According to Nguyen Duc Thanh, an economist, it is difficult for businesses to raise capital because of the impact of Covid-19 pandemic as currently.
How do you forecast Vietnam’s economic growth (GDP) this year? If there is a second wave of Covid-19 outbreak in Vietnam, what will be the GDP of 2020?
At the beginning of the year, the government set a target of 2020 GDP of about six to seven percent, but due to the impact of the Covid-19, the possibility of Vietnam’s economic growth this year will drop sharply, reaching about 3.5-4%.
If the economic recovery is not as satisfactory as expected, GDP will only increase by more than two percent. Assuming the worst scenario is the second Covid-19 wave occurs and we have to socially separate one more time in the early 2020s, Vietnam’s GDP growth will be lower than two percent.
It can be seen that in any situation, this is a low level for Vietnam for many years.
The current economic growth motivation mainly comes from domestic demand, while external support factors are very limited, so it is difficult to grow highly. Of course, Vietnam has a good basis for optimism because it has a good control of the disease, while many countries around the world are still struggling with the pandemic.
Why did you suggest that the credit growth target should be reduced to 10 percent this year?
According to statistics of the State Bank of Vietnam (SBV), credit for the whole banking sector in the first six months of 2020 only grew by 3.26%, a very low level in recent years. The demand of the economy is now sharply cut, mainly due to the lack of products and goods, so the businesses have no demand for capital.
In this context, if we maintain the credit growth target of 14 percent as set earlier in the year, it will exceed the ability to absorb capital of the economy, impacting on inflation and creating macroeconomic instability.
With the current economic situation as well as the whole of 2020, I think that it is necessary to adjust the credit growth target to below 10 percent to match the capital absorption of the economy, while the growth rate and inflation tend to increase from now to the end of the year.
According to the analysis above, it will be difficult for the capital needs of businesses to grow from now until the end of the year?
Due to the impact of the Covid-19 pandemic, the capital demand of businesses from now to the end of the year will be difficult to increase compared to previous years, even many businesses are facing the possibility of stopping operation completely. In my opinion, this is a normal phenomenon in the context of economic difficulties due to epidemics.
Therefore, the ability of the economy in general and businesses in particular to absorb capital will decrease. In fact, credit has fell sharply when credit growth of the whole economy in the first half of this year was only half compared to same period last year and at low level compared to previous years.
Therefore, we have to accept a more appropriate operating policy, instead of trying to pump capital into the economy, even cheap capital is not necessarily put into production and business. Because to produce, businesses need not only capital, but also markets. If these problems are not resolved soon, it will cause more macroeconomic instability later.
In your opinion, does credit slowing cause bad debt to increase?
I think that under current conditions, bad debts will tend to increase. Both banks and businesses are disadvantaged by the impact of the disease. As mentioned above, this is normal during a period of economic crisis. However, trying to recover the economy quickly by promoting cheap capital injected into the economy and loosening lending control will inevitably lead to raising bad debts.
Of course, in credit activities, it is difficult to avoid the increase in bad debt, especially when banks still have to support businesses affected by the epidemic. However, it is important to balance and control non-rising NPLs so that when the economy recovers, we can solve this problem, instead of becoming a burden later.
How do you think about corporate health and capital absorption in the second half, whether there is significant improvement compared to the first half?
In my opinion, there are two movement directions in the current context. Firstly, Vietnam’s economy is recovering, because the first half of this year was considered the bottom line of the economy due to the Covid-19 pandemic. Therefore, businesses that have mainly domestic customers will be able to recover better.
In the opposite direction, which is also the second direction of mobilisation, businesses that rely heavily on international markets as well as supply sources from foreign production chains will be affected more seriously.
Because the economic situation of countries in the world recovers more slowly due to the epidemic still raging, in the last months of the year, businesses will be impacted more by increasing cost cutting and narrowing production scale.
There is an opinion that the government needs a second support package to support businesses affected by the pandemic. What is your opinion on this issue?
In the face of the Covid-19 pandemic, it is important and necessary for the government to provide support packages. However, as analysed above, the problem here is the capital absorption of businesses.
If businesses cannot sell products or services, there is no demand for capital for production. Therefore, it is necessary to have a mechanism for businesses to preserve their production capacity, even for businesses with losses, they need more support.
At the same time, the State also needs to promote cutting administrative procedures, costs, and tax breaks to increase support for businesses.
