Dr. Nguyen Hoang Nam: The 800,000 billion economic stimulus package is a mandatory medicine, there is no other more effective choice.

According to the Ministry of Planning and Investment (MPI), the current economic recovery and development program after the Covid-19 pandemic is considered extremely appropriate and urgent, focusing on supporting the economy to overcome difficulties, quickly return to a new normal state and not miss the recovery and development trend of the world. The estimated resources to implement the program are about VND 800,000 billion (equivalent to USD 35 billion).

Regarding this expected economic stimulus package, many experts also agree that a large economic stimulus package is something that needs to be done soon at this time, besides that it is also necessary to estimate the appropriate dosage as well as predict the impacts.

We would like to introduce another perspective on the economic stimulus package by Dr. Nguyen Hoang Nam, Head of the Faculty of Finance and Banking, Dai Nam University.

Dr. Nguyen Hoang Nam - Head of Finance and Banking Department, Dai Nam University.

A must-have if you want to get back on track for long-term growth

PV: Compared to past economic stimulus packages (2009 and 2020), what do you think are the differences in the upcoming economic support package worth VND800 trillion?

Over the past decades, Vietnam's economic growth has depended mainly on exports and public investment. However, in the context of the pandemic that has lasted for nearly 2 years, both growth drivers have suffered extremely negative impacts, causing the "health" of the economy to be severely affected. Therefore, this stimulus package is a mandatory medicine that the Vietnamese Government has no other more effective options.

Previously, economic stimulus packages were only intended for short-term stimulation, so the scale of these stimulus packages was much lower (package of 5.7 billion USD in 2009; package of more than 10 billion USD in 2020). The 2009 stimulus package helped businesses restore production, reduce unemployment, and stimulate consumer demand. However, the price to pay was extremely high, which was the inflation rate increased sharply to 11.75% in 2010 and peaked at 18% in 2011. Unfortunately, the sharp increase in inflation was mainly due to subjective reasons. The 2020 policy package has helped Vietnam's economy become a bright spot in the world economy, maintaining a positive growth rate of 2.9% in the context of the pandemic.

Meanwhile, the upcoming stimulus package will be aimed at the economic benefits in the medium and long term. Therefore, the scale will be extremely large, estimated at about VND 800,000 billion (equivalent to USD 34.7 billion). The purpose is not only to solve the short-term problem but more importantly, to bring the Vietnamese economic boat back to a new growth cycle. In addition to the short-term impacts as analyzed above, the main purpose of this expected package is to re-establish the growth momentum for the Vietnamese economy in the medium and long term. Specifically: the economic vehicle must still operate based on public investment, export of industries less affected by the pandemic and especially part of the burden of exports will be shared by domestic consumption, this is a major change in the impact of this policy package. The stimulus package is expected to have a very wide and deep scope of influence and impact on many aspects of socio-economic life.

The government is likely to focus on supporting small and medium-sized enterprises.

PV: So, in your opinion, what will be the focus of the stimulus package?

This economic stimulus package will target a wide range of economic sectors, businesses and individuals to varying degrees.

For economic sectors, it is predicted that the economic stimulus package will focus mainly on sectors with high sensitivity and large spillover index, as shown by the high forward and backward linkage coefficient in the economic inter-sectoral matrix. In the immediate future, the Government will likely focus on export sectors that are less affected such as equipment, tools, components; key agricultural products: coffee, tea, pepper, cashew nuts, etc. And for each sector, the Government will also have measures to select suitable enterprises for timely support, not widespread support.

Regarding businesses, the Government will probably focus on supporting small and medium enterprises because of their overwhelming proportion (96.7%) in the economy. The most recent statistics show that this sector currently absorbs nearly 9 million workers, contributes about 50% of GDP and budget revenue of about 30%. Effective support for this economic sector will help stabilize the social security situation soon.

For individuals, the Government may adopt unprecedented policies such as quarterly cash support and/or providing grocery cards to vulnerable groups in society.

PV: With such a large scale (accounting for 10% of Vietnam's GDP), how do you predict this stimulus package will impact the economy?

As I said above, the impact of this stimulus package is huge in both breadth and depth, both in terms of aggregate supply and aggregate demand, from the goods and services market, labor market, financial market to input factor market.

However, the specific impact on each market depends largely on external lags. If policies are not implemented synchronously, the results will not be as expected. For example, to increase the quarterly growth of the economy to 1%, public investment must disburse 50,000 billion VND. If this is not done, the results will not be as expected.

PV: According to you, how should the new stimulus package be implemented to overcome the weaknesses of the old package and at the same time be suitable for the current economy?

If we can overcome the shortcomings of previous stimulus packages, this package will be very effective. The disadvantages of previous stimulus packages are:

- The implementation of fiscal and monetary policies is not synchronized, for example, the disbursement of public investment capital and interest rate support are not synchronized, so the effectiveness is reduced to all macroeconomic variables.

- Poor cash flow control leads to speculation in markets such as real estate, stocks, and gold, leading to market bubbles.

- There has been a phenomenon of policy exploitation in the past because it operates based on the mechanism of asking and giving.

- Due to complicated administrative procedures, external delays are often large.

Impacts on stock market, real estate, interest rates, gold prices

PV: So, in your opinion, how will this stimulus package affect inflation, gold prices and Vietnam's stock market in the coming time?

Normally, when the government implements a stimulus policy, it will put upward pressure on inflation. Here I emphasize the inflation that individuals expect. When people expect inflation to be higher than it actually is, they will naturally change their financial behavior.

This has been clearly demonstrated in the recent period. When the mobilization interest rate of the Vietnamese banking system dropped very low (more than 6%/year), in just the first 10 months of 2021, individual investors in Vietnam opened more than 1 million new securities accounts, higher than the total number of accounts opened by this group in the 4 years 2017 - 2020 combined. When real interest rates fell sharply, investors switched their investment channels to securities to seek higher profitability.

At the moment, the VN Index is rising, but when personal inflation expectations are high, they will once again change their behavior to invest in markets with more stable income in the long term. It is possible that the land segment of the real estate market will warm up and gold will reach a new peak in the near future.

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