A report by the National Economics University (NEU) suggests that as of the end of March, more than 15% of enterprises in Vietnam have had to scale down their business.
The report shows that to counter the impact of the outbreak, 65.5% of enterprises have cut their regular operational spending, 35.3% have reduced their staff, 34% have slashed the wages of their employees, 44.7% have cut back on their business scale, 34.7% have temporarily suspended operations to wait for this difficult period to be over and 15.1% have changed their business models to adapt to the new situation.
NEU experts stated that if the outbreak period lengthens, it will seriously affect the Vietnamese economy.
Experts have advised that many scenarios, including the worst-case ones, should be analysed in order to prepare prompt solutions.
They stated that focusing on only monetary or fiscal policy is not enough since fiscal easing cannot be implemented over a long period while overall fiscal policy needs to be constructed cautiously due to its inextricable link to public debt.
According to experts, if the outbreak can be contained in April or the second quarter of 2020, the policy response should be supportive while if the outbreak extends further, stronger intervening measures in the form of rescue packages will be needed.
In order to achieve the goal of combating the disease and preparing conditions for economic recovery, the report recommends that the government should give priority to ensuring food security and preventing the spread of the virus.
In all cases, the security of food and other essentials must be guaranteed. Although these sectors are least affected, suppliers of these goods must be monitored closely and provided with the necessary support to prevent any disruption to production and distribution.
At the same time, it is necessary to introduce policies aimed at improving liquidity, prolonging business resilience and ensuring social security. Special attention must be given to vulnerable groups such as employees and small and medium enterprises (SMEs) while it is also necessary to prevent the collapse of larger enterprises and the associated knock-on effects there.
Boosting aggregate demand should be done by increasing state investment in infrastructure and avoiding any abuse of monetary policy creating economic instability in the long run.
The report also recommends easing credit requirements, deferring debt payments, reducing interest and allowing debt restructuring in order to improve businesses’ liquidity and resilience until their difficulties are over.
Rescue policy should focus on not only liquidity but also solvency. The central bank should stand ready to inject more liquidity into the banking system with interest rates that can be slashed by a further 1-2 percentage points.
With regards to fiscal policy, it is necessary to exempt or reduce a number of taxes for enterprises: reducing 50% of corporate income tax in 2020 for SMEs, reducing 50% of value added tax (VAT) for affected goods, extending VAT payments by six months and so on.
For enterprises, they needs to have restructuring plans in order to improve their operating efficiency, look for alternative sources of raw materials and forge closer links with domestic suppliers.
When enterprise and consumer spending falls, the State should act as the main spender. Therefore, public investment will play a larger role than ever. Public investment must go to the right destinations, focusing on approved infrastructure projects and appropriate timings. The National Assembly’s close supervision is needed to avoid any negative consequences.
However long the outbreak persists and however many enterprises go bankrupt, Vietnam needs to ensure macroeconomic stability, said the report, adding that inflation and interest rates needs to be kept at low levels, exchange rates stabilised, public investment properly implemented and the business environment improved so that the Vietnamese economy can quickly recover after the epidemic.
