Fiscal and monetary policy recommendations

to support socio-economic recovery and

development

Standing Member of the National Assembly’s Committee for Economic

Affairs and the Expert Group

To be presented at the Viet Nam Economic Forum 2021:

Recovery and Sustainable Development

Hanoi, 05 December 2021

5/12/2021 UBKT và nhóm CG 1

 Overview
1. Assessment on COVID-19’s socio-economic
impacts on the world and Viet Nam
2. International experience in ensuring pandemic
control and supporting the people and businesses
3. Fiscal and monetary policy recommendations to
support socio-economic recovery and development
4. Resources and mobilization of resources
5. Policy evaluation
6. A number of recommendations

5/12/2021 UBKT và nhóm CG 2

 Table 1: COVID-19’s impacts on the global economy (%, yoy)
  2019 2020 2021f 2022f 2023f
GDP Growth          
The global economy 2.8 -3.1 5.7-5.9 4.5-4.9 3.2-3.6
Developed economies 1.7 -4.5 5.2 4.5 2.2
The US 2.3 -3.4 5.6-6 3.7-4.5 2.4-3
The EU 1.5 -6.3 5 4.2 2.3
Japan 0.0 -4.6 2.4 2.7 1.3
China 6.0 2.3 7.8-8 5.1-5.5 5.1-5.3
Emerging and developing economies 3.7 -2.1 6.2-6.4 4.9-5.1 4.5-4.7

Inflation (Average CPI) 2.2 2 3.2 3.3 2.6

Developed economies 1.4 0.7 2.8 2.3 1.9
The US 1.8 1.2 4.3 3.5 2.8
The EU 1.2 1.3 2.2 1.7 1.7
Japan 0.5 0 -0.2 0.5 1
China 2.9 2.4 1.1 1.8 2
Emerging and developing economies 5.1 5.1 5.3-5.5 4.7-4.9 3.8-4
International trade growth          
The world 0.9 -8.2 9.7 6.7 6

Source: IMF (10/2021),OECD (12/2021); compiled by the research group.

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 COVID-19’s socio-economic impacts on
the world during the period of 2020-2021
• Impacts on the people’s income (-6% in 2020)
• Impacts on jobs (100 million jobs were cut in 2021,
and another 26 million in 2022)
• Other adverse impacts on:
– Education
– Inequality
– Mental well-being
– The environment (medical waste, etc.)
• Also serves as a catalyst for new opportunities.
5/12/2021 UBKT và nhóm CG 4
 Assessments http://www.bized.co.uk

• The pandemic brought about profound impacts. The global

economy in 2020 fell into deep concession, reducing by 3,1%.
Recovery has been well under way, yet uneven and harboring
numerous risks
• Inflation increased during the period of 2021-2022, but will likely
decrease from 2023 onward
• Major risks and challenges: (i) the COVID-19 pandemic
continues to evolve in a complicated manner; (ii) geo-political
risks; (iii) increasing inflation and prices; (iv) tapering and increase
in interest rate; (v) businesses’ marginal profits are on the decline.
• The Omicron variant:
– Global GDP growth in 2022 may reduce by 0,2-0,4%;
– It is necessary to take into account the progress of
implementing tapering and increasing interest rate.

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 COVID-19’s socio-economic impacts on
Viet Nam during the period of 2020-2021
• GDP growth in 2020 only amounted to 2.91%;
dropped by 6.17% in the 3rd Quarter of 2021,
and is forecasted to reach 2% for 2021 –
slowing down?
• Overall unemployment rate in 2020: 2.26%
(2019: 1.98%); 3rd Quarter of 2021: 3.98%, a
quarter-over-quarter increase of 1.36% and year-
over-year increase of 1.25%.
• Many sectors were severely affected (Table 2).
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 H.1: Is Viet Nam slowing down?
10.00

8.00
Việt Nam
6.00 ASEAN-5
Trung Quốc

4.00 Các nước đang PT

Toàn cầu

2.00 Mỹ
EU

0.00
2019 2020 2021f 2022f 2023f

-2.00

-4.00

-6.00

-8.00 Toàn cầu Các nước PT Mỹ EU Các nước đang PT

Trung Quốc ASEAN-5 Việt Nam

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Table 2: Impact of the Covid-19 pandemic on key economic sectors of Vietnam (as of 30 Nov.2021)
Contribution Change in Stock price Change in no. of
No Industry/Sector to GDP Indicator 11M-2021 change firms ceasing Impact level
(2021) (yoy, %)* (YTD, %)* operations (%, 11M)
I Agriculture and Supplies 12.79% GDP 2.74 +22.4%
Agriculture, Forestry and 26.1 (Fishery
1 Export value 11.5 Moderate
Fishery stocks)
2 Agricultural supplies Included in manufacturing 161.7
(Chemical and
Fertilizers Output 4 agro-chemicals Low
Cattle Feed Output 9.5 stocks) Low
Manufacturing and
II 38.03% GDP 3.57 +17.3%
Construction
Manufacturing 25.37% GDP 6.05 +13.3%
Export value 94.7 (textile
Textile, Leather and 9.4
1 stocks) High
Accessories
Export value 23.8 -10 (Footwear)
Export value 21 Low
2 Paper & paper product 98.6
Export value 27.2
Export value 20 Low
3 Wood & wood products 25
Export value 19.7
70.3 Low
4 Steel Output 42.7
(steel stocks)
Minerals
5
(Coal, Mining, Crude Oil)
- Coal Output 6.9 103.3 Low
- Crude Oil -6.5
41.5 Moderate
- Gas -18.4
6 Construction 5.57 % GDP -0.58 65.3 +17.8% High
III Services 40.19 % GDP -0.69 17.1%
International -96.3 2.4% (Travel &
visitors Leisure) High
1 Tourism 2.57% 7.2
Domestic -30.1 19.9% (tourism, job
visitors recruitment...)

Transportation and High

2 4.44% Cargo output -8 -14.5 14.5
logistics

-25.2
Accommodation & High
3 1.97% GDP -23.18 (restaurants, 12.4
restaurants, bars
bars)
10.11%
16.3% (wholesale,
4 Retail (wholesale, Revenue -4.3 81.5 High
retail)
retail)
44.5 ((banking Low
stocks) (lagged)
Banking- Finance- 202.7 (securities Low
5 4.17% GDP 8.37 -3.8%
Insurance firms’ stocks)
18.7 (Insurance Moderate
stocks)
Real estate business
6 (retail, office lease, 3.58% GDP -0.78 41.3 24.1% Moderate
hospitality, apartments...)
28.5%
7 Health services 2.28% GDP 21.15 67.1% (medical & social High
services)
432.6
(education, 38% High
8 Education 4.3% GDP 4.19
training and
recruitment)
8
Source: BIDV Research’s calculation based on GSO data.
 COVID-19’s socio-economic impacts on
Viet Nam (2)
• 2022:
– GDP can only increase by 4-4.5% in 2022;
– Increasing inflation: reaching 3.4 to 3.7% (from
2% in 2021).
• New opportunities: a number of fast-growing
sectors, such as e-commerce, financial services
(security, fund, etc.); logistics, online retailing,
steel retailing, etc.

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 2. International experience in
pandemic control
• 6 ongoing pandemic control measures:
– COVID-19 is identified as endemic, rather than a pandemic;
– Vaccination has been accelerated, and vaccine passport has been
implemented;
– Put in place measures to co-exist with the pandemic, categorize areas to re-
open the economy while containing the pandemic;
– Establish a virus tracking team that comprises seasoned epidemiologists, data
experts and laboratory technicians to expeditiously put the pandemic under
control;
– Step up information dissemination work to raise awareness among the
people;
– Adopt policies in ways that can “contain the pandemic, foster economic
recovery, and ensure social security.”
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 International experience in assisting
the people and businesses
• Utilize both fiscal and monetary policies, in which fiscal policies
will be the primary option.
• As of late October 2021, global fiscal and monetary assistance
packages: 18,272 billion USD (16.4% of GDP in 2020):
– Fiscal assistance packages: 11,281 billion USD (10.2% GDP,
accounting for 61.7%);
– Monetary assistance packages: 6,991 billion USD (6.2% GDP,
accounting for 38.3%).

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 Table 3: Scale of fiscal and monetary
assistance packages (from early 2020 to late
October 2021)
Fiscal assistance Monetary assistance
Total
packages packages
Groups
Billion Billion % GDP in
% GDP % GDP
USD USD 2020
Developed
countries 9,648 11.8 6,237 7.63 19.43
Emerging
countries 1,579 5.1 747 2.41 7.51
Low-income
countries 55.4 3.8 7 0.48 4.28
Viet Nam 7.9 2.94 3.3 1.05 3.99

The world 11,281 10.2 6,991 6.2 16.4

Source: IMF, compiled by

the research group.
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 International practices in supporting
people and businesses (3)
• Key fiscal policies:
– Increase health expenditure for COVID-19 prevention and
control, research and production of vaccines;
– Spend more on social security; provide cash hand-outs,
unemployment benefits, utility subsidies for households;
– Support access to capital for businesses through preferential
loan programs, credit guarantees, lower interest rate;
– Deferment and postponement of tax payments and social
security payments;
– Reducing corporate income tax and VAT;
– Step up investment in infrastructure;
– Labor-intensive firms may borrow capital from State funds
through banks.

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 International practices in supporting
people and businesses (4)
• Key monetary - credit policies:
– Expansionary monetary policy (lowering the basic interest rate,
lowering the reserve requirement in a few countries, quantitative
easing...)
– Relax regulations on debt restructuring and debt classification:
– Allow the Central Bank to buy Government bonds to meet the needs of
spending on health and social protection;
– Support the issuance of bonds by credit institutions to lend to SMEs in
connection with a number of programs (green economy, circular
economy...)
– Increase guarantees and refinancing for credit institutions to
encourage preferential lending, infrastructure development and key
programs.
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 H.2: Scale and structure of fiscal and monetary
support packages

Source: Compiled from IMF.

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 Urgent need to adopt fiscal and monetary
policies to support recovery and development
• 5 External Risks:
– We do not know when this pandemic will end: vaccine shortage and uneven vaccine distribution
– Economic recovery is uneven, China's economic recovery is not steady
– Uncertainty, rising inflation; countries began to reduce their fiscal and monetary easing and raise
interest rates; rise in costs of production, circulation, transportation - warehousing, and energy
– Public debt and budget deficit increase, corporate and household debt risks rise;
– Increased risks of social, technological and financial crimes.
• 5 major domestic challenges:
– Complex developments of COVID-19, uncertainty in vaccine supply
– GDP in the third quarter of 2021 saw a year-over year decrease of 6.17%. GDP of the whole year is
forecasted to grow by 2%. We may not meet the goals under the socio-economic development
plan 2021-2025;
– Signs of missing opportunities and lagging behind;
– People and businesses under great difficulty, cost of living and production on the rise
– Institutional reform, improvement of investment-business environment, and economic restructuring
show slow progress, slow disbursement of public investment amid rising bad debts.

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 Fiscal space
• Availability of fiscal space: easier to make use of than monetary
policy:
– State budget revenue in 2021 is likely to fully meet the targeted level.
– State budget deficit and public debt were under control in the previous period;
– The size of fiscal support (nearly 3% of GDP) is still quite modest
– The major balances (budget deficit/GDP, public debt/GDP, debt repayment
obligation/state budget revenue, inflation…) are still within a safe threshold;
– The major balances and restructuring of public debt in the past time have
created a policy space to maintain expansion in the period 2022-2023 (the
countercyclical fiscal policy).

• Available space for other support packages: reduction of electricity

bills, telecommunications charges.

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 Monetary policy space
•Improved money market - banking conditions compared to the previous period:
(i) Inflation is quite low. This is conducive to policy-making as to increase the money
supply at a reasonable level, supporting economic recovery;
(ii) Successful experience in restructuring and dealing with bad debts in previous
periods has helped improve the capacity and resilience of the banking industry;
(iii) Nationwide vaccination program achieved positive results, creating favorable
conditions for economic recovery, increasing the economy's ability to absorb
capital and repay debt.
However, there is not a lot of space left for lower interest rates and credit growth due
to:
(i) Interest rates are at a 20-year low; capital absorption capacity of the economy is
still weak;
(ii) High inflation risk (at least in 2022); some countries in the world begin to reduce
quantitative easing and raise interest rates;
(iii) Priority is given to ensuring macroeconomic stability, controlling inflation and
ensuring safety and sustainability within the system of credit institutions (especially in
the context of increasing bad debts).
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 3. Fiscal and monetary policy
recommendations to support recovery and
development
1. Policy criteria and objectives:
• Ensure adherence to the guidelines and orientations of the Party
and State
• Promote flexible and close coordination, and harmonize fiscal,
monetary and other policies
• Be of a large enough scale, long enough time period with clear
focus
• Support both aggregate supply and aggregate demand;
• Feasibility and fast deployment;
• Ensure the implementation of multiple goals: both disease
prevention and control, socio-economic recovery and
development.
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 Policy scope
• Ensure and improve healthcare capacity;
• Reduce costs, postpone financial obligations, increase the ability of enterprises to
access and absorb capital; social security.
• Beneficiaries: workers and employers;
• Duration: 2 years (2022-2023)
• Have clear focus; meet one of the basic criteria as follwos:
– Able to meet credit conditions;
– One/several conditions are missing but recovery is possible;
– Essential goods and services, for which alternative sources have yet to be arranged;
– Priority areas and projects for inclusive and sustainable development (such as healthcare,
education, social housing, worker housing, infrastructure, green economy, circular economy)
– Infrastructure projects: regional linkage, spillover effect; temporary lack of capital slated
for supplementation.

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 Implementation duration
• Tentative schedule of 2 years: 2022-2023 (except
for long-term solutions)
• To be divided into 3 phases:
– Preparation to activate the program and open up the
economy, promote stronger recovery (end of the 2nd
quarter of 2022);
– Create a foundation for rapid recovery and acceleration
(end of the 3rd quarter of 2023);
– Conclude the program and adapt to a new trajectory
(from the fourth quarter of 2023 onwards).

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 Fiscal support policies
Scale
Policy Level of support Absolute value (billion
VND) (%GDP 2021)
1% 32,369 0.4%
Reduce VAT
2% 60,200 0.8%
5% 26,170 0.3%
Reduce social insurance fees
10% 52,340 0.6%
Reduce environmental
protection tax 2022 30% 18,924 0.2%
SME loan guarantee 80,000 billion VND (debt) 1,757 0.02%
Interest rate support 667-1 million billion VND 500 0.01%
Advance salary payments
for SME workers 219,400 2,194 0.03%
Increase infrastructure
investment 58,980 58,980 0.73%
Improve healthcare capacity 20,000 20,000 0.25%
Vocational training 22,970 22,970 0.28%
Support disease prevention
cost 33,700 33,700 0.41%
SCIC investment 50,000 6,000 0.07%
Total 277,565 3.41%
5/12/2021 UBKT và nhóm CG 22
 Monetary support policies
1. Continue to implement Circular 14 (the credit institution system will have its
income reduced by 30 billion VND by June 2022) – to be extended, if
necessary;
2. Use open market operations to support credit institutions to maintain low interest
rates, strive to further reduce the average lending interest rate by 0.5-1% in
2022 and maintain stability in 2023;
3. Refinance credit institutions for housing loans (low-income houses, social
housing, renovation of old apartments...), with a scale of 65 trillion VND; the
value of compensation for interest difference is estimated at 3,055 billion VND;
4. Consider reducing the reserve requirement by 0.5-1% (for demand deposits
and less than 12 months) – freeing up 27-54 trillion VND of credit;
5. Consider maintaining the ratio of using short-term capital for medium and
long-term loans;
6. Set a flexible credit growth target at 13-14% in 2022-2023;
7. Continue to improve institutions and regulations so that non-banking credit
institutions (including Fintech…) can participate in safe and healthy consumer
lending; contribute to stimulating healthy consumption demand); propose
legislation to handle bad debts.UBKT và nhóm CG
5/12/2021 23
 Social security policies
Scale
Policy Level of support Absolute value (billion
VND) (%GDP)
Support freelancers, workers in 3 million
informal sector VND/person 31,800 0.39%

Support contract workers in 4 2 million

Key Economic Regions VND/person 38,400 0.47%
Support workers from other
provinces to work in 4 Key 5 million
Economic Regions VND/person 10,000 0.12%
6,800 billion
Vocational training support VND 6,800 0.08%
Total 87,000 1.07%

5/12/2021 UBKT và nhóm CG 24

 Other assistance policies
Scale
Policies Amount Absolute value
(billion VND) (%GDP 2021)
10% discount on electricity
and telecommunications 26,650 26,650
charges in 2022 0.33%
Supporting businesses in 2,000 2,000
digital transformation 0.02%
Supporting innovative start- 4,000 4,000
ups 0.05%
Sponsoring projects on
upgrading and renewing
technology of enterprises in 5,000 5,000
the field of processing and
manufacturing 0.06%
Total 37,650 0.46%

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 Table 4: Policies and assistance packages
Published value Real value
Absolute %
STT Policies Absolute value % GDP
value (billion GDP
(billion VN) 2021
VND) 2021
I Assistance policies 775,911 9.54% 400,375 4.92%
1 Fiscal policies 586,261 7.21% 271,565 3.34%
2 Monetary policies 65,000 0.8% 4,160 0.05%
3 Social security policies 87,000 1.07% 87,000 1.07%
4 Other policies 37,650 0.46% 37,650 0.46%
II Other policies 50,000 0.6% 6,000 0.07%
State Capital Investment 50,000 0.6% 6,000 0.07%
1 Corporation’s investment
in businesses
  Total Nguồn: Tính toán 825,911
của Nhóm nghiên cứu.
10.2% 406,375 5.0%

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 Resources and resource mobilization
• Resources: budget deficit could increase by 1 percent per year
in 2022-2023.
• Resource mobilization:
Mobilization scale
STT Resource mobilization Value (billion % GDP
VND) 2022*
 1 Cost savings 29,200 0.34%
Accelerating the equitization and divestment of
80,000 0.92%
 2 SOEs
Using deposit insurance, social insurance to buy
51,100 0.59%
 3 government bonds
Issuance of government bonds (State Bank can
175,000 2.01%
 4 participate in buying)
Review of non-budget funds (public utility
telecommunications fund, science and technology 20,000 0.23%
 5 fund...), local funds
 6 *Partial
Giả định
usetăng trưởng GDP
of foreign năm 2021
exchange ở mức 2% và tăng 7% trong
reserves năm 2022.
45,400 0.52%
Nguồn: Tính toán của Nhóm nghiên cứu.
  Total 400,700 4.6%
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 Conditions for implementation
• Meeting the stated objectives, and criteria for assistance;
• Rapid development, taking into account the capacity of
agencies and localities;
• Paying close attention to removing institutional barriers to
increase capacity, and ensure effective policies.
• Estimating the impact and finding solutions to control the
risks of major balances (public debt, budget deficit, debt
repayment obligation...);
• Monitoring against waste, interest groups, among others.

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 5. Policy impact assessment

•Scenario 1 (KB1): normal, higher

probability;
•Scenario 2 (KB2): positive, optimistic,
lower probability;
•Comparison between “with” and “without”
these policies;
•Unable to calculate optimal solution.

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 Policy Impact Assessment (2)
Impact on GDP growth (%,
yoy)
Scenario No policy With policy
2021 2022 2023 2021 2022 2023
Scenario 1 2 4 6 2 6 7.5
Scenario 2 2.5 6 6.5 2.5 7.8 7.7

Impact on the state budget deficit (% GDP)

Scenario No policy With policy
  2021 2022 2023 2021 2022 2023
Scenario 1 4 4 4.5 4 4.8 5.5
Scenario 2 4 3.8 3.5 2.5 4.9 5.9
Impact on public debts (% GDP)
Scenario No policy With policy
  2021 2022 2023 2021 2022 2023
Scenario 1 46.1 44.3 41.8 46.1 44.5 42.3
Scenario 2 46.1 43.2 40.5 46.1 43.8 41.6
Source: Calculation of the Research Group. Scenario 1 is less likely to occur than
Scenario 2.
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 Policy impact assessment (3)
Impact on debt repayment obligations (% of total state
budget revenue)
Scenario No policy With policy
  2021 2022 2023 2021 2022 2023
KB1 24.2 23.48 22.96 24.2 23.63 23.25
KB2 24.2 22.7 22.2 24.2 22.84 22.47

 Debt repayment obligation: increased by 0.15% in 2022 and 0.29 percent in 2023
(Scenario 1); increased by 0.14% and 0.27% respectively (Scenario 2); excluding
other extraordinary obligations (if any).
 Inflation: disbursed money will also increase inflationary pressure. Inflation in
2022-2023 is forecasted at 3.5-3.9%;
 Exchange rate: increasing debt and increasing state budget deficit may cause the
value of the VND to decrease slightly. It is forecasted that the USD/VND exchange
rate will increase from 0.5-1.5% in 2022-2023.

Source: Calculations of the Research Team. Scenario 1 is more likely to occur than
5/12/2021 UBKT và nhóm CG 31
Scenario 2.
 6. Recommendations
• Coordinate policies seamlessly (especially fiscal policy and monetary
policy);
• Accept the increase in public debt, budget deficit, debt repayment
obligation and credit but keep them under control;
• Increase government bond issuance guarantee for VBSP;
• Provide solutions to increase capital for commercial banks;
• Focus on improving effective and timely implementation of policies;
• Closely link policies with the pandemic prevention and control strategy;
• Develop a specific roadmap to harmonize the impacts of the above
policies;
• Promote economic restructuring, institutional reform and improvement
of the business-investment environment; resolutely remove barriers and
obstacles as timely as possible;
• Focus on concurrently implementing tasks and solutions set out in other
plans and programs.

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