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Credit Growth Supported Strongly for Vietnam’s Economic Growth in 2020

Diep Nguyen
BizLIVE -

Credit growth recovered after the State Bank of Vietnam cut policy interest rates in October.

Credit Growth Supported Strongly for Vietnam’s Economic Growth in 2020
After the State Bank of Vietnam (SBV) cut policy interest rates in October in an effort to ease the cost of credit, credit growth (y/y) picked up from 9.6 percent in October to 10.5 percent in November and 10.1 percent in December.
Since this rate is higher than the nominal GDP growth, the credit/GDP ratio has increased, fromabout 136 percent in 2019 to over 143 percentin 2020.
Revenue collection improved while the cost of borrowing in the domestic market continued to fall.
On 8 January 2021, Ministry of Finance estimated the total revenue collected in 2020 to reach about 1,507.1 trillion VND, equivalent to about 98% of planned revenue. Land auctions, granting of land use and rentals have contributed about 209 trillionVND, or about 14 percent of this total revenue collection. 
On the expenditure side, the Government has accelerated public investment to support the economy. The disbursement rate of investment  planned for 2020 (excluding those brought forward from previous years) was 82.8 percent as of December 2020 compared to 67.5percent in 2019.
The State Treasury borrowed only about 43.6 trillion VND in December 2020 in the domestic market, all with maturities of ten years or longer. Ample liquidity has steadily lowered cost of borrowing, with the yield on 10-year Treasury Bonds on December 23 standing 2.28 percent or 0.20 percentage point lower than at the end of November.
Looking ahead, attention should be paid to how Vietnam emerges from the pandemic. The approval of several COVID-19 vaccines at the end of 2020 gives hope for more positive prospect of 2021, particularly for tourism and airlines. The downside risks include delayed distribution and administration of the vaccines.
Also, on December 18, 2020 the US Treasury labeled Vietnam as a currency manipulator, which if not resolved, could have implications on trade and foreign investment, important contributors to thecountry’s growth model. Finally, the government will need to assess carefully when to unwind COVID-related fiscal and monetary policies launched to support the economy.
Industrial production continued to recover strongly in December, returning to its pre-pandemic growth rates.
In December 2020, industrial production index grew again after the brief November slump.
The index grew by 11.1 percent (y/y), the highestgrowth rate since the pandemic outbreak in February. The main subsectorssupporting this growth were coke and refined petroleum products, metals production, computer,electronic and optical products, food production and processing, electrical equipment, and paperand paper products. 
The country’s Manufacturing Purchasing Managers' Index (PMI) increased from 49.9 in November to 51.7 in December, signaling an expansion of the manufacturing sector.
Retail sales also continued to grow, thanks to strengthening domestic demand for goods.

DIEP NGUYEN