Perhaps, never before have the National Assembly (NA) and the government had to underscore both domestic and global difficulties affecting the Vietnamese economic performance as badly as they are now, at the fifth session of the legislature in Hanoi.
Vuong Dinh Hue, Chairman of the NA, stated that at present, the economic landscape has continued to depress while the consumption demands in Vietnam’s key export markets have plummeted due to high inflation and tightened spending. At the same time, there has been a rise in geopolitical tensions and many nations have tightened their monetary policy.
“All of these have badly affecting Vietnam’s socioeconomic performance,” Chairman Hue said. “In the first quarter of this year, the country’s economic growth reached a lower-than-expected level of only 3.32%. Several localities suffered from year-on-year low or below-zero growth. Meanwhile, the total export-import turnover in many key industrial sectors either dropped or increased at a low level,” he continued. “Many enterprises have been bogged down in difficulties, and some have been forced to shrink or stopped operations. The macroeconomy boasts many risks while there is great pressure in high exchange rate and interest rates, and in bad debts.”
According to the General Statistics Office (GSO), Vietnam’s index for industrial production (IIP) fell 2% from the same period last year, when the IIP had ascended 8.1% year on year.
In which, the IIP for the processing and manufacturing sector decreased 2.5% against the same period last year when it expanded 8.9% year on year. The electricity production and distribution sector rose merely 0.8% year on year, while the mining sector dropped 3.5% year on year, and the sector of water supply and wastewater and trash management and treatment increased 6.4%.
The IIP of many key sectors also saw a year-on-year reduction, including: motorised vehicles (10.1%); paper and paper-based products (8.5%); clothes (8.3%); furniture (5.9%), wood and wooden products (5.8%); transport means (5.6%); metal (5.5%); and electronics, computers, and optical products (5.1%).
According to the Ministry of Planning and Investment (MPI), domestic production and business activities are being hit by massive difficulties. The total number of newly registered enterprises and enterprises resuming operations has reduced, while the number of those with performance suspension and dissolution has risen.
In the first five months of this year, Vietnam saw more than 61,900 newly established businesses registered at more than 568.7 trillion VND (24.72 billion USD), using 405,900 labourers – down 1.6% in the number of enterprises, 25.3% in registered capital, and 7.2% in the number of labourers as compared to those in the corresponding period last year.
The average registered capital per an enterprise in this period reached 9.2 billion VND (400,000 USD) – down 24.1% year on year. If the 824.9 trillion VND (35.86 billion USD) as additional capital registered by the operational 21,100 enterprises is included, the total registered capital introduced in the economy in the first five months will reach over 1.393 quadrillion VND (nearly 60.6 billion USD) – representing a year-on-year plunge of 43%.
Meanwhile, the first five months also saw 55,200 businesses with halted operations – up 20.3% year on year; 25,500 enterprises stopped operations and waited for dissolution procedures – up 34.1%; and 7,300 enterprises completed such procedures – up 6.5%. On average, about 17,600 businesses were kicked from the market every month.
Uncertainties climbing
Deputy Prime Minister Le Minh Khai told the NA that since early this year, the world situation has continued witnessing rapid and complicated uncertainties which are difficult to predict, hurting almost all nations and regions in the world, especially the consequences of the prolonged COVID-19 pandemic, the Russia-Ukraine conflict, and ever-expanding strategic competition among big countries.
“High inflation, tightened monetary policy, and a prolonged hike in interest rates have led to a decline in economic growth,” DPM Khai stated.
According to a government report to the legislature, year-on-year GDP growth in Q1 is 1.6% in the US, 1.3% in the EU, 0.8% in the Public of Korea, 1.6% in Japan, 0.1% in Singapore, and 2.7% in Thailand.
The World Bank has forecast that the world economy will likely grow merely 1.7% this year, while the International Monetary Fund has also predicted 2.8%.
“There also have been big risks in the global financial, monetary, and real estate markets,” DPM Khai noted.
At present, the Vietnamese economy is quite open to the global economy. That’s why any strong developments in the global market such as high inflation, high prices of materials, and supply chain disruptions can have negative impacts on the Vietnamese macroeconomic stability, economic growth, inflation, and people’s life and incomes.
Vietnam’s GDP was calculated to stand at 409 billion USD last year when total export-import turnover reached 732.5 billion USD, which was 1.8 times higher than GDP.
Seeking new remedies
NA Chairman Vuong Dinh Hue has urged the government to devise new timely measures to assist people and enterprises struggling against prolonged woes.
For this year, the NA and the government expect the economy to expand by around 6.5%, below a decade-high of 8.02% touched in 2022. However, prolonged difficulties are leaving businesses in the lurch.
Chairman Hue also requested that new solutions must be taken to punishing those who are irresponsible for implementing their assigned tasks, which have undermined the country’s efforts to support people and enterprises.
As scheduled, the NA will officially discuss the 2% VAT reduction from the existing 10% rate to 8% on June 1 before receiving an approval from NA deputies in a resolution slated for June 24.
The VAT reduction, proposed by the government, is expected to contribute to boosting the economy’s growth and support of people and businesses to overcome difficult times, is set to be applied from June until December 31 for all types of goods and services currently subject to a 10% VAT rate.
The new policy is part of the NA’s Resolution 43/2022/QH15 released early last year on fiscal and monetary policies supporting the Programme on Socioeconomic Recovery and Development.
Under Resolution 43, the National Assembly reduces the VAT for goods and services subject to 10% VAT by 2% (to 8%), except for the following goods and services: telecommunication, financial activities, banking activities, securities, insurance, trading of real estate, metal, precast metal products, mining products (excluding coal mining), coke mining, refined oil, chemical products, and goods and services subject to excise tax.
In another case, under a draft report by the government recently submitted to the National Assembly Standing Committee, the government suggested that more new fiscal policies, especially about tax and fee, and new monetary policies, be soon designed and enacted to imperatively assist enterprises and labourers, therefrom helping to ensure macroeconomic stability and social security.
The report will be discussed by the NA over the next weeks before specific solutions are crafted and promulgated.
“There will be more solutions to help the public and enterprises to have access to bank loans at favourable lending rates,” the report stated. “In addition, the government will continue to “drastically and effectively implement already-promulgated solutions to support enterprises and production and business activities such as Resolution No.58/NQ-CP dated April 21, 2023, on a number of major policies and solutions to support enterprises to proactively adapt, recover quickly, and develop sustainably until 2025.”
Under Resolution 58, the government requested the Ministry of Finance to continue carrying out in the short-term tax administration reform for individual business households, and report to the prime minister in the second quarter of 2023.
At the same time, the government has directed the General Department of Vietnam Customs to coordinate with ministries, agencies, and localities in simplifying the current administrative processes or consider applying priority import and export processes to help businesses optimise time and costs, speed up the import process and procedures for essential commodities, and accelerate the export of agricultural products and key export commodity groups.
