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Foreign investors remain confident in Vietnamese economy: WB

The Saigon Times

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HCMC – Despite the negative impact of the fourth Covid-19 wave, Vietnam attracted a foreign direct investment (FDI) commitment worth US$2.4 billion in August, a 65% increase month-on-month, reflecting the continued confidence of foreign investors in the country’s economic prospects in the medium to long term.

The latest Vietnam Macro Monitoring report of the World Bank showed that higher FDI commitments in August were driven by newly registered capital flowing into manufacturing.

FDI commitment reached a total of US$14 billion in the Jan-Aug period, only 2% lower than the same period in 2020 while the disbursed investment reached US$11.7 billion, a 2% year-on-year increase.

FDI disbursement, however, fell again in August, by 14.3% month-on-month and 12.2% year-on-year due to the lockdown in major economic centers.

While FDI commitment rose, most other economic indicators deteriorated last month. 

According to the WB, the Covid-19 outbreak worsened rapidly in August, with the number of new cases rising sharply compared to July. The healthcare system is under high stress, particularly in the southern cities and provinces.

In response, the authorities acted swiftly and decisively, placing the provinces in the south and the three major cities of HCMC, Hanoi and Danang under strict lockdown. 

All major mobility indicators have deteriorated rapidly since the beginning of May as more stringent restrictions were put in place to contain the outbreak.

By the end of August, mobility had fallen by 60-75%, surpassing the slowdown recorded in April 2020.

The industrial production index dropped by 4.2% month-on-month and 7.4% year-on-year as social distancing measures disrupted manufacturing.

Nevertheless, this fall in industrial activities was not as abrupt as the fall at the onset of the Covid-19 crisis in April 2020. 

In fact, performance was mixed across regions with major northern manufacturing centers posting double-digit growth rates in contrast with sharp output contractions in the southern provinces that had shuttered factories.

Retail sales continued to deteriorate, falling by 10.5% month-on-month and 33.7% year-on-year in August. The drop in the value of retail sales was higher than during the two-week national shutdown in April 2020, reflecting the extended duration and stringency of social distancing and mobility restrictions imposed in major cities and many southern provinces. 

Sales of goods accounted for the largest share of the decline (59.6%), followed by accommodation and catering services (19.2%).

Compared to a year ago, merchandise exports were 5.7% lower, while imports grew by 21.1%. Consequently, trade deficit widened to US$3.5 billion in January-August, compared to the US$13.7 surplus a year ago.

Given the heavy reliance of Vietnam’s exports on foreign inputs and weakened domestic demand, the import growth in August might prove temporary and reflect the time lag between placing import orders and the arrival of ordered products. 

Amid the complicated development of the Covid-19 pandemic, credit grew at 14.9% year-on-year in August, similar to the rate in July. This growth rate remained higher than pre-pandemic rates as banks continued to provide preferential loans and debt restructuring to support businesses affected by the on-going Covid-19 wave.

The August budget balance posted a deficit of VND15.4 trillion. After increasing in the last six months of the year, total revenue fell by 9.8% year-on-year in August, reflecting the impact of tax and land rent deferrals and slower economic activities.

Meanwhile, current expenditures increased by 90% year-on-year as resources were mobilized to combat the Covid-19 outbreak and to purchase vaccines. 

Mobility restrictions and social distancing measures, particularly in HCMC and the southern provinces hindered the implementation of public investment projects, which had already been slow since the beginning of the year. 

Consequently, the disbursement of public investment dropped by nearly 40% year-on-year in August so that total expenditure remained 10.5% lower than last year.

The WB suggested that the overall performance of the economy in 2021 will depend critically on whether the government will be able to manage the current Covid-19 outbreak effectively in September so that economic activities can resume in the last quarter.

“Priority should be given to speeding up the vaccination campaign to cover at least 70% of the adult population,” the WB said in the report. 

Besides, the government should use fiscal policy to boost domestic demand in the short term, by accelerating the disbursement of the public investment programs and providing further income support to the affected households to help the recovery of private consumption.

Support to businesses, especially small family businesses, would also help boost economic activities and employment.

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