Negative impacts
Nearly four months since the outbreak of COVID-19 in Vietnam, the local production, business operations and macroeconomics have changed to a new and very different state than before. GDP growth in the first quarter of 2020 was only at 3.82% over the same period in 2019. "The growth engine" – the business community – is facing difficulties unprecedented in history, forcing enterprises to drastically reduce their labour force while "hibernating" or maintaining operations at the minimum level. If businesses stop operating, the cost to restart is very huge, and the more worrying issue is that it may lead to the economy losing its growth momentum.
In a report to the Prime Minister on the impact of COVID-19 on the production and business activities of corporations under its management, the Committee for the Management of State Capital at Enterprises (CMSC) announced that up to the end of the first quarter this year, there were seven out of 19 enterprises suffering total losses of over VND3.7 trillion. Among them, Vietnam Airlines Corporation (VNA) has suffered the most. Chief Accountant cum Head of VNA Finance Tran Thanh Hien said that in Q1 of 2020, VNA witnessed output reduction of about 40%, while the expected loss was at about VND2.4 trillion. In the worst scenario, it is expected that VNA will suffer reduced revenue of about VND50 trillion in 2020, while total losses may reach nearly VND20 trillion. These are very large numbers which the corporation itself cannot withstand through its own potential.
VNA board of leaders affirmed that, like the global aviation industry, the epidemic impact has gone outside of risk management scenarios by VNA. To minimise such negative impacts, since January, the VNA has promptly developed operating scenarios suitable to the disease outbreaks and government policies. Amidst the passenger transport market has been in the lowest level, VNA specialised departments have strived to find alternative sources of cargo transport to help ease difficulties while maintaining trade – the "blood vessels" of the economy. Contracts signed with traditional partners, such as an agreement with Vietnam Post on express delivery of goods and postal items on A321 aircraft, are expected to bring revenue from commodity segments worth from VND250-300 billion for VNA in April. Along with internal solutions, VNA has called for support from its partners and customers to reduce prices and extend the payment schedule. The Government has also introduced initial solutions such as reducing some taxes and fees to support businesses.
The decline in oil prices due to the sharp drop in transportation demand since the global coronavirus outbreak has caused losses in revenue of nearly VND13.2 trillion for the Vietnam Oil and Gas Group (PVN) in the first quarter of 2020, down nearly VND4.6 trillion in earnings after tax over the same period last year. According to scenarios built by PVN, if the crude oil price drops by US$55 to US$30 per barrel, PVN's annual revenue from crude oil will decrease by VND9.2-55.1 trillion, making the total revenue drop by VND23-141 trillion and resulting in a decrease of VND5-27.1 trillion in the State budget contribution compared to the set plan.
According to CMSC, it is expected that in 2020, if the epidemic is prolonged while the oil price does not recover, the revenue of its corporations will decrease by about VND279.7 trillion compared to the set plan. Eight out of its 19 corporations would suffer total losses at about VND26.3 trillion, while contributions to the State budget would drop by about VND32.8 trillion. For example, Vietnam Maritime Corporation and Vietnam Railways are also suffering difficulties, with estimated respective losses at VND111 billion and VND100 billion in the first quarter.
In addition to implementing solutions to overcome difficulties as set out by CMSC, currently 19 corporations under the committee are adjusting their production and business targets in 2020 to suit the new situation. One of the requirements set out in this adjustment is the development of a solution to cope with risks and minimise the negative impacts from the epidemic and market, as well as the proposal of specific recommendations to restore production and business operation in the post-epidemic period.
Difficulties have not only besieged economic drivers but are also challenging the resistance of the entire Vietnamese business community. For the first time in many years, nationwide business registration recorded a higher number of enterprises ceasing operations and leaving the market than the number of registered enterprises. In the first quarter of 2020, the country witnessed the withdrawal of nearly 34,900 enterprises from the market in the form of business suspension, pending for dissolution and completion of dissolution procedures. In particular, the number of enterprises temporarily suspending business has increased by 26% over the same period last year. The sudden increase in the number of enterprises withdrawing from the market reflects their difficulties and also the hesitation of investors who are waiting for the situation with the disease to progress before making their decisions to continue or close their business. Economists fear that bankruptcy has never been so near and suggest that saving the economy must start from saving businesses.
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Dung Quat oil refinery in Binh Son District, Quang Ngai Province. (Photo: Minh Hoang)
Timely support for economic pillars
According to recent surveys, if COVID-19 progresses in a complicated and prolonged manner, only half of enterprises will be able to sustain operations for more than six months. The battle on the economic front is entering a very challenging period with the "health" of the business community beginning to decline. If the "golden period" of pouring capital to revive production and business is missed, it is likely that a majority of businesses will not be able to wait for support, even though the Government has issued multiple appropriate and timely policies including an interest rate reduction support package and restructuring of debt worth VND285 trillion, in addition to a tax payment extension package and land rent worth VND180 trillion.
According to the State Bank of Vietnam (SBV), after SBV’s work sessions with credit institutions, the latter agreed by a high consensus to reduce lending interest rates by 2% for existing loans, as well as for new loans. So far, credit institutions have offer over VND300 trillion in the total amount of debt rescheduling and exemption/reduction of new loan interest rates.
Dr. Truong Van Phuoc, former Chairman of the National Financial Supervisory Commission, said that several countries have skipped "lending" to switch to "giving", meaning they switched the support from loans from banks to directly assist enterprises by capital from the state budget. Vietnam cannot follow such direction but it can shift its focus to fiscal instruments, through tax policies, to promote public investment, Phuoc said, adding that in this “war” against the coronavirus, the fiscal policy should act as an armoured vehicle that takes the lead, while monetary policy should act like infantry soldiers to follow in the battlefield.
Selecting priority in pandemic response policies is a difficult issue, but it determines the success of governments. Economist Tran Du Lich assessed that with limited resources, the Vietnamese Government's support policy is currently prioritising resources for micro and small enterprises, which accounts for the majority of the business community but is still limited in accumulating resources and experience in dealing with the crisis. It is the correct priority choice, Dr. Lich stressed, suggesting that the current priority policies can be applied until May, after which it is necessary to provide support to large enterprises, including State-owned ones, as proposed by their governing body – the CMSC. This is essential because they are enterprises that make important contributions to the State budget, Lich stated.
In the same opinion, Assoc. Prof., Dr. Tran Dinh Thien, a member of the Government 's Economic Advisory Group, said that the Government' s policies are aimed at general support but need more specific solutions to support the large corporations who are the mainstay for national economic development. The Government needs support, which is considered an insurance policy, for these businesses to survive and then revive after the epidemic ends, according to Thien.
Assoc. Prof., Dr. To Trung Thanh, Head of Scientific Management Department under the National Economics University, said that it is difficult to forecast the impacts of COVID-19 on Vietnam's economy in the long term. It requires different economic policy scenarios, from short to long term ones, in order to respond. Accordingly, Vietnam should not only focus on the liquidity of businesses but also the solvency, he suggested. SBV needs to be ready to pump more liquidity into the banking system so that interest rates can be cut by one to two percentage points. When monetary or traditional fiscal policies are not capable of supporting the solvency of enterprises, it is necessary to have direct fiscal intervention from the Government, such as debt repurchase, increasing state ownership in enterprises and directly pumping money into some important areas to minimise the collapse of large corporations.
