Monetary policy is not a 'magic wand' for the economy, in the context of cash flow congestion and order deficiency

DNHN - In the context of cash flow congestion and order deficiency, the interest rate is no longer a significant factor for businesses and the economy; instead, the current focus is on securing employment for workers.

The State Bank of Vietnam (SBV) has recently adjusted the operating interest rate for the third time in 2023, reducing some key interest rates by 0.5% per year, including the refinancing interest rate, the deposit rate ceiling under 6 months, and the interest rate on the OMO channel. Consequently, the majority of operating interest rates have decreased to pre-Covid-19 levels or even lower.

This demonstrates that the SBV's proactive action in the face of economic difficulties is also a signal that market interest rates must be adjusted further from their current level to return to the pre-Covid-19 zone. In actuality, deposit interest rates on the market continued to decline for tenors, with a decrease of 50 basis points in state-owned and private joint stock commercial banks for terms of less than six months and a decrease of 20 basis points for terms of less than six months. 50 basis points deducted from maturities exceeding six months.

The economy and businesses need more support from fiscal policy, social security, and the removal of unreasonable business barriers because the economy's primary growth drivers are exhibiting signs of decline and the international economy is subject to a large number of unpredictable variables.

Monetary policy "burdens" an excessive number of objectives.

According to Dr Vo Tri Thanh, an economist, the economic outlook for Vietnam is gloomier than anticipated. In particular, GDP growth in the first quarter of 2023 increased by only 3.32 per cent compared to the same period the previous year, the steepest decline in approximately 12 years, primarily due to the decline of the manufacturing sector. In the first few months of the year, the number of Vietnamese businesses leaving the market was greater than the number of new businesses launching.

The real estate market remains challenging, the "bomb" of corporate bonds has not been defused, bad debts are projected to increase dramatically, and interest rates are anchored at elevated levels.

On the other hand, Vietnam must also face challenges from external influences; as an open economy, it must both adapt to the external context and manage domestically to eliminate immediate obstacles. businesses, restructure the system to ensure quality over the long term.

According to Mr Thanh, all of these factors make the 6.5% GDP growth target for 2023 even more challenging.

This expert also noted that Vietnam is currently pursuing numerous objectives, such as stabilising the macro economy, controlling inflation, ensuring system safety, bolstering the recovery of economic growth, and ensuring social security. Regarding monetary policy, security and defence will continue to be a challenge for the SBV.

"The target of 6.5% GDP growth and 4.5% inflation has presented a significant challenge to the executive agency, particularly in the context of policy space, in maintaining a balance between the goals. Mr Thanh remarked that there is a dearth of currency.

Mr Pham Thanh Ha, Deputy Governor of the State Bank, shared the same opinion, stating that the most challenging aspect for this agency is to find a balance between supporting the economy and ensuring the security of the banking system.

According to Mr Ha, the economic difficulty is the overall difficulty, which can be subdivided into business and banking difficulties. If banks provide adequate support to businesses, the economy will improve. If the bank delays, rescinds or loosens credit conditions, the problems will shift to the bank, posing a threat to the system's stability.

Mr Ha raised the issue and remarked on the management of policies, stating, "The difficult problem here is that the State Bank must find a balance between supporting the economy and ensuring the safety of the banking system." Currency prohibits "trial and error"

And Mr Phan Le Thanh Long, chief executive officer of AFA Group, stated that the output demand of businesses is the most pressing concern today.

Citing economic data from March and April 2023, he stated that Vietnam's purchasing management index (PMI), which plays a role in guiding and forecasting the future for investors, is below 50 points, indicating a weak economy. PMI used to approach 40 points during the outbreak of the Covid-19 epidemic in 2021.

"The low PMI will reflect on the performance of both the economy and businesses in the next quarter," said Mr Long, predicting that a positive trend will not return to the manufacturing and other sectors.

Regarding the SBV's decision to reduce interest rates, Mr Long concluded that the reduction had little effect on the economy because the impact of this decision is often delayed and takes time to permeate the economy through deposit-lending interest rates.

In the context of a lack of orders, he stated that the current priority for businesses is to secure employment for their employees, even though difficulties are expected to worsen shortly.

The Ministry of Labour, Invalids, and Social Affairs acknowledged the situation of workers being delayed, reduced working hours, lost jobs as a result of reduced orders, and a decline in production.

Nearly 294,000 employees took leave in the first quarter of 2023, a decrease of 2,000 compared to the fourth quarter of 2022. The majority of these employees (83% of the total) were employed by companies with foreign investment.

The number of unemployed workers increased by 39,000 from the previous quarter to reach 149,000. This number is concentrated in the textile and apparel industry at 19%, the footwear industry at 18%, and the component-electronic product manufacturing industry at 17%. In several provinces with numerous industrial parks and export processing zones, such as Dong Nai (32,600), Binh Duong (21,700), Bac Ninh (14,000) and Bac Giang (7,500), labour loss and reduced working hours are concentrated.

Determine how to exit fiscal policy

For the economy to recover quickly in the second half of 2023, experts believe it will be necessary to implement solutions to stabilise the macro economy, restore growth, and support production and business policies. Tourism demand, domestic market development, and public investment promotion reduce financial pressure, enhance the "health" of businesses, and indirectly address the issue of underemployment.

According to Prof. Dr To Trung Thanh, Head of the Department of Scientific Research at the National Economics University, the promotion of economic growth will rely heavily on fiscal policy in the context of a significantly constrained monetary policy space. Notably, it is difficult to increase credit and decrease interest rates rapidly to support growth.

Accordingly, the management agencies continue to extend the deadline for tax payment by Decree 12/2023. Concurrently, review the support policies under the Economic Recovery and Development Programme that have not been fully disbursed, such as the 2% interest rate support policy with an expected amount of 37,520 billion dongs remaining undisbursed until the end. In 2023, the policy to support rent for employees is expected to have a balance of approximately 2,823 billion VND.

"With the remaining balance, it should be transferred to another policy that can be implemented," Mr Thanh told KTSG Online.

Regarding public investment, Mr Thanh recommended that the Government have both short-term and long-term solutions to accelerate the disbursement of public investment capital, given that, according to the Ministry of Finance's report, the disbursement rate of public investment capital in the first four months of 2023 only reached nearly 14.7% of the entire year plan and nearly 15.5% of the plan assigned by the Prime Minister.

According to Mr Ho Duc Phuc, Minister of Finance, the primary reason is the difficulty in the investment preparation phase. According to the Law on Public Investment, there are new projects that have been allocated funding, but the project preparation phase is "clogged," which will prevent the implementation of subsequent phases.

"The approved project takes into account only the compensation for site clearance, which occurs slowly, thereby extending the investment preparation time. This is also the reason for the situation of 'capital waiting for the project to complete procedures,' which has halted the preparation of funds for disbursement and settlement, Phuc said in the corridor of the National Assembly.

Mr. To Trung Thanh stated that it is necessary to implement short-term solutions including: enhancing the sense of responsibility of the head; transferring capital for important projects; accelerating progress; and being able to quickly disburse investment capital from the central budget and urgent projects to remedy the situation.

Long-term, this expert suggests the Government finalise the Law on Public Investment and other pertinent laws. Concurrently, deal with the issue of land clearance; administrative reform in handling investment procedures; and the establishment of a monitoring system for the distribution of public investment capital.

Mr Ho Duc Phuc, who shares the same opinion, stated that it is necessary to amend the law in the direction of "one law amending many laws, in which it is necessary to amend the Law on Public Investment" to resolve this issue.

Dinh Thi Ngoc Dung, a member of the National Assembly from the Hai Duong delegation, proposed that the government study and establish a reserve fund for social security, with the long-term goal of supporting deceased workers. jobs, coping with unexpected challenges and risks.

"The establishment of a reserve fund will reduce the burden on traditional social security funds like social insurance and health insurance funds." Consequently ensuring the best rights and interests of employees and contributing to the strengthening of the safety and sustainability of our country's social security system, Dung stated at the National Assembly's session on the matter. The socioeconomic situation on May 31 in the afternoon.

Mr To Trung Thanh recommended that management agencies not overlook the quality of economic growth, namely the contribution of labour productivity, total factors (TFP), and science and technology. Without incorporating technology and innovation into GDP, the economy cannot grow sustainably and steadily.

According to Mr Thanh, Vietnam's labour productivity will increase by 6.48 per cent in 2022, the highest rate in the ASEAN region, but there is still a significant gap between Vietnam and many other countries in the region. The primary reason is that the quality of human resources is low, and the contribution of quality labour to the GDP has decreased sharply from 8% in 2015 to 1.4% in 2022, a decrease of a factor of four.

Van Phong