Luckily, until now, the government has started implementing policies to restore the economy post COVID-19. We expect that monetary policies and fiscal policies must be combined, and new measurements will be taken into account in order to adapt with unpredictable situations. 

Flexible monetary policy

According to economists, recently, the Vietnamese government has successfully introduced some measures to recover from the economy, however, most policies at the moment are just short-term economic policies, used to deal with emergency situations while COVID-19 pandemic might continue to be serious in the future. Domestic consumption and private investments have witnessed a significant reduction in the last two years and will recover slowly. To be more specific, the FDI capital investment in Vietnam in 2020 (The first COVID year was 28.5 USD billion, 25% lower than that of 2019. 

According to Mr. Dao Minh Tu, Deputy Governor of Vietnam National Bank, COVID-19 is different from other crises as it came from epidemic, and it affected both supply and demand sides. Because of that, the national bank of Vietnam applied creative solutions, including adjusting credit growth, lowering interest rates, etc. Some measures are providing enterprises with low-rate loans, especially for the SMEs. 

And about credit growth rate, increasing credit room is a legitimate proposal of commercial banks. The State Bank of Vietnam will carefully calculate to balance between other macroeconomic policies, in which, existing inflation making the credit room increase very cautious.” said Mr. Dao Minh Tu on the sideline of a banking industry conference to implement the 2% interest rate support program. This made me believe that in the following period, monetary policies will be applied flexibly, in the way to shift Vietnam's aggregate demand (AD) curve to the right, but still balance with other long-term targets. 

Source: Foreign Investment Agency, Ministry of Planning and Investment.

Fiscal policies will be more effectively in recovering the economy

With Vietnam, a communist country, fiscal policies would be more effective in stimulating economic growth by total output (Similar to Keynesian Economics). It is expected that Vietnam will soon disburse at least 50% of the 150 trillion VND recovery package, which is part of government resolution 11/NQ-CP to reboot the economy after a long period of social and mobility restrictions due to the COVID-19 epidemic.  The programme will support business and long-term national development, according to the Minister of the Ministry of Planning and Investment (MPI) Nguyen Chi Dung.  Personally, I believe that part of the package should be used to support enterprises, especially supporting the reopening of aviation, tourism, entertainment, culture and arts, which operations were interrupted due to the impact of COVID pandemic. In addition, the cash supporting program for workers should be continued as a motivation for workers to come back to factories from their hometown, after two years staying at home without careers.

Alongside government spending policies, reducing taxation is also an applied solution. Under the recovery program, the Vietnamese government has slashed the value added tax (VAT) from 10% to 8%, encouraging goods consumption. On the supply side, the corporate income tax payment is deferred or reduced by a rate of maximum 30% in specific cases, bringing development opportunities to the market. However, this short-term policy might lead to a rise in inflation rate and contradict with other long term macro objectives. Therefore, there must be a cautious consideration before promoting any new fiscal policies. 

Future expectations of Vietnam

In conclusion, the Vietnamese authorities have been trying to bring the economy to the pre-epidemic position, and the combination between fiscal and monetary policies are currently effective. With the most positive script, by the end of 2022, the world’s economic growth is expected to stay between 4.5-5% and Vietnam to be approximately 7%. Until the policies are fully effective, Vietnam's economy will come back to its initial position, and will become a developed economy in the next 20 years.