Long road for Vietnam towards complete economic recovery: World Bank
Greater attention should be on the potential impact of the rapid monetary expansion on inflation and the deepening of the fiscal deficit caused by under-performing tax collection.
While the Vietnamese economy has reacted quickly to the easing of domestic restrictions by recording a 10% increase in manufacturing and retails sales during May, yet, the level of economic activities remains distant from pre-Covid period, according to a World Bank report.
| Source: World Bank. |
Retail sales also bounced back significantly in May. Both passenger and cargo transportation activities rose by 116% and 32% between April and May as a result of the easing of domestic mobility restrictions that started on April 23. This recovery is corroborated by the Google mobility indicators that, on average, rose from minus 30% to only minus 5% in comparison to the pre-Covid benchmark between mid-April and the week of May 25.
| Source: World Bank. |
Although the value of Vietnam’s merchandise exports increased by about 5% between April and May, it was 5.5% lower than a year ago due to weaker external demand and some possible disruptions of global supply chains. The report suggested the foreign sector has started to get hurt by weaker global demand.
Vietnam's key labor-intensive exports such as garment and footwear decreased by 14% and 5% year-on-year while technology exports, such as smart phone, declined by 9%. In May, imports fell by nearly 6% year-on-year reflecting lower oil prices and slowdown in demand for foreign inputs by domestic firms.
| Source: World Bank. |
Foreign direct investment (FDI) continued to flow into Vietnam during May but at a slower pace than reported in April. In the first five months of 2020, the total value of committed FDI amounted to US$13.9 billion – still significant but equivalent to a year-on-year decrease of 17%.
Credit allocated to the economy rose to the equivalent of around 10% on yearly basis during the January-April period. Although this increase was slower than the one recorded a year ago, it was almost three times faster than GDP growth during the same period.
The monthly headline CPI was flat in May, bringing the year-on-year inflation rate to only 2.4%, down from 2.9% in April and 6.4% in January 2020. Lower prices are mainly associated to the softening of the domestic demand for food and the record low oil price on international markets that was transmitted to domestic fuel and gasoline prices.
| Source: World Bank. |
Total revenue collected by the government during the first four months declined by 5.9% compared to the same period last year. The biggest declines were recorded for the value-added tax and corporate income tax, down by 9.3% and 7.3% year-on-year respectively. In line with the slowdown in trade activities, the revenue collected from trade taxes decreased by 19% year-on-year.
The fall in domestic revenue aggravated in April when the state collected nearly 25% less than the previous month or only 65% of the figure recorded in April 2019. The General Department of Taxation has received more than 90,000 applications for postponement of tax and land use fee payments, worth totally VND26.2 trillion (US$1.12 billion).
Meanwhile, the government has continued to use monetary and fiscal policies to compensate for the financial impact of the coronavirus crisis, leading to the fast expansion of domestic banking credit and a severe fall in public revenue.
The World Bank urged greater attention should be on the potential impact of the rapid monetary expansion on inflation and the deepening of the fiscal deficit caused by underperforming tax collection.
