Vietnam should harmonise monetary and fiscal policies to support economic recovery

Q: Why do many suggest that Vietnam should adopt fiscal and monetary policies concurrently in the current situation as well as the near future?

A: Due to the impact of COVID-19, the World Bank chief in Vietnam, projected that the domestic economy will grow by only 2-2.5%, compared to the global rates of 5-5.5% in 2021. Therefore, prompt measures are needed for the Vietnamese economy to recover and grow in a sustainable manner.

But achieving such a goal by increasing both aggregate supply and demand is not easy, as the economy remains weakened by the pandemic. As such, a harmonious combination of monetary and fiscal policies is inevitable, in which fiscal policy should be given greater weight.

Q: What do you think about the advice from foreign and domestic experts on Vietnam’s fiscal policy in the coming period?

A: The fiscal policy should be relaxed with tax relief measures that cover corporate income tax, personal income tax, value added tax for both goods and services and various other taxes pertaining to household businesses in areas hit by COVID-19.

But granting tax preferences by lowering tax rates on the basis of reduced profits is not the optimal solution. From 2023, Vietnam should grant tax preferences based on costs, to allow enterprises with major socio-economic impacts to enjoy additional cost reductions.

The support measures should not be distributed evenly, but should be more selective and focus on large-scale enterprises that can produce a strong effect on other areas of the economy.

Q: Will the relaxed fiscal policy cause unintended impacts on government revenues?

A: Government revenues can be increased from the sectors benefitting a relaxed fiscal policy, such as banking, securities and property. Revenues can also increase from rises in the price of crude oil and export-import activities.

At the same time, in order to reduce government spending, Vietnam needs to prioritise funding earmarked for COVID-19 prevention efforts and supporting the people affected by the pandemic. For their part, ministries, agencies and localities need to cut unnecessary spending.

Q: What additional adjustments are needed for monetary policy?

A: With regards to monetary policy, the State Bank of Vietnam needs to use the tools of mandatory risk provision and credit limits to reduce lending rates. For corporate credit, the central bank should ask commercial banks to reduce their operating costs, so that they can continue reducing their lending rates, to support the economy. Banks need to share the difficulties of the economy and fulfil their pledges of cutting rates, restructuring repayment periods, reducing interest and fees for their customers affected by COVID-19.

For personal and household credit, the State Bank of Vietnam needs to instruct the Vietnam Bank for Social Policy to reduce the rates on loans, specifically to households which have just been lifted out of poverty. At the same time, it is necessary to introduce programmes to provide loans for people who lost jobs due to the pandemic through the VBSP.

Thank you very much!