Fiscal policy needs to return to normal

Dr. Le Duy Binh

Sir, how do you evaluate the contributions of fiscal policy in general to the country's economic development?

Dr. Le Duy Binh: In recent years, fiscal policy has played an important role in promoting growth recovery and bringing the economy back to a fast and sustainable growth trajectory. This role is carried out through policies to mobilize the state budget, allocate and use budget resources, build institutions, and develop financial markets to mobilize resources for investment in fast and sustainable economic development. At the same time, this is demonstrated through policies to improve the institution on state-owned enterprises, develop economic sectors, types of enterprises and production and business organizations. In particular, from 2020 to now, when the country has been greatly affected by the Covid-19 pandemic and the subsequent global economic downturn, fiscal policy has played an important role in consolidating a safe and strong public financial foundation, creating an important foundation for implementing an open and flexible fiscal policy and increasing the resilience of the economy.

Over the past 5 years, the carefully implemented expansionary fiscal solutions have created great support for people, businesses in particular and for the recovery and socio-economic development, contributing directly to the country's economic growth rate. On the one hand, the budget has had to sacrifice more to support businesses and the economy in many ways such as reducing taxes and fees, creating great support for liquidity for businesses, stimulating domestic consumption and production, on the other hand, the State budget has been used more to support government spending. In particular, public investment has increased sharply in recent years. This is a great effort by the National Assembly, the Government and the Ministry of Finance to bring a higher level of development investment capital into the economy to support and lead other investment sources of the economy.

In many countries, government spending and public investment are strong sources of capital to stimulate private investment. In Vietnam, public investment has contributed to the expansion of private investment, but it is clear that we can still do much better so that one dollar of public investment capital can lead to more capital from the private sector.

At the same time, it is also important to note that in addition to public investment, it is necessary to mobilize investment capital from the business community itself, especially self-owned capital, capital mobilized by businesses through the money market, capital market, especially the stock market and corporate bonds. The coordination between public investment capital and other policies and reforms to stimulate enterprises to invest, increase equity capital, mobilize capital from the money market, and capital from the capital market is very important to harmonize and ensure financial resources to serve the goal of high and sustainable growth of the economy.

There are opinions that it is time for fiscal policy to return to normal instead of the expansionary fiscal policy that has been maintained for the past 5 years. What do you think about this?

Dr. Le Duy Binh: I think this orientation is reasonable in the context of the current economic situation. With the recovery of the economy, especially through positive data on growth and business performance in the first 8 months of 2024, large-scale support programs should be considered to stop or narrow down in scale or reduce in intensity.

Support policies have been effective and appropriate when the economy faced many difficulties, but when the economy has gradually returned to normal, continuing to think about long-term, large-scale support will not be consistent with market principles. Reducing or narrowing the scale and intensity of support programs will send a strong message to the economy and to businesses about the need to return to market principles and reduce the mindset of relying on State support. In addition, in terms of public policy management, it is necessary to see that we cannot always rely on the State budget to ensure investment resources for the entire economy and to support businesses.

In recent years, economic growth has been greatly supported by State budget resources. That is necessary to help the economy overcome the crisis, recover and grow again. However, if this continues, it will affect the sound principles, the sustainability of the State budget, as well as budget discipline. Reducing, narrowing or reducing the intensity of fiscal support programs will force the economy to return to the disciplines and normal operating mechanisms of the market, contributing to the stabilization of macro balances related to the State budget, while ensuring compliance with international practices on fiscal policy and reducing risks for enterprises from the perspective of the risk of being sued for anti-dumping.

Therefore, the orientation of reconsidering the expansionary fiscal policy and returning to normal fiscal policy is appropriate. However, to do that, it is necessary to prepare other conditions and promote other resources of the economy in a synchronous manner.

What exactly is that preparation, sir?

Dr. Le Duy Binh: When reducing spending from the Government sector, there needs to be measures to promote resources from other sectors to compensate for, or even expand, the gap left by the reduction in spending.

In the current context, that resource is expected to come from private investment, including investment from the domestic private sector and FDI enterprises. Thus, efforts to continue to improve the business environment, investment environment, strengthen confidence, promote entrepreneurial spirit, and create excitement among investors are extremely important.

That resource will have to come from self-owned capital that investors continue to promote into the economy, and be effectively supported by loans from credit institutions, from the capital market, especially the stock market and the corporate bond market. Monetary policies, capital market policies, insurance policies, new, unique and outstanding mechanisms to mobilize other resources from the economy need to be flexibly implemented to promote efficiency and share the burden for fiscal policy in the coming period.

At the same time, reducing or narrowing the scale of fiscal support programs for enterprises or the economy will be implemented together with more effective support programs, focusing on the formation of new economic sectors that are decisive for shaping the future of the economy, and for new growth drivers of the economy such as digital economy, green economy, circular economy and sectors such as semiconductors, high technology, green and clean energy. In coordination with other policies, fiscal policy will be developed to contribute to the formation of a strong and dynamic business force, which is both the main force, the pillar and the main driving force for the transition from low-income to middle-income status and from middle-income to high-income status, with the vision of making Vietnam a developed, high-income country by 2045.

Thank you very much!