Vietnamese regulators should not be over-optimistic as GDP growth rates in Q3 and the whole year of 2022 are only temporary and difficult to maintain until 2023-2024, says Nguyen Dinh Cung, former director of the Central Institute for Economic Management (CIEM).
Vietnam’s Q3 GDP grew 13.67% compared to the same period last year, while the nine-month expansion was 8.83% - the highest level since 2011. What is your forecast for 2023?
In 2022, Vietnam’s economic growth has recovered positively thanks to the good control of Covid-19 and reopening of the economy since Q4/2021. To some extent, it is attributed to economic recovery support packages, especially tax reductions for businesses.
However, from Q4/2022, recovery may gradually decrease due to both external and internal factors.
It should be clearly recognized that the recovery in 2022, especially in Q3, is just temporary and unlikely to last until 2023 and 2024. Therefore, when assessing the level of economic recovery this year, we should put forth appropriate policies and not be too optimistic about the situation. Overall, from Q4 this year, almost all external and internal factors are unfavorable for Vietnam.
First, the world economy is slowing down and is forecast to fall into a recession in 2024. This will cause the demand for importing Vietnam's goods to drop sharply, reflected in the decreasing orders of businesses, thus affecting the production activities of domestic enterprises.
Second, energy prices remain high, especially gasoline. Countries will continue to tighten their fiscal and monetary policies, posing a challenge to the Vietnamese currency. The above fluctuations will push up import costs or in other words, we import inflation, which has happened in the past two years. Thus, enterprises will have to scale down production due to the recession of the international market as well as increasing costs and reduced profits.
Domestically, consumption demand will decline, partly because people will lose an income from the financial market when stocks plummet, investment activities slow down, and investor confidence drops. Businesses will have no capital for production expansion when all capital-raising doors are closed.
In terms of state management, policy changes are slowly made and management capacity cannot keep up with market developments. Since the Doi moi economic reform process was launched, we have never seen people queuing to buy gasoline like recently, although this was not the first time we had faced fluctuations in world gasoline prices.
Capital market disruption has broken investor confidence. Basically, the implementation of economic recovery support packages has grown stagnant as many administrative agencies attempt to slow down or not perform their work.
Without breakthrough changes, 2023 and the following year will continue to be very difficult for the national economy.
What solutions should be taken now to support businesses, people and the economy?
The first solution is to accelerate disbursement of public investment, which needs to be done faster and more drastically. Capital will help relieve pressure put on contractors and investors. In order to disburse public investment, it is necessary to first adjust the total project investment level due to the increasing prices of input materials, helping businesses feel secured that they could make profit or at least would not suffer a loss.
The second is to change the payment conditions, methods and procedures for contractors at the State Treasury. It is reported that the State Treasury disburses money seasonally (usually at the end of the year) while businesses work all year round. Businesses have to borrow from banks to repay loans and maintain operations, but currently, bank loans are not feasible. Therefore, it is necessary to stipulate that the treasury disburses capital within 24 hours from the time the contractor meets all payment requirements.
In addition, it is also necessary to change the way of macroeconomic management. We often talk about "flexibility" and “adaptability”, but in fact, we are tightening both fiscal and monetary policies, especially the fiscal policy. Even during the Covid-19 period, revenue from businesses was big, but spending on them was very little.
In my opinion, state revenues from businesses at this time should be stable and low, especially that from land use rights - a very large and fluctuating income every year. We are always afraid of losing state budget revenue but do not think that, if we do not collect it, the money remains in businesses. When companies find their projects profitable, they will have the motivation to proceed. It's time to ask the question "what is the budget for?" Theoretically, revenue is to serve spending in difficult times, but now, disbursement of public investment is too slow.
During the Covid-19 period, budget revenue still increased and the figure in the first 10 months of this year even exceeded the estimate. Why don't we think that in the context of businesses facing so many difficulties, we need to reduce budget collection and increase spending to support them?