Vietnam still shining bright during COVID-19 time

Tran Ngoc Tho, member of the National Financial and Monetary Policy Advisory Council

Rational fiscal and monetary policies crucial

Many international organisations gave gloomy forecasts that the world might step into one of the worst recessions of the past century due to the devastating impacts of the COVID-19 pandemic. Even these forecasts might not fully reflect the consequences of the pandemic.

Recession or economic and financial crisis, as usual, is a sequential collapse that often stems from the weakest link of the economy. Meanwhile, COVID-19 is like a vertical fall taking place in a short time. All things and all data we have seen before might completely change shortly after, leading to constant policy changes by governments around the world scampering to keep up with the swiftly-evolving situation.

Not only economic activities, but global financial markets also froze abruptly. Business activities and the financial market have simultaneously fallen into hibernation, with only governments functioning. The governments, therefore, are the last lenders, debt bearers, and also the final buyers. This is what we see the governments around the world doing these days to ensure survival and set up for the rebound in post-COVID-19 times.

As for Vietnam, the government has taken swift action from the beginning. The impacts of COVID-19, therefore, have not been so devastating to the local economy as to others, yet it is throwing a shadow on the country’s bright development prospects.

However, the government has been taking action under the motto “doing all that is possible” – which will remain the lodestar for our actions in the fight against COVID-19 and after the pandemic is over. Vietnam, however, needs to apply breakthrough and innovative measures to succeed in the fight.

Accordingly, the government needs to create a new mechanism with fiscal and monetary policies and deploy drastic measures to help the economy rebound and rebound robustly when the pandemic is over.

Essential social welfare

People are expecting the government taking more drastic and effective measures to boost the efficiency of social quarantine and isolation activities. The packages on social welfare should be given top priority.

The labourers who sell their "skills" in exchange for wage are losing their right to sell due to blocked economic activities in the wake of COVID-19. The fault is not on their side. The government, therefore, needs to offer cash support for affected labourers, helping them to survive the pandemic time.

Given the finite government budget, the recently approved VND62 trillion ($2.7 billion) social welfare package is quite meaningful. A big problem currently is that while employees cannot sell their skills during the epidemic to get paid, a large portion of this support package ends up in the hands of unqualified recipients.

In addition, estimates show that a hefty VND600-700 billion ($26.1-30.43 million) can be saved if the ministries, sectors, and localities slash 30 per cent of expenses on holding conferences and business fees domestically and half of overseas business fees. Most of the sum should be spent to ensure social well-being as the recently approved VND62 trillion ($2.7 billion) is just a drop in the bucket compared to workers' actual needs.

The final lender, debt bearer, and buyer

If all support packages for social welfare and fiscal/monetary stimuli are taken into account, the total sum might approach quadrillions of Vietnamese dong (dozens of billions US dollars). The figure might once again increase multiple times once bailout packages to support post-COVID-19 economic rebound were counted. Accordingly, besides non-state capital sources and removing the bottlenecks in the current regulatory system, optimising the "three-in-one" role of fiscal and monetary policies appears as one of the most feasible solutions.

As the last lender, the government needs to ensure liquidity for banks and businesses, particularly those small and medium in size, helping them to afford their most essential payments to maintain operations and employment. On a broader scale, the government needs to ensure liquidity and even cover the losses the sectors following the prime minister's instructions incur when they lower interest rates, fees, and the price of essential services to support people and businesses.

As the final buyer, the government needs to function as the largest buyer of crucial infrastructure, instead of deploying investment in the forms of public-private partnership (PPP) or build-operate-transfer (BOT) as in common times. The government might also become the largest buyer of national reserve items such as medical devices (particularly ventilators), rice, and petroleum products.

As the final debt bearer, the government must set off an initiative to stage bonds issuances at home and abroad to offset the budget deficit accrued through the government's role as the final lender and buyer.

To satisfy the prime minister’s requirements heightening the value of packages earmarked for social welfare and supporting development in post-pandemic time, the central bank and the Ministry of Finance need to join forces and take unprecedented, innovative measures to tackle the implications of COVID-19.

The greatest challenge is that the government needs to prepare proper scenarios for the "refund" of used support packages when the economy rebounds. This refund is totally viable once the local economy is back on track after the pandemic, the way a spring bounces back after a long time of pressure.

The Vietnamese government has won plaudits from the international community for its initial achievements in combating COVID-19. Sincere appreciation from international observers is further motivation for the government to take fresh, innovative measures to attain further economic success in the challenging time ahead. The pandemic will end, the dark skies will clear, and the horizons will continue to be bright for Vietnam.