The General Statistics Office has reported that after growing 5.03% in Q1 2022, the Vietnamese economy bounced back to 7.72% in Q2, and 13.67% in Q3.
It grew 8.83% in the first nine months of the year, compared with 1.42% in the same period last year and only 2.12% in that of 2020, representing the biggest 9-month increase in terms of rate in the 2011-2022 period.
The agro-forestry-fishery expanded 2.99% year on year, while the year-on-year rates of the industry and construction sector and the service sector were 9.44 and 10.57%, respectively.
With these positive results, and to continue driving the economy forward, Prime Minister Pham Minh Chinh has urged ministries, agencies, and localities to quicken the implementation of the Programme on Socioeconomic Recovery and Development (PSRD) for 2022-2023, which he said remains slow.
“The economy has continued its positive recovery trend, but it is likely that the situation may become more difficult until the year’s end and in 2023. Thus we must quicken the deployment of solutions to spur on economic growth, including the PSRD and boosting disbursement of public investment,” said PM Chinh.
In January, the government launched the PSRD, and the National Assembly (NA) issued Resolution No.43/2022/QH15 on a fiscal and monetary policy worth 15 billion USD, or about 4.5% of GDP last year, to support the PSRD.
According to the World Bank, the revenue component is estimated at 2.4% of GDP and includes tax and land rental deferrals that had relative success in the fiscal support packages rolled out in 2020 and 2021.
Additionally, the VAT rate was cut from 10% to 8% for many subsectors, costing an estimated 2.14 billion USD, equivalent to 13.2% of total VAT collected in 2021 or 0.6% of GDP. All revenue measures are to be implemented in 2022.
The expenditure component (2.2% of GDP) is mostly composed of public investment and interest rate subsidy. Public investment (1.6% of GDP) includes the acceleration of the projects in transport that were already listed in the 2021-25 Medium-term Public Investment Plan, as well as new projects in health, education, social protection, employment, digital transformation, tourism, and climate change adaptation.
Most of these new investments will be implemented in 2023, and so may not impact growth substantively in 2022. The interest subsidy is targeted to specific sectors, including those that have been severely affected by the pandemic such as transportation and storage, accommodation and food services, and travel-supporting services. This support measure has an envelope of 1.7 billion USD (or 0.5% of GDP) and will be effective until the end of 2023.
As with earlier packages, cash transfer to workers remains negligible (about 0.1% of GDP) and is designed as a small incentive for workers to return to or remain living in industrial zones, export-processing zones, and key economic regions: it offers 3-month rental assistance at a total of four million to those who are eligible.
However, the World Bank last month commented, “The implementation of the programme has been slow, as observed in the instances of previous COVID-19 support packages in 2020-2021. The VAT, corporate income tax, personal income tax, and land rent deferral, the largest components in new revenue measures, were enacted only on May 28, four months after the programme was approved.”
The World Bank cited a number of official sources as stating that total reduction of taxes, land rents, fees, and charges under the programme was estimated at 16.1 trillion VND (700 million USD) at the end of May 2022, or 25% of the plan. This included 6.6 trillion VND (286.96 million USD) in VAT reduction, about 13% of the plan.
On the expenditure side, the government has added 18.3 trillion VND (795.65 million USD) to the public investment plan for 2022, about 14% of the programme’s total planned public investment, although data on the execution of the allocated capital is not available. Guidelines on the interest subsidy were officially launched only on May 20. The disbursement of direct transfers to provide rent support for workers was marginal (totalling 2 billion VND (86,960 USD) out of 6.6 trillion VND (286.96 million USD) as of the end of May), “thereby failing to provide support when most needed.”
Flip side
However, according to Moody’s, the implementation of the PSRD will be disadvantageous for the state coffers.
“For 2022, Moody’s expects the fiscal deficit to be marginally higher at around 3.8%, as the authorities implement the PSRD. The programme cuts the VAT for most sectors, provides interest rate subsidies on loans to businesses and allocates additional expenditure toward public investment in transport, IT infrastructure, prevention of riverbank and coastal erosion and other climate change adaptation projects,” said Moody’s in a statement released in early September on upgrading the Vietnamese government’s long-term issuer and senior unsecured ratings to Ba2 from Ba3 and changed the outlook to stable from positive.
“Moody’s expects Vietnam’s fiscal deficit to consolidate to around 2.7% by 2025, with the government debt burden set to decline to around 37%,” Moody’s said.
According to a July report by data and analytics group Fitch Solutions, higher spending growth on the back of increased capital expenditure will put further pressure on Vietnam’s fiscal position.
“As part of the January 2022 stimulus package, Vietnamese policymakers plan to spend a further 176 trillion VND (7.65 billion USD) or 1.9% of GDP in 2022 and 2023. The details have yet to be fully resolved, but our current assumption is that about half of the package will be disbursed by the end of 2022,” Fitch Solutions said, adding that “Around 60% of the package will be invested in infrastructure such as transport – an area in which authorities have previously expressed interest in developing. The government had previously indicated plans to invest at least 1 quadrillion VND (43.47 billion USD) into transport by the end of 2030. We forecast total expenditure growth of 8.5% in 2022, from a contraction of 4.1% in 2021.”
According to Fitch Solutions, while the wider fiscal deficit will increase Vietnam’s debt burden, debt-to-GDP will remain contained. “We forecast debt-to-GDP of 57.0% in 2022, below the country’s 2016 high of 63.7% and the new, lower statutory limit of 60%, set by the government in 2021.”
However, Era Dabla-Norris, assistant director of the Asia Pacific Department and mission chief for Vietnam at the International Monetary Fund, said that she is viewing positive impacts from the PSRD.
“If implemented effectively, the programme would spur infrastructure investment, and create momentum for reform in areas under its agenda such as climate change, digital transformation, innovation, financial inclusion, business climate, education, and the labour market,” Norris said. “These would play a critical role in limiting economic scarring - partially in compensating for slower capital accumulation during the pandemic - and can boost productivity.”
“The bulk of the fiscal stimulus under the programme - especially the large investment component - is expected to play out in 2023 and this would further boost activity next year.”
Capital allocation
The Ministry of Planning and Investment (MPI) reported that as of September 28, 2022, the disbursement of support policies hit 61 trillion VND (2.65 billion USD), including 10.55 trillion VND (458.7 million USD) for concessional loan programmes via Vietnam Bank for Social Policies (VBSP); 3.545 trillion VND (154.1 million USD) as rental support for over five million labourers as of September 23; a 2% lending rate support package worth 13.5 billion VND (nearly 587,000 USD) for loans of 9.8 trillion VND (426.08 million USD); a reduction of VAT and environmental protection tax worth over 39.42 trillion VND (1.71 billion USD); and more.
Last week, the government issued Decision No.1113/QD-TTg on assigning 147.138 trillion VND (6.4 billion USD) from the central budget’s investment plan within the PSRD to 94 tasks and projects of ministries, central agencies, and localities as stipulated by Resolution 43. The prime minister ordered them to review projects and programmes funded by the PSRD, with the capital required to be “used effectively”.
PM Chinh has asked the Ministry of Finance (MoF) to soon complete a scheme on mobilising financial resources for the PSRD including the review of arrangements on official development assistance (ODA) and foreign concessional loans in a manner that Vietnam’s benefits are ensured. The MoF must devise suitable solutions to provide sufficient capital for the VBSP to implement policies within the PSRD.
In fact, under Resolution 43, about 7.65 billion USD has already been allocated by the NA. Of which, 7.5 billion USD has been allocated by the prime minister to ministries, central agencies, and localities so that they can complete investment procedures for 264 duties and projects.
The remaining sum is about 150 million USD – including 108.7 million USD that fails to meet conditions for investment and 41.3 million USD that has been returned by some ministries and localities without being invested.
According to the MPI, in order to ensure sufficient capital for implementing the 15 billion USD monetary and fiscal policy in service of the SRDP, the government will conduct radical saving of expenditure from the state budget. Moreover, state budget revenue must be increased via different solutions including the boosting of tax reform, fighting against revenue losses, transfer pricing, tax evasion, capital divestment, and equitisation of state-owned enterprises.
