BizNEWS

Vietnam Needs More Monetary and Fiscal Supporting Policies, CEO Says

Diep Nguyen
BizLIVE -

Specifically, since the beginning of the year, SBV has proactively cut key policy rates and to ensure sufficient liquidity in the financial system.

Vietnam Needs More Monetary and Fiscal Supporting Policies, CEO Says
Recently, HSBC released a report in which HSBC’s CEO Tim Evans gave out some comments on Vietnam’s monetary and fiscal policies in 2020.
From the viewpoints of HSBC’s CEO, facing the unprecedented COVID-19 leading to the disruption of the supply chain in the first half of 2020, combined with significant volatilities in the global financial market, the SBV has aimed to manage its macro-economic targets around inflation, social and macro stability, and to create an environment that is conducive to foreign direct investment and thereby improving the stability and resilience of the economy.
Specifically, since the beginning of the year, SBV has proactively cut key policy rates and to ensure sufficient liquidity in the financial system. During the first 11 months of the year, the SBV has reduced policy rates for three times, in order to provide support for financial institutions to have alternative access to funding at lower cost. The SBV also reduced 0.6%-0.75% p.a on the deposit ceiling rate for deposits of below six-month tenor; and reduced 1% p.a. of lending ceiling rate for short term loan in the priority areas which helped lead to a speedier recovery of the local economy.
In terms of Foreign Exchange (FX)management framework, the SBV continued to provide timely support and guidance, in order to ensure stability and sustainable development of the market in overall. For instance, SBV provided two-way support when it lowered the USD selling rate in in March to meet legitimate demands as when FX market appeared to be under pressure during the social distancing period, and lower the USD buying rate in Nov when dollar supply in the market turned ample again.Unlike previous years when the Dong usually depreciated against the greenback, in 2020 VND has even appreciated slightly by about 0.2% compared to the Dollar, while there has been almost no year-end pressure for the FX market.
While Vietnam has emerged stronger from COVID-19 than other regional peers, its economy, nonetheless, needs support for those hard-hit businesses and consumers. Although Vietnam is unable to implement sizeable fiscal stimulus packages, it has introduced some targeted and short-term assistance, mainly consisting of tax deferrals and direct cash hand-outs to poor households. 
Vietnam’s Ministry of Planning and Investment has recently proposed a second stimulus package, consisting of financial support for aviation (worth VND11trillion) and tourism sectors, as well as more direct cash hand-outs of VND3.6trillion. Given its much smaller magnitude compared to the first stimulus package, we do not expect it to have a material impact on Vietnam’s overall fiscal position. The government is expecting a budget deficit to 5-5.6% of the GDP, aligning with our expectation but over the initial target of 3.4%. In the 2021-2025, the Government sets a target of average budget deficit of around 3.7%, specifically 4% in 2021 before reducing to 3.4% in 2025.
It's notable that the Government has made a humble target of 1.4% increase in spending for infrastructure in 2021. This shows a possibility of Government not using public budget to finance big infrastructure projects but using PPP instead, which is an ideal model for Vietnam to balance between an ambitious infrastructure development target and a narrow fiscal budget. In fact, the Government has sought bilateral and multilateral support from the US, Japan, Australia and the WB.

DIEP NGUYEN