The Russia-Ukraine conflict is beyond our expectations, and no one knows when it would end.
Escalating oil prices and global supply chain disruptions make it difficult to predict what the next few months may hold.
Forecasts of Vietnam’s economic expansion at 6.5 percent or 7 percent is optimistic. This could only be achieved if we remain largely unaffected by global turbulence and maintain the country’s macro fundamentals.
Forecasts of Vietnam’s economic expansion at 6.5% or 7% is optimistic. That could only be achieved if we remain largely unaffected by global turbulence and maintain the country’s macro fundamentals.
We have experienced two stages of response to the Covid-19 pandemic. Before April 2021, Vietnam was praised as a typical success thanks to suitable anti-pandemic measures, despite an underdeveloped health system.
But from April 2021, things changed as the pandemic spread from Ho Chi Minh City to 18 other provinces.
Enterprises were then derived of autonomy in production as the government followed the “zero-Covid strategy”. Only when it shifted to “safe and flexible adaptation to Covid-19, with effective control of the disease”, could the economy commence gradual recovery.
Policy response in this case is a lesson to be learnt.
The price of oil has become a big problem. In the last two months, the domestic gasoline price has surged from VND22,000 ($0.96) per liter to VND28,000, and then VND30,000. Up to now, there is no solution to prevent oil prices from escalating, placing the economy under a negative impact.
After three months of gradual recovery from the pandemic, the transportation sector has been crippled by oil prices. Many businesses do not dare operate. Imagine if all transportation chains were broken, where would the economy go?
The government’s oil price policy response must be faster. Currently, the Ministry of Finance has proposed reducing the gasoline price by VND2,000 per liter, but the final decision is yet to come.
Lacking a firm decision to restrain oil prices would affect economic recovery and development. The government should look at oil prices with a long-term vision, in view of international integration.
Before Vietnam joined the ASEAN Free Trade Area (AFTA) and World Trade Organization (WTO), some senior officials worried that they may lead to a dent in budget revenue, worsening budget deficit. But actual exports often increased by 15-20%, narrowing the coffer deficit.
Though the increases in world oil prices have brought about damages, state-run Petrovietnam has earned a lot from crude oil exports. General Director Le Manh Hung said in the first two months of 2022, the state-run group’s revenue is estimated at VND118.73 trillion ($5.19 billion), exceeding 34% of its plan and rising 46% over the same period last year. The group’s budget contribution is estimated at more than $787 million, surpassing 52% of its plan and surging 48% year-on-year.
Oil prices affect the entire world. Upcoming oil and gas volatility remains unpredictable. If there are no new scenarios in price management, we would be helpless whenever oil prices rise or fall.
My suggestion is the government keeps gasoline prices at VND22,000-23,000 per liter from now to the end of June, so that the transportation sector could rebound, and the economy free itself from transportation disruptions.
Budget loss due to gasoline price reduction could be offset by Petrovietnam’s surplus income and a recovering transportation sector. Moreover, there would not be an economic crisis fueled by oil prices. This is one solution as applied in some countries around the globe.
*Prof. Nguyen Mai is former Vice Chairman of the State Committee for Cooperation and Investment (now the Ministry of Planning and Investment) and currently Chairman of the Vietnam's Association of Foreign Invested Enterprises (VAFIE).