Saigon Investment spoke with Dr. Tran Du Lich, a member of the Prime Minister's Economic Advisory Group, about realizing these two goals.
JOURNALIST: - Sir, the Covid-19 pandemic has resurged and infected a large number of people in many communities and is continuing to spread. Is the Government steadfast in the implementation of its two main goals, that of protecting the people and also keeping the economy afloat?
Dr. TRAN DU LICH: - The Government is having to cope with these two main problems, that of preventing and containing the pandemic to save the population, and at the same time to save the economy from collapsing. Since March 2020, these two goals have been the basis of all policies since the first announcement of the outbreak, and have been diligently followed throughout April and May. When the outbreak reoccurred in Da Nang, from the end of July until now, the Government policy has been steadfast and unchanged in implementing and following these two main goals.
The question now is whether we can continue to fight and contain the pandemic and also keep the economic growth at a level of sustenance. I think these are two conflicting missions at first glance, but it is important to understand that despite all measures and efforts directed at saving the economy, the main priority must remain to control the pandemic. This is reflected in the daily implementation activities of the Government at all levels across the country. As for economic development being part of one of two goals, it must be understood that in the current scenario a number of businesses have closed down and in this context we are unable to promote economic growth as we normally did earlier.
Specifically, economic growth in the first quarter of 2020 reached 3.81%, but in the second quarter it was very low. So what activities can we stimulate so that the economy in the third and fourth quarters is not too low, or even negative. That is the problem to be resolved. Of course, it must be recognized that the two goals are difficult to implement, but it takes effort to resolve the situation. Priority towards preventing the pandemic is correct, but it also does not mean that the economy is ignored and allowed to collapse.
Hence, both the goals must be carried out in parallel. Wherever the pandemic breaks out, we need to immediately implement strict measures of social distancing, lockdown affected zones, and remain vigilant. However, where there is no need to implement strict measures, normal economic activities must continue to be maintained, while ensuring prevention as well. For example, although Ho Chi Minh City is at risk of receiving infected cases, we are trying to prevent such incidents and are also maintaining normal economic activities, without causing a panic by using extreme measures.
- Sir, can you explain the three pillars of the current economy that the Government is directed towards, as well as how can domestic demand stimulus revive economic growth and how is the demand stimulus appropriate at this time?
- The Government wants to rely and focus on three pillars, namely, exports, public investment and the domestic market. Up until now, these three groups are still the main factors to promote growth and also assist in limiting the decline in growth as much as possible. However, each field has both positives as well as difficulties.
Firstly, in the field of imports and exports, the total turnover in last seven months of this year decreased by 1.3%, compared to the same period last year. In which, exports increased slightly by 0.2%, but imports decreased by 2.9% and only maintained in two major markets, the US and China. The EU and ASEAN markets fell heavily. I think we still have some opportunities, but in the third quarter exports will continue to be difficult as the pandemic is showing no signs of disappearing in all major Vietnamese export markets. Hence, while export is still the main revenue source, it is unlikely that growth in the second half of the year will be higher than it has been in the first half of the year.
Secondly, with regard to public investment the Government has never focused on urging disbursement to implement projects, which are faced with many bottlenecks at present. If the disbursement of public investment is well implemented it will have a certain spread and benefit. According to some calculations, if the public investment increases by 1%, the GDP growth rate will be 0.06%. At the same time, current public investment, especially infrastructure investment, is affecting 50 different economic groups. Therefore, this is one factor that can stimulate growth and help businesses maintain operations.
Thirdly, the domestic market is very big, and if stimulated well then economic growth will be good. According to the principle of income distribution, domestic consumption contributes nearly 70% towards economic growth. However, the total revenue from retail and services in the past seven months decreased by 4.8%, while in the same period in 2019 it increased by 9%. Before the second wave of the Covid-19 pandemic hit Vietnam, we expected the tourism market to recover, but now it is back to where we were. However, these three pillars will continue to contribute to the economic growth in the last months of the year.
To achieve the goal of stimulating domestic consumption, I suggest a number of solutions that we can apply. First, to keep macro stability at a proactive figure, we must specifically determine the inflation target for this year and the coming year. Second, we need to determine what level of public debt ceiling is acceptable. Third, we must see how to stabilize the exchange rate. In general, proactively setting targets for macro indicators on exchange rates, public debt and inflation, and control monetary policy.
In this spirit, two tools are needed to stimulate domestic consumption which are fiscal and monetary policies. We can apply value-added tax reduction for some goods and services to stimulate consumption. Of course, implementing these solutions will increase bad debts in commercial banks. The problem, however, is to see which level is acceptable or controllable, because it is impossible to extend consumer credit without a risk.
- Thank you very much.