Fiscal and monetary policies are eased to boost GDP growth

Return of "Cheap Money" 

In the context of internationally supportive monetary circumstances, the State Bank of Vietnam (SBV) has taken advantage of the chance to transition from a defensive exchange rate policy to a liquidity-enhancing approach, therefore aiding the economy. Treasury bills (T-Bills) absorption from September to October has been entirely returned to the banking system (estimated at 250 trillion VND, performed via OMO). The full cash withdrawn from the market via T-Bill issuance has now been reimbursed.

In the near term, liquidity, interest rates, and exchange rates have all moved toward maximum easing. Monetary policy and interest rate developments point to the return of "cheap money" to the Vietnamese financial system, as evidenced by:

First, surplus liquidity in the financial sector is projected to be worth more than 250 trillion VND.

Second, short-term interbank interest rates have dropped dramatically to below 0.5% for very short tenures (less than one month).

Third, long-term 10-year government bond rates have fallen to the 2.30% - 2.40% level.

Fourth, currency rates have fallen dramatically to a balanced range of 24,200 - 24,300 VND/USD (YTD balance -3%, according to the SBV).

Accelerating Public Investment 

The government is presently strongly committed to increasing public investment during the peak season of the fourth quarter, with a massive injection of cash expected in the near future. For the fourth quarter, the estimated public investment disbursement is 320 trillion VND. This comprises public investment expenditures of 540 trillion VND through the end of November, with a planned expenditure of 163 trillion VND for December.

In the event of leftover public investment money, we anticipate that funds will be distributed in accordance with the project schedule in the first quarter of 2024. Despite the failure to reach 100% distribution as anticipated in 2023, with predictions around 95%, public investment is showing signs of improvement as the year comes to a close. The following are some key points: 1) This year's public investment expenditure is the highest ever (estimated at 712 trillion VND), including the backlog of delayed public investments from previous years; 2) Actual public investment expenditure through November is substantial (550 trillion VND, 75% of the annual plan), a significant departure from previous years, with an improved disbursement rate.

As private investment slows during an economic downturn, the role of public investment in total social investment capital grows, supporting overall investment. As a result, with the planned and actual public investment for this year, it acts as a key resource to sustain GDP growth in the context of an uncertain export recovery, sector differentiations, lower private investment, and weak domestic demand.

Other Supportive Policies

In addition to fiscal and monetary measures that are supportive, the government continually provides instructions to resolve bottlenecks in suffering economic sectors, notably the real estate market, corporate bond market, and consumer goods market.

In recent days, the Prime Minister has given directions to encourage strong credit growth in the real economy during the critical end-of-year period. This is recognized as a critical answer to overcoming slow credit expansion, which is viewed as critical to maintaining short-term economic development.

According to Directive 1177/CD-TTg, further efforts will be undertaken throughout the country to overcome legal impediments in the real estate market.

In addition, according to Directive 1177/CD-TTg, supporting measures to revitalize the corporate bond market are on the horizon. According to preliminary estimates, these policies will concentrate around rules on the issuance and trading of individual corporate bonds in the domestic and foreign markets in the near future, with the goal of amending Decree No. 08/2023/N-CP regulating the corporate bond market. The modifications will be market-driven, not too restrictive, and will lay a robust and stable base for both investors and issuers.

Furthermore, with the recently amended Housing Law (28/11), effective January 1, 2025, efforts will be made to eliminate regulations related to (1) land use tax and land lease for land allocated for social housing; and (2) removing the requirement to prioritize allocating 20% of the land area in commercial real estate projects for social housing, as stipulated in Decree No. 49/2021. Notably, the elimination of requirement (2) would improve the legal clearance procedure for current commercial real estate projects greatly. This is the best-quality law in decades, according to the Real Estate Association (HoREA).

Furthermore, in an effort to boost domestic spending, the National Assembly has decided to cut the VAT rate by 2% in the first six months of 2024.

As the conclusion of the fiscal year approaches and the government's responsibility for supporting economic development grows, it can be observed that the administration has undertaken rapid and detailed measures to address critical economic challenges. Support for the faltering real estate market, revitalization of the corporate bond market, promotion of new credit growth, and combining measures to increase public investment and decrease taxes to encourage domestic demand are among these initiatives.

The core subject of such initiatives is comprehensive economic support, with the goal of generating economic development by 2024, particularly in suffering domestic economic sectors including the real estate market, corporate bond market, credit market, and consumer goods market.