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Public investment: The economic cure-all?

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The Government has realized that public investment is the only solution to helping the economy regain confidence because the budget is ready and goods orders may be abundant. It can be said that the solution has been put forward and the crux of the problem is how to implement it effectively.

What is happening now shows that the Covid-19 pandemic is unlikely to be completely tamed in a few more weeks. Even if Vietnam can get the disease totally under control and social distancing measures are lifted, then economic and social activities across the board cannot be back to normal any time soon.

Schools are expected to resume in mid-June, but the reopening time for other industries, say, the aviation sector, remains uncertain. The problem is Vietnam’s economy has so widely opened, whose import-export value amounts to 200% of her gross domestic product, indicating how the national economy heavily depends on external elements—foreign tourists, import-export markets and foreign exchange sources, to name but a few.

However, what is going on in the outside world seems to tell a different story about when the epidemic is effectively contained. That’s why all of Vietnam’s economic sectors are in the defensive position. Enterprises nationwide are reducing staff sizes and putting on hold business expansion plans. Meanwhile, the people tighten their purse and postpone expenditure which is not urgent.

The root of the problem is enterprises do not have enough goods orders to retain their normal pace of production and the cash flow to pay their employees. Consequently, workers’ income plunges, forcing them to strictly practice thrift. These adverse impacts may point out that the economic health, or in other words, enterprises, may become extremely bad by the second quarter. According to some economists, Vietnam may therefore return to a negative growth rate in Q2 after several decades of continuous development(1).

There are many support packages but they may not deliver what businesses need

The Government has been able to identify what enterprises and the people are desperately in need of and the formidable challenge waiting for them. Consequently, a host of support packages relevant to both monetary and fiscal policies have been implemented.

First comes the VND62 trillion package for the disadvantaged and enterprises in sheer financial difficulty. There is also a credit package from banks aimed at enterprises worth up to almost VND300 trillion, which will help them be exempted from or entitled to lower interest, fees or rescheduled loan payments. A fiscal package worth VND180 trillion is designed to delay tax payments and land rents, which allows enterprises to postpone VAT payments from March to June, income tax payments for five months for taxes in 2019 and tax payments in Q1 and Q2 of 2020. The package for telecom companies is worth VND15 trillion. There is also a cut on power prices effective for both household and industrial use. Last but not least, the Ministry of Industry and Trade has suggested a cut on the environmental tax levied on fuel.

Of the above packages, the first one may have the biggest impact for the time being because part of it will be given directly in cash to the people. Perhaps never before has the Government had to implement forcefully so many measures at a time. However, to maximize the support, they have to be available to enterprises at the right time. They are therefore appropriate for an economic slump rather than for one that is in crisis. Many businesses generate no taxable income so as to be eligible for a tax break or exemption, or they may become too timid to apply for a bank loan. It is simply because all their business operations have been halted, so they may not wish to take risk with a re-start of production.

Vietnam Airlines has to ground 100 out of its 106 airplanes. This airline has maintained that if Covid-19 extends till the end of the year, it may collapse without help from the Government which may be worth VND12 trillion(2). The trouble plaguing Vietnam Airlines is the same confronted by other enterprises. They all need orders for goods, or, more precisely, customers who consume their products. Goods which have been made must be consumed, not for storage like in the case of Binh Son and Nghi Son oil refineries that are seeking assistance. Also, enterprises need working capital to maintain production.

Public investment to the rescue

Currently, as indicated earlier in this article, the entire economy is in the defensive position. If so, where do orders and working capital for enterprises come from? Now, the State must come to the rescue because it is the State that can both place orders and has the money to pay for them. As concluded by the head of the Government at the April 10 teleconference with ministries and local authorities, it is necessary to disburse in 2020 all the public investment capital worth VND700 trillion.

Without doubt, the Government has realized that it is the only solution to helping the economy regain confidence because the budget is ready and goods orders may be abundant. The Ministry of Transport has submitted the project to build taxiways at Noi Bai and Tan Son Nhat airports as per an urgent instruction(3). The Government is poised to submit to the National Assembly in the coming May sitting the project to turn all sections of the North-South expressway to public investment instead of only three sections as initially planned. In addition, direct contracting will be the chosen form in lieu of general bidding as is required by current regulations.

It can be said that the solution has been put forward and the crux of the problem is how to implement it effectively. From what has been done with public investment over the past years, few would believe that VND700 trillion can be disbursed in 2020.

In the current context, a total disbursement of the above amount is even more unfeasible. From now to the end of this year is also the time for the new political lineup [the Party’s Congress], part of which is the reshuffle of the personnel for ministries and key agencies. That’s why many leaders in charge will hesitate to take risk to come up with measures that go beyond the jurisdiction of the current effective laws and regulations. Otherwise, it will take a long time for the related authorities to sit together to discuss and agree on it.

All considered, enterprises will have to wait for a sheer luck that makes the authorities proceed with their efforts at this sensitive time.

(1) https://cafef.vn/chuyen-gia-kinh-te-nguyen-duc-hung-linh-gdp-quy-2-co-the-am-nhung-viet-nam-co-3-thuan-loi-de-on-dinh-vi-mo-va-con-du-nguon-luc-de-thuc-day-tang-truong-20200408172231171.chn



By Mai Khanh

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