Despite enjoying a large degree of economic openness, the Vietnamese economy is facing a range of challenges in the upcoming quarters and has been negatively influenced by many aspects of the turbulent global economy, according to Nguyen Bich Lam, director of the General Statistics Office (GSO).

A report released by the GSO indicates that the year’s first quarter saw the economy’s growth slow in three sectors: agriculture-forestry-fishery, service, along with industrial and construction.

Lam says that during the reviewed period only a limited number of service industries were able to successfully maintain stable growth rates, including banking and finance, insurance, information communication, health care, and social assistance activities. The growth from these sectors can be considered as positive signs which helped the national economy temporarily escape the risk of stalling.

Several sectors endure growth slowdown

In the country’s economic structure during the first quarter of the year, the manufacturing and processing industry remained as the main driver of economic growth, despite the overall economy failing to achieve a high growth rate.

According to Pham Dinh Thuy, director of the Department of Industrial Statistics under the GSO, the first quarter saw both the industrial and construction sector obtain low growth rates in comparison to the same period from last year as a result of the huge impact caused by the novel coronavirus (COVID-19) epidemic.

With the processing and manufacturing industry recording its lowest growth in the year period from 2016 to 2020, electricity production and distribution grew steadily, whilst the mining industry endured a slowdown in growth as a result of a sharp drop occurring in crude oil production.

“If the epidemic situation persists until the second quarter, the processing industry will continue to witness a sharp decline in growth, especially in textile and apparel, footwear, electronics, steel and iron industries, and motor vehicle production”, the GSO representative notes.

As we move into the year’s second quarter, the GSO has put forth three scenarios for economic growth in the year ahead. The first scenario sees the epidemic lasting until the end of the second quarter, causing GDP growth for the whole year to grow at over 5%. The second scenario involves the epidemic dragging out until the end of the third quarter, in which case GDP growth is forecast to stand at over 5%, but lower than the level seen in the first scenario. In the third scenario, GDP growth for the year is expected to reach 6.8% as set out by the National Assembly.

Despite this, Lam states that, "achieving the 6.8% growth target is a big challenge as the country has a high level of economic openness, over 200% annually, and is heavily dependent on outside partners while major partner countries are closing trade borders to prevent the epidemic outbreak which is exerting an enormous impact on the Vietnamese economy".

Support solutions needed in a timelier manner

As a means of solving difficulties relating to production and business, the government has launched a bailout package worth a total of VND280,000 billion. This includes VND250,000 billion of credit support which aims to freeze and extend debt payments for enterprises affected by the COVID-19, along with VND30,000 billion in tax deferrals for businesses.

Simultaneously, the State Bank of Vietnam has issued a decision which adjusts interest rates, with reductions placed on refinancing interest rate from 6% to 5% annually, in addition to dropping rediscount interest rates from 4% to 3.5% per year. This comes after the Ministry of Finance recently proposed increasing the fiscal support package for deferral tax payments to VND80,200 billion.

According to economic expert Dr. Ngo Tri Long, there has yet to be indications of growth in the second quarter of the year in terms of both the global and Vietnamese economies due to the complicated developments of the COVID-19 epidemic. In the current context, keeping a check on the disease and continuing to stabilize production and business activities should be the top priority for the time being.

“To help enterprises stabilize production, the government needs to synchronously implement many solutions, including monetary solution policies with three objectives: restructuring the repayment term, interest rate waivers and reductions, along with keeping the debt group. This shows government support but does not provide subsidy for weak enterprises,” Dr. Long notes.

Economic experts believe that despite the Prime Minister directing a range of comprehensive and timely solutions, all ministries and sectors must remain active in putting policies into practice in a timely manner. Therefore, solutions should be implemented swiftly and properly in the near future.

This will serve as a driving force for growth, production, and business, thereby creating a long-term and more sustainable revenue source for the state budget.