Public investment remains the main driver

In the first seven months of the year, the economy was affected by the heavy impacts of the Covid-19 pandemic, creating significant challenges in the last months of the year. 

Assoc. Prof. Dr. To Trung Thanh

Given the unpredictable developments of the Covid-19 pandemic in the two largest economic centres of the country, Hanoi and Ho Chi Minh City, and some southern provinces and cities, in your opinion, how is the growth target of 6.5% set previously by the Government affected?

In the first seven months of the year, the production of important industries such as transportation - warehousing, tourism, education and training, manufacturing and processing industries continued to be strongly affected due to a sharp drop in demand, increase of production costs and disruptions to production supply chains.

Notably, the fourth wave of the Covid-19 pandemic started in some key localities and in the global production chain of Vietnam such as Bac Giang, Bac Ninh, Hai Duong, Binh Duong, as well as the economic locomotive of Ho Chi Minh City and some southern provinces as well as Hanoi, which has posed great challenges to the economy in the last months of the year.

Not only in Vietnam, the Covid-19 pandemic’s new Delta strain with a strong infection rate can threaten recovery in countries such as the US, EU and China. That will affect trade and investment in Vietnam.

Besides, the uptrend in basic commodity prices and gasoline prices is still ongoing because the Organization of the Petroleum Exporting Countries (OPEC) and its allies maintain lower oil production levels than global demand. This will greatly affect the cost of domestic production.

In addition, due to the outbreak of the pandemic and the implementation of social distancing on a large scale in many localities across the country, income as well as consumption demand plummeted.

Meanwhile, an important highlight for growth support for 2021 is public investment, but there is no breakthrough. In the investment capital of the State sector, capital from the State budget was only 36.8% of the plan in the first six months of 2021, up 10.2% over the same period last year (compared to an increase of 20.5% of the year 2020). From the above analysis, it can be almost certain that the Government's target of 6.5% economic growth set out at the beginning of the year cannot be achieved.

In the opinion of many experts, Vietnam's economy will suffer many negative impacts from rising inflation as well as the health of the private sector which is getting weaker in the last months of the year, what do you think about this?

The ability of enterprise to cope with the pandemic is also decreasing when the pandemic lasts too long, eroding their endurance. Not only small and medium-sized enterprises, but also large-scale enterprises have also begun to face difficulties when the pandemic continues.

Accordingly, enterprises face great difficulties not only from the decline in aggregate demand, but also from increased disadvantages from the input side such as rapidly increasing energy prices, land rents, and production prices.

Extreme and inconsistent disease prevention measures across localities are also having a great impact on transportation and logistics costs as well as potentially disrupting supply chains for enterprises.

In addition, the risk of macro instability will increase. Inflation can be affected by the cost push factor. The impact of interest rate cuts and monetary easing has limit ed the impact, the economy's ability to absorb loans is still weak, a part of capital flows have been turning to government bonds (moving to public sector) and towards the asset market (stock market, real estate).

Besides, the difficulties of the economy along with the weakening health of enterprises will affect the financial market, with the possibility of bad debt increasing.

Meanwhile, fiscal policy room is narrower, if the pandemic persists, budget collection will become more difficult because the economy falls into a downward spiral and the asset market adjusts sharply. The further easing of monetary policy to support the economy may increase macro instability. The pandemic response policies are designed quickly, but the implementation process is slow and not really effective.

In your opinion, what will be the main driving force for economic growth in the last months of the year?

If the pandemic continues, the achievements of recovery in the first seven months of the year may be destroyed, having a long-term impact on the economy. The Government has set a "dual goal" of fighting the pandemic and ensuring growth, but in the short term, it is necessary to give priority to the goal of fighting the pandemic.

Therefore, the Government needs to take resolute and timely steps to curb the spread of the Covid-19 pandemic, speed up the vaccination program, and take measures to increase consensus and awareness of the people in disease prevention.

Accordingly, it is necessary to continue to accelerate the disbursement of public investment capital, considering it an important driving force for growth in the period when private investment is still very difficult.

In addition, the credit support policy should be directed to enterprises that are less affected by the pandemic but have a large spread and have a positive impact on other industries and fields to promote the production of the whole market.

At the same time, it is necessary to direct cash flow to the real production sector, control the money supply but allow more credit easing at commercial banks to ensure safety.

In particular, policies to support enterprises affected by the pandemic need to be implemented in a more focused, targeted and substantive manner, closely following the needs of enterprises. It is necessary to select and classify industries to support, based on a number of criteria such as pervasiveness - positive impact on other industries and fields; labour - create many jobs; recovery ability from the pandemic.

In addition, it is also necessary to implement long-term solutions to fundamentally transform the growth model, increase the quality of growth, and apply digital transformation and digital technology. Thanks to that, the economy can maintain production during the pandemic, recover quickly and move towards sustainable development.

Thank Sir!