effectively expedite economic stimulus packages for further economic development and ensuring social security in an open, transparent manner.

NA deputy Truong Minh Hoang, representing the southernmost province of Ca Mau, also told VIR, “it is quite necessary to have a new economic stimulus package to further support enterprises. However, before implementing this initiative, it is necessary to consider the existing state budget situation expected to see a big budget deficit this year.”

Thorough studies must be made to decide on what sectors and who will benefit from the new package, he added. “It is urgent now to provide more support to enterprises.”

Also commenting on the government’s proposed new package, Nguyen Minh Cuong, principal country economist from the Asian Development Bank, told VIR that the package is important for both economic relief and recovery. “More fiscal measures should be provided to support affected firms and individuals. The State Bank of Vietnam (SBV) has cut rates further to strengthen the liquidity in the economy, and commercial banks have arranged substantial amounts of credit to assist businesses. Now it is time to increase fiscal support,” Cuong said.

“For instance, the existing VND180 trillion ($7.82 billion) package on tax deferrals may need to be extended as five months would not be sufficient for affected firms to recover. As the banks are not able to relax lending standards to accommodate affected firms which may have deteriorating cash flows and balance sheets, the creation of a credit guarantee system from the state budget at the national level may be useful to assist the banks to lend more to these firms, especially small- and medium-sized ones,” he continued.

Over the past few months, the government has been deploying drastic measures to support businesses. For example, the SBV has been deploying a package worth over VND300 trillion ($13 billion) for enterprises and households in the form of debt payment deferral and preferential loans. The Ministry of Finance has issued a VND180 trillion ($7.82 billion) package to support both people and enterprises.