Vietnam economy confronts 'headwinds' and 'whirlwinds': expert

By Huong Dung
Wed, July 26, 2023 | 3:12 pm GMT+7

The Vietnamese economy is facing two external ‘headwinds’ and two internal ‘whirlwinds’, said Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy (BCSI).

At a seminar in Hanoi on Tuesday to find ways to increase businesses’ capital absorption, Thanh said that the difficulties faced by the economy have been coming to light since the third quarter of 2022.

International organizations are expressing less optimism about economic growth around the world and in Vietnam, he said, noting the country’s 6% GDP growth target for 2023 poses a challenge.

The first headwind faced by Vietnam is the global economic slowdown, especially among its main partners. “Now, will this gloomy outlook worsen or improve, or will a global recovery and that of China be fast or slow?" Thanh said.

The second headwind is the strict financial and monetary conditions globally. Monetary and fiscal policies have never been more stressful than in recent times. However, there is a high probability that this tension will ease if inflation begins to fall faster than expected (U.S. inflation is now around 3%).

Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy (BCSI). Photo by The Investor/Trong Hieu.

Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy (BCSI). Photo by The Investor/Trong Hieu.

Domestically, according to Thanh, Vietnam is encountering two whirlwinds. The first is the financial issue. Since the end of last year, the financial market has faced the pressure of high interest and exchange rates, and inflation; liquidity shortages both in the banking system and the market; and plunging stock and corporate bond markets, along with the stagnant real estate market, resulting in a serious drop in market confidence.

"In the past six months, with the efforts of the regulators and a little luck from the outside, banking liquidity has become abundant again, with overnight interest rates nearing 0%. However, the restructuring of property businesses has seen limited results," Thanh said.

The second whirlwind is the economic difficulties caused by rapidly decelerating imports and exports. "This is a very serious issue as import-export turnover accounts for such a large proportion of GDP in Vietnam," he noted.

Sharing the same view, Deputy Governor of the State Bank of Vietnam Dao Minh Tu said that it has never been so difficult for the central bank to manage monetary policy.

In the first half of 2023, the world economy continued to witness rapid and unpredictable fluctuations, with difficulties in global production and trade; increasingly fierce strategic competition and geopolitical conflicts between major countries; high inflation and interest rates, and tightened monetary policy.

Domestically, economic growth was lower than the scenario set in the context of a decrease in aggregate global demand and internal difficulties facing the economy. Vietnam's traditional large import/export markets have faced hurdles since the Covid-19 pandemic, while resilience has been eroded and inflation has caused many potential risks.

"These developments have led to a slow global recovery, directly affecting enterprises’ ability to absorb capital," said the deputy governor.

According to Nguyen Van Than, chairman of the Association of Small and Medium Enterprises (ASME), local enterprises, especially SMEs, are struggling.

In the first six months of 2023, 113,600 enterprises were set up and resumed operations, down 2.9% over the same period last year. Meanwhile, the number of companies temporarily suspending business activities was 100,000, up 18.2% year-on-year.

A survey by the General Statistics Office shows that only 18.5-28.9% of enterprises operating in the fields of export, processing and manufacturing said their production and business situation in the second quarter was better than in the first quarter; 36.2-43.2% said the situation was stable, and 27.4-36.2% reported a decline.

"This clearly shows the difficulties surrounding businesses, especially SMEs, as domestic consumption and export orders have both dropped sharply," Than said.

In addition, up to 25% of the association’s members said they are facing difficulties accessing credit due to strict lending criteria, he said, adding that many exporters also proposed reducing loan interest rates for U.S. dollars to increase international competitiveness, helping businesses survive before the market shows signs of a recovery in the third quarter of 2023.

The ASME representative proposed the government create conditions for SMEs to restructure production for stable and long-term development, including allowing them to participate in 30% of public investment projects.

It is necessary to restructure credit guarantee funds and strengthen the role of local management agencies to deliver credit ratings for enterprises to guarantee loans, he said.

Echoing Than, Nguyen Quoc Hung, general secretary of the Vietnam Bankers Association, said that currently there are about 24 SME credit guarantee funds in cities and provinces, but they are mostly inactive or inefficient.

“Therefore, it is necessary to improve the role and responsibilities of SME credit guarantee funds, considering this an important solution to supporting and developing SMEs in each locality,” he noted.

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