Tuesday , December 10 2024

Stimulus package efficacy depends on execution: analysts


The stimulus package of VND350 trillion ($15.4 billion) is timely and well planned but how it is executed will determine the pace of recovery, experts say.

“Many of the measures in the support program are well chosen to help support recovery of private investment and consumption,” Dorsati Madani, senior economist, World Bank Vietnam, told VnExpress International.

The stimulus package was approved earlier this month at an extraordinary session of the National Assembly held to discuss means to boost the economy after a two-year slump caused by Covid-19.

The proposed 3 percent tax waivers and deferrals for businesses and 2 percent cut in value-added tax would help encourage people to consume more, and this could help the country bounce back from the “massive shock” in the third quarter last year, Madani said.

With most economic activities in the south hit between July and September last year due to a surge in the number of cases in Ho Chi Minh City and neighboring localities, the country’s GDP shrank by over 6 percent in the third quarter, which dragged down full-year growth to less than 2.6 percent, the lowest rate in decades.

This is why the government is banking on the stimulus package, which includes public spending of around 2 percent of GDP this year to help create jobs, raise incomes and achieve the GDP growth target of 6-6.5 percent.

The stimulus package is a comprehensive one as it covers key categories, Khoa Ngo, head of markets and securities services at HSBC Vietnam, said.

Though Vietnam could not afford large stimulus packages like some other countries, the $15.4-billion plan would benefit consumer-related sectors and infrastructure, he said.

HSBC forecast 6.5 percent growth this year, with foreign direct investment, manufacturing and export being the three key pillars for recovery, he said.

Businesses are also pinning high hopes the stimulus will help them reboot production and return to pre-pandemic levels.

The expected loans from the stimulus package, with interest reduced by 0.5-1 percentage point, could help his company continue with operations and reach out to more partners and customers globally, Le Ha Minh, CEO of Eco Garment Vietnam, said.

The Hanoi company had to cut production last year due to Covid restrictions and revenues declined by 60 percent.

Its funds have dwindled, and loans are crucial to its recovery.

The expected low-interest loans from the government could cause revenues to rise by 40 percent this year, and full recovery could be achieved in the next few years, Minh said.

Fear of being left out

But some aspects of the stimulus package are not clear to some businesses who fear they might be left out.

Than Duc Viet, general director of Garment 10 Corporation in Hanoi, said his company could not fulfill some of the requirements to access last year’s VND62 trillion support package from the government.

“We have over 8,000 employees and 4,000 more in joint ventures, and we expect the criteria of the new stimulus package will be reasonable so that our workers can benefit from it”.

The government should listen to businesses about the hurdles that prevent them from accessing the stimulus, he added.

The World Bank expressed some concerns about the package, saying it essentially provides no cash support or social programs to support workers and households affected by the pandemic.

“This is a major weakness of the program and can be addressed by adding funds to be distributed in cash payments to the most affected,” Madani said.

The proposed support for workers to pay rents in industrial zones (VND500,000-1 million a month for three months) is “limited both in scope and the amount offered to workers,” she said.

She also called for further emphasis and spending on education, including additional funds to support teachers and help students in difficulties acquire tablets and Internet access.

The bank forecast GDP growth this year to be 5.5 percent, saying the impact of the stimulus would mostly be felt next year.

To ensure the package yields the best results, Khoa of HSBC said it should prioritize labor market recovery.

“Inter-regional connectivity upgrade should be another priority as it will create the required seamlessness that supports trade and reduces logistics costs”.

Though some analysts have flagged concerns about inflation this year due to the surging crude oil prices, HSBC expects headline inflation to be 2.7 percent this year, well under the State Bank of Vietnam’s targeted cap of 4 percent.

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