Returning Vietnam’s economy to a state of healthy growth will remain a bridge too far this quarter, said Vu Hong Thanh, Chairman of the National Assembly Economic Committee.
Thanh made the statement at the opening session of the fifth gathering of the 15th National Assembly Monday after examining a government report on socio-economic development in 2022 and the first months of 2023.
He said that the economy began deteriorating at the end of 2022 and continued its slump through the beginning of 2023, resulting in Q1 GDP growth of only 3.32%. This year’s target of 6.5% annual growth can now only be reached by achieving an average growth rate of about 7.5% in each of the remaining quarters of the year, he added.
Thanh pointed out that difficulties in the financial and corporate bond markets have made it difficult for enterprises to access and raise capital. The economy’s main drivers of growth – exports, foreign direct investment, and especially industrial production – are all on the decline, according to the chairman.
“The economy is really struggling now,” he said.
One of the main causes of the decline, according to Thanh, is the fact that the industrial construction sector is slumping.
At negative 0.4% growth in the first quarter of the year for the sector, the index of industrial production (IIP) decreased by 1.8% over the same period, according to a government report.
The report also noted that the IIP for the processing and manufacturing sector decreased by 2.1%. At the same time, the four-month electricity consumption data fell 0.4% year-on-year, showing a decline in manufacturing activities.
Committee chairman Thanh stated that the combination of the above troubles would make an economic “breakthrough” nearly impossible in the second quarter.
Thanh’s Economic Committee also reported that the health of individual businesses has been declining. In order to pay off large debts, many businesses have had to transfer and sell shares at very low prices. Slowing exports and a shortage of production orders have also resulted in job losses, lay-offs, unemployment and under-employment, especially at industrial parks.
According to the Vietnam General Confederation of Labor, nearly 547,000 employees at 1,300 enterprises had their working hours reduced or halted altogether due to declining orders, from September 2022 to January 2023. Some 75% of the losses occurred at FDI enterprises.
Cash flow problems have also been affecting many enterprises, for whom difficulty accessing loans has just been the additional insult to injury. According to the government report, the average loan interest rate was 9.3% in Q1, but data from the National Financial Supervisory Commission showed that the average loan interest rate at 35 commercial banks by the end of March was about 10.23%, some 0.56 percentage points higher than in late 2022.
Another issue mentioned by the committee was is the mismanagement of weak credit unions, which has negatively affected the currency market and the efforts of banks to lower interest rates. Bad debt is on the increase, affecting the safety of the financial system.
Given the existing difficulties, the Chairman of the Economic Committee suggested that the government consider further lowering the operating interest rate to reduce loan interest in order to support growth. The government also needs to resolve shortcomings in petroleum business regulations and electricity price mechanism, he said.
This committee also asked the government to issue an additional report on debt structure in the real estate market.
According to a previous government assessment, Deputy Prime Minister Le Minh Khai said that GDP in the first quarter reached only 3.32% while the growth rate of consumer price index (CPI) decreased at a four-month average of 3.84%.
Deputy PM Khai said that the government will regulate the appropriate exchange rate and interest rate, direct the banking system to reduce costs, further reduce loan interest rates and deploy a social housing credit package worth VND120 trillion.
The Deputy PM added that the government will propose to the National Assembly a plan with a global minimum tax as well as the exemption, reduction and extension of taxes, fees and charges. Speeding up the refund of value-added tax to facilitate production, business, and import-export activities is also part of the plan.
As of April 25, the credit market had grown by 2.75% since the beginning of the year, while the currency market and exchange rate had been stable.
The average loan interest rate had also decreased by 0.7 percentage points compared to the end of 2022.
Vietnam had a Q1 trade surplus of nearly $7.6 billion, an increase of more than three times compared to the same period in 2022. Disbursement of public investment capital increased by VND15,000 billion ($639.8 million) over the same period.
However, growth is slowing, as reflected in the fact that Q1 GDP was 1.7 percentage points lower than the same period last year (5.03%).
Newly registered FDI capital decreased by nearly 18% and realized capital decreased by 1.2%. The total number of businesses that were established or return to the market decreased while the number of suspended and dissolved businesses increased.
The youth unemployment rate is still high, over 7.6%. The number of employees withdrawing one-time social insurance continued to increase, by more than 19% year-on-year.
Deputy PM Khai acknowledged that Vietnamese leadership’s ability to analyze and forecast situations is still limited. Some officials were not responsive and indecisive towards problems, avoiding responsibility due to fear of failure, he said.
Ten solutions have been proposed by the government to achieve this year’s growth target, which emphasizes maintaining macroeconomic stability, controlling inflation, promoting growth and ensuring balance in the economy.
The government has prioritized measures for the exemption, reduction and extension of taxes and fees, as well as the acceleration of value-added tax (VAT) refunds. Resolving real estate project problems and restoring cash flow to businesses have also been high on the list.
The next tasks the Deputy PM mentioned were accelerating the disbursement of public investment capital, with a target of at least 95% this year, as well as attracting investment capital and encouraging public-private partnership (PPP) investment projects.
Looking back at 2022, Khai said that last year’s economy achieved high growth in a difficult situation, with GDP increasing by 8.02%. GDP per capita reached $4,109, an increase of $34 compared to the number reported to the National Assembly at the last session last year. The average CPI increased by 3.15%, and budget revenue reached more than VND1,810 trillion, up 12.5%.
The indicators of public debt, government debt and foreign debt of the Vietnam decreased and were within safe limits. In which, public debt was 38% of GDP, government debt was 34% of GDP and foreign debt was 36.8% of GDP.
By the end of 2022, welfare policies had spent nearly VND104 trillion for more than 1.41 million employers and more than 68.4 million workers in difficult circumstances.