Some suggestions on how Vietnam’s economy can surmount challenges posed by a protracted pandemic.
The world has expected to keep Covid-19 under control at the end of 2021 by virtue of vaccines. However, five months before 2021 draws to an end, the goal of having 60-70% of the population vaccinated remains far-fetched. At present, only 27.1% of the population has received at least one dose of vaccine; merely 13.7% have been fully vaccinated. Due to difficulties in accessing vaccines, only 1.1% of people in low-income countries have received at least one dose of vaccine.
Protracted war against the pandemic
In an integrated world where vaccination rates vary, even countries that have surpassed the herd immunity threshold face problems. For example, Israel has vaccinated 64% of its population but still has to adopt stringent measures against the pandemic as cases have increased since late June. According to the World Health Organization (WHO), the number of new global cases recently rose by 12%, across all regions, because of the Delta variant, which spreads more quickly and is thousands of times as infectious as the original virus.
As the pandemic rages on, the probability of new and more dangerous variants emerging is extremely high. Consequently, the battle against
Covid-19 will be protracted. Even when the population is mostly vaccinated, the new normal cannot immediately occur since cross-border trade may reignite the wave of infections. Some countries try to cope by gradually opening up. When there is a risk of the virus entering the community, they enter a lockdown immediately (an example is Australia) while some, such as European countries, opt for alternating layers of opening and locking down.
In this battle, countries that fare well will meet three conditions.
First, they can manage the pandemic effectively. The number of infections may not be low, but there will be few deaths and the spread of the virus will be minimized. Effective management is a relative notion since even with a high vaccination rate, the chance of infection remains.
Second, there should be some control over inputs and alignment with the value chain and external markets. It is crucial to acquire a good grasp of important technology both at present and in the future, as Taiwan has done with semiconductor technology or China has done with AI (artificial intelligence) and Big Data.
Third, the economy should undergo a shift to a digital model, with more innovations and a logistics chain that ensures smooth flows of goods both domestically and overseas.
Vietnam has faced the risk of disruptions in production and supply of products across regions and localities as the pandemic remains difficult to manage. Fully opening up its border remains unthinkable.
There are three main fronts, in order of priority: (1) avoiding community cases, (2) preventing the healthcare system from collapsing and (3) steering clear of an economic downturn.
In cases of emergency, the economy must be sacrificed for the sake of health.
This choice is simple if the pandemic does not last long and its end-point is known. In such a case, Vietnam can manage the necessary resources. However, when uncertainty abounds owing to new variants, the effects of vaccine and the endurance of society, a long-term strategy that involves boosting the economy will be crucial.
At present, Vietnam needs a comprehensive strategy to thrive in the first two fronts and stable macroeconomic fundamentals to overcome challenges.
Timely fiscal policies needed
Fiscal loosening aimed at addressing bottlenecks in an economy hampered by Covid-19 and fueling growth will be vital. Fiscal expansion will raise public dent and worsen the budget deficit. However, the question is not how much the budget deficit is, but what it is used to. Resources must be used optimally, so that profligacy and knee-jerk responses can be avoided.
A stimulus package should give priority to three aspects.
First, the healthcare system should be upgraded, with medical equipment, vaccines and test kits promptly purchased.
Second, enterprises, employees and vulnerable groups should receive support via unemployment benefits, cost-cutting measures and tax incentives.
The Government has actively managed these two aspects. The process should accelerate, with a certain margin for errors allowed.
Third, it is crucial that there should be spending for future growth needs. Medical collaboration, vaccine technology, Covid-19 cures and other issues of significance in healthcare are worthy of investment. There should be support for enterprises that focus on research and development (R&D), innovations (biomedical research, climate change management and e-commerce) and infrastructure for digitization (telecommunications, information technology and data processing). A special fund to encourage firms to shift to digital platforms should be put in place. Moreover, efficient investment in key infrastructure projects (logistics, ports, airports and highways, which boost the flow of goods) is also critical as it fosters regional and international links.
Stable monetary policies and backing for new loans
Three common responses to a crisis are interest rate cuts, backing for new loans and an interest-free stimulus package. For example, in March 2020, the French Government set aside 300 billion euros to underwrite loans for firms, regardless of their category, with an interest rate of 0% in the first year and 1-2.5% per year subsequently depending on the loan duration. The loan is capped at three months of income in 2019 and two months of future income (for innovative firms set up since January 2019). Debt restructuring measures are adopted to help companies improve liquidity, sustain business and transform their operating models.
Key interest rates by the State Bank of Vietnam (rediscounting and refinancing interest rates) are relatively low and suitable. Interest rate stability should be the long-term goal so that banking, exchange rates, export, import, the stock market and real estate can steer clear of volatility.
In short, the path to economic development in the future entails promptly supporting enterprises, employees and the people under lockdown. The key is to help firms in trouble and allow those with potential to thrive.
Judicious spending and investment, with a focus on efficacy via measurable criteria, will be important. This is a chance to review previous investment projects to glean insights and strive for greater efficiency. Investment should be future-oriented to propel the economy in a beneficial way. Special task forces that make informed decisions on the economy and investment and avoid hasty policies prone to causing waste of resources will play a crucial role. The onus falls on not only the Government, but also every citizen and enterprise, to play a part in fighting Covid-19.
(*)Professor of Finance, IPAG Business School, France; Chairperson of AVSE Global (https://www.avseglobal.org/)