Communist Review - In 2021, the global outbreak of the COVID-19 pandemic with the emergence of new variants have hindered the recovery of the world economy. Vietnam is one of the economies seriously hit by the epidemic. It finished 2021 with a 2.58% GDP growth rate, the lowest in the past 30 years. Therefore, in order to return to its path of economic convergence, the nation needs to implement rationally a sustainable economic recovery program to achieve the set goals by effective legal institutions.

World economic panorama 2021: back on path to economic growth

The world economy is getting back on path to growth although the pace of growth is projected to remain uneven across countries and sectors

The prolonged coronavirus pandemic has plunged the global economy into the worst recession since 1930. It shrunk by 3.1% in 2020 due to supply chain disruptions and lockdown measures that had a lasting impact on global economic activities.

Facing that crisis, countries have made efforts to restore the economy and ensure the health and social security of the people. These efforts paid off when the world economy is projected to robust a recovery in 2021. However, the outlook is uneven across regions. Developed countries in the world are forecasted to fully recover. For example, the US economy is projected to reach 5.9% while the projected growth rate of China is 8.0%. The EU is projected to keep expanding. Meanwhile, countries in Southeast Asia are forecasted to achieve a growth rate of 3.0%. The economy is getting back to a growth trajectory depending on measures taken by each nation and region.

By the end of October 2021, the global monetary and fiscal stimulus was USD 18,272 billion, equivalent to 16.4% of the global GDP, of which developed countries have an average supporting scale of 19.4% of GDP, 7.51% of GDP in developing and emerging countries compared to only 4.3% of GDP in low-income countries.

Interventions of countries at different scales resulted in uneven growth across regions and this may make low-income countries “miss” the opportunity to catch up with the world economic recovery.

Global inflation continues to pose potential risks.

The COVID-19 pandemic poses potential risks of high inflation for the following main reasons: 1- Government interventions in fiscal and monetary policies increase economic activity or narrow output gap to release pent-up demand and savings during the lockdown due to the pandemic; 2- World commodity prices increased sharply for some essential commodities and raw materials, fuels and materials used in production due to supply chain interruptions or increased transportation costs; 3- There is a shortage of both inputs and outputs of the supply chain during the lockdown period. Accordingly, the Organization for Economic Cooperation and Development (OECD) warned that the inflation rate of the global economy in 2021 is projected to reach 3.5% (2% higher than that of 2020).

Some outstanding achievements of Vietnam's economy in 2021

GDP growth: The processing and manufacturing industry continues to be the main driving force.

GDP in 2021 is estimated to rise by 2.58%. In the general growth rate of the whole economy, the agriculture, forestry, and fishery sector increased by 2.9%, contributing 13.97% to the total added value of the economy; the industry and construction sector increased by 4.05%, contributing 63.80%; the service sector increased by 1.22%, contributing 22.23%. The industry and construction sector, the processing and manufacturing industries continued to be the growth engines of the national economy with an increase of 6.37%, contributing 1.61 percentage points to the total growth rate of the added value of the whole economy.

Macroeconomic stability and inflation control.

In 2021, amid a challenging economy hit by the COVID-19 pandemic, the State Bank of Vietnam has adjusted interest rates appropriately, creating conditions for credit institutions to continue reducing interest rates to recover the national economy. The insurance business remained stable; The stock market developed strongly with an increase of 45.5% of the share market capitalization in 2021 compared to the end of 2020. As of December 24, 2021, the total means of payment increased by 8.93% compared to the end of 2020; capital mobilization from credit institutions raised by 8.44%; credit growth of the economy reached 12.97%(1).

According to the General Statistics Office, the consumer price index (CPI) in December 2021 decreased by 0.18% compared to November 2021 and increased by 1.81% compared to December 2020. On average, in 2021, CPI increased by 1.84% compared to 2020, the lowest since 2016. Annual core inflation increased by 0.81%.

The price of domestic gold fluctuated inversely with the world gold price.  As of December 25, 2021, the average world gold price decreased by 1.8% compared to November 2021 due to the pressure of USD and bond yields increasing again to the expectation that US interest rates will increase next year. Domestically, the gold price index in December 2021 increased by 0.25% compared to November 2020; an increase of 1% compared to December 2020, and an average increase of 8.67% in 2021 compared to the previous year. The dollar on the world market rose amid high inflation in the US as investors moved away from riskier currencies after central banks made decisions on raising interest rates and they worried about the spreading of the Omicron variant. Domestically, due to the increased demand for foreign currency by importers, the USD price index in December 2021 increased by 0.84% ​​compared to November 2021; decreased by 0.58% compared to December 2020 and on average in 2021, it decreased by 0.97% compared to the previous year.

The business sector has been hit hard by the COVID-19 pandemic.

The outbreak of the fourth COVID-19 pandemic has seriously affected business activities and people's entrepreneurship. According to a report by the Business Registration Department, in 2021, there are 116,839 newly registered businesses, down 13.4% compared to 2020, the lowest level since 2017. The registered capital in 2021 reached only VND 1,611,109 billion, down 27.9% compared to 2020. Besides, the number of enterprises returning to operation in 2021 neared 43,116, down 2.2% compared to 2020.

On the other hand, the long-lasting epidemic exhausted the strength of many domestic enterprises, most of which were established in under 5 years with a small capital scale. There are 119,828 enterprises temporarily suspended or dissolved in 2021, an increase of 17.8% compared to 2020. Among enterprises withdrawing from the market, there are 54,960 enterprises temporarily suspending business (accounting for 45.9%, an increase of 18% compared to 2020). This means these enterprises have not withdrawn from the market but continue to “freeze”, waiting for new opportunities.

If compared with the period 2016 - 2020 (with an average increase of 25.9% of enterprises suspending business), this rate in 2021 remains unchanged. The number of enterprises waiting for dissolution procedures is 48,127, an increase of 27.8% compared to 2020. The number of dissolved enterprises in 2021 is 16,741, a decrease of 4.1% compared to 2020.

Import and export growth is the brightest color in the macroeconomic picture in 2021.

2021 is a tumultuous year for all sectors of the economy. However, the drastic leadership of the Government, the active involvement of ministries, branches, and local authorities, the enormous efforts to overcome difficulties of the business community and trade promotion organizations have helped maintain production and export, with a total record turnover of  USD 668.5 billion, up 22.6% compared to 2020. In which, export turnover of goods is estimated at 336.25 billion USD, up 19% compared to 2020. Particularly, the domestic economic sector reached USD 88.71 billion, up 13.4%, accounting for 26.4% of total export turnover; the FDI sector (including crude oil) reached  USD 247.54 billion, up 21.1%, accounting for 73.6%. There were 35 products with an export turnover of over  USD 1 billion, contributing 93.8% to the total export turnover (8 products with an export turnover of  USD 10 billion, accounting for 69.7%).  The proportion of export turnover of some key products in 2021 belongs to the FDI sector: Phones of all kinds and their parts accounted for 99.3%; electronics goods, computers and their parts for 98.1%; machinery, instrument, and accessories accounted for 93%; textiles and garments accounted for 61.7%; footwear accounted for 79.3%.

Regarding imports, the import turnover of goods in 2021 was estimated at  USD 332.25 billion, up 26.5% over the previous year, of which the domestic economic sector gained  USD 114.07 billion, an increase of 21. 8%; the FDI sector reached  USD 218.18 billion, up 29.1%. There were 47 imported items with a turnover of over  USD 1 billion, accounting for 94.1% of the total import turnover.

Regarding the export and import of goods markets in 2021, the US is Vietnam's largest export market with an estimated turnover of  USD 95.6 billion. China remained Vietnam's largest import market with an estimated turnover of  USD 109.9 billion. In 2021, the trade surplus to the EU reached  USD 23 billion, which rose by 12.1% over the last year; the trade deficit from China was 54 billion USD, which went up 53%; the trade deficit from Korea was  USD 34.2 billion, up 22.9%; trade deficit from the Association of Southeast Asian Nations (ASEAN) was  USD 12 billion, increased by 63.1%; trade deficit from Japan was 2.4 billion USD, up 127.9 %.

The trade balance of goods in 2021 witnessed a trade surplus of  4 billion  USD (in 2020, this was 19.94 billion USD). In which, the domestic economic sector saw a trade deficit of 25.36 billion USD; the FDI sector (including crude oil) saw a trade surplus of USD 29.36 billion(2).

The achievements have resulted from Vietnam's ability to exploit efficiently foreign markets. While maintaining a partnership with traditional export markets, Vietnamese enterprises have made good use of opportunities from free trade agreements (FTAs), especially new-generation FTAs.

Investment for development has plenty of room for medium-term growth.

According to a report by the Ministry of Planning and Investment, the realized investment capital of the whole society at current prices in 2021 increased by 3.2% compared to 2020. Although this is the lowest level for many years, it is still a significant success amidst the rapidly evolving coronavirus situation locally and globally. FDI attraction recovered, and newly registered capital and additionally registered capital rebounded, showing that foreign investors continue to trust Vietnam's investment environment.

It is estimated that in 2021, the realized investment capital of the whole society at current prices reached VND 2,891.9 trillion, up 3.2% compared to the previous year, including  VND 713.6 trillion of state, accounted for 24.7% of total capital and decreased by 2.9% over the previous year; the non-state sector reached VND 1,720.2 trillion, accounted for 59.5% and increased by 7.2%; FDI sector reached 458.1 trillion dongs, accounted for 15.8% and decreased by 1.1% (3).

The Foreign Investment Agency stated that the realized FDI in Vietnam in 2021 reached 19.74 billion USD, down 1.2% compared to 2020. Of which, the processing and manufacturing industry gained 14 billion USD. 30 billion USD, accounted for 72.5% of total realized FDI capital; real estate business reached USD 2.63 billion, accounting for 13.3%; production and distribution of electricity, gas, hot water, steam, and air conditioning reached $1.54 billion, accounted for 7.8% (4).

The 2022 world and Vietnam's economic outlook

The economic recovery of countries depends on policy responses to the pandemic and the scale of stimulus packages. According to a forecast published in December by the International Monetary Fund (IMF), the US economy will grow by 5.6% in 2021. However, US economic growth is warned to slow since the first quarter of 2022 and is likely to reach only 3.5% in 2022 and 2.9% in 2023. On the contrary, the EU is projected to recover strongly with 5.2% growth in 2021, then declined to 4.3% in 2022 and 2.3% in 2023. China is likely to achieve a high growth rate of 8.1% in 2021 before slowing to 5.1% in 2022 and 2023. Although recovering more slowly (estimated growth of 1.8% in 2021) than other major economies in the world, Japan is forecasted to achieve impressive growth of 3.4% in 2022 and decline to 1.1% in 2023 (5).

For Vietnam, prestigious international organizations indicated that Vietnam is expected to get a 6% to 6.5% growth rate in 2022 when the epidemic will be under control, the vaccination rate will be high and the new variant of Omicron may not pose a significant threat to the national economy. This forecast is based on the following assessments:

Firstly, there is still room for fiscal policy favorable for the Government's actions to restore the economy. The expected budget revenue for the whole year still increases compared to the estimate; the budget deficit and public debt ceiling are under control. Public debt is still low compared to the safe threshold and with the ceiling approved by the National Assembly; mobilization of financial resources is still relatively abundant when the government bond interest rate is around 2.09%/year for a 10-year tenor while the US Treasury bond interest rate of the same term is above 1.6%/year; The Central Bank uses money supply or deposits from credit institutions, including reserve requirements or payment deposits to purchase government bonds.

Secondly, Vietnam's economy will recover when the Government submits to the National Assembly for approval a Resolution on fiscal and monetary policies to implement the socio-economic recovery and development program in 2022 and 2023 with a specific group of tasks and solutions: Opening the economy in association with COVID-19 disease prevention and control, investing to improve health care capacity (VND 60 trillion); ensuring social security and supporting workers to find jobs (VND 53.15 trillion); supporting the recovery of enterprises, cooperatives and business households (VND 110 trillion); developing infrastructure, unleashing all resources for development investment (VND 113.85 trillion); conducting institutional reform, administrative reform, improving investment and business environment, mobilizing non-state financial resources (about VND 10 trillion).   The fiscal policy package is valued at about VND 291 trillion, of which VND 240 trillion is allocated from the State budget.

Some policy recommendations for sustainable recovery and growth

First of all, priority should be given to resources to strengthen the health system and improve national vaccination coverage and purchase drugs for coronavirus disease. The wave of epidemics caused enormous difficulties in terms of human and material resources to the health system in many provinces and cities. Amidst the complicated pandemic situation, the health system is also the first and most important line of defense for not only the economy but also the whole country. Therefore, strengthening the health system, especially grassroots health care and preventive medicine must be a top priority of stimulus packages. It is also crucial to offer a second, third, and also fourth dose of the COVID-19 vaccine nationwide. At the same time, it is essential to establish a plan to purchase medicines to cure diseases and prevent the pandemic from spreading in the community.

Second, it is necessary to strengthen the social security system. The main goal is to support vulnerable groups impacted by the COVID-19 pandemic. Specific measures are to develop a plan to deal with labor disruption. In localities  in lockdown, migrant workers in the informal sector should be fully supported to stay at home, and quickly disburse support packages for poor households as well as insured so that they could receive timely support on a basis covered by the official social security system.

Third, business support should be more practical. In fact, the recent implementation of business support packages shows that the efficiency is not high, policy beneficiaries are not selected properly, or the procedures are still complicated. Many businesses that made deficits due to the sharp increase in prices of raw materials, fuel, materials, and transportation costs, and bear the burden of costs to maintain production and fight against pandemic are not beneficiaries of stimulus packages while other businesses that, despite production reduction, still had high revenue receive support package. Especially, for businesses in sectors "disrupted" by the epidemic such as tourism, hospitality, Restauration, and so forth, the exemption and reduction of income tax do not significantly help them. In addition, it is required to use monetary policy tools to support businesses. The lowering of interest rates is urgent. Although Vietnam's interest rates have been cut compared to 2020, they are still high compared to other countries in the region and the world. If the rate is not reduced, financial and banking institutions will be the only beneficiaries while other organizations and enterprises in the production and business sector will face great challenges in recovering growth.

Fourth, continue to reform institutions, and speed up the disbursement of public investment. Public investment is the driving force to promote social investment, especially in infrastructure and health infrastructure. Therefore, the disbursement of public investment is of importance to stimulate the economy in the context that private sector investment is facing challenges. Consider public investment disbursement as a key task in 2022 and 2023 to realize sustainable development goals (in transportation, energy, telecommunications, and water...); invest in infrastructure to support exports, digital infrastructure, and green infrastructure to respond to climate change. In addition to prioritizing the disbursement of national major projects that create spillover effects and are being implemented, we can accelerate local works, restoration, and maintenance of existing infrastructure as experienced by some other countries in the region.

Fifth, to ensure the successful implementation of the above measures, close coordination between ministries and branches, the Government, and the National Assembly is needed to develop and implement policies, especially fiscal and monetary policy packages that must be proper, timely, and accurately selective. Some people are concerned about inflationary pressure when structuring and implementing stimulus packages while others want to implement a more broad-based stimulus package, thereby leading to the risk of inflation. Therefore, Government agencies, the National Assembly, and advisory agencies need to closely coordinate in calculating to ensure that the cash flow provided can put enterprises and households in a stronger position to grow instead of investing in risky financial assets, which did not contribute to the growth recovery.

Sixth, in the long run, promoting research activities and innovation in the context of the fourth industrial revolution will be an engine for sustainable economic growth.  Digital economy growth is an inevitable trend in many developed countries in the world, along with the trend of green growth and circular economy. The digital economy and green growth are demonstrating their benefits and role for economic growth as well as for people's lives improvement in several countries. Consequently, it is essential to study, develop and create an environment conducive to digital economy growth and green growth as a driving force of the national economy in the long run.

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(1) State Bank: Report on credit and monetary policy for December and the whole year of 2021

(2), (3) General Statistics Office: Socio-economic situation in the fourth quarter and 2021

(4) Foreign Investment Department: Foreign Direct Investment Situation in December and 2021

(5) Vietnam Academy of Social Sciences: Report on some outstanding achievements of the world economy and Vietnam in December and 2021

This article was published in the Communist Review No. 983 (February 2022)