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The Hanoitimes – Vietnam could widen fiscal deficit and public debt by an additional 3 – 4 percentage points of GDP without affecting the national financial security in the short- and long-terms.

Prime Minister Nguyen Xuan Phuc has required the Ministry of Finance (MoF) to propose more fiscal stimulus packages in forms of tax breaks, deferral of tax payments, as well as measures to mobilize additional resources to stimulate economic growth.

Vietnam PM Nguyen Xuan Phuc urges more fiscal stimulus packages to boost economic recovery. Photo: VGP.

With the current public debt below 55% of GDP, significantly lower than the ceiling of 65% set by the National Assembly, Vietnam’s fiscal deficit and public debt could widen by an additional 3 – 4 percentage of GDP without affecting the national financial security in the short- and long-terms, Phuc said at a conference of the financial sector on July 7.

The question is how to use state finances in the most efficient way, Phuc added.

Phuc requested the MoF to better maneuver the fiscal policy to address businesses’ concerns and stimulate aggregate demand for higher economic growth.

According to the PM, finance management should not only focus on ensuring the balance of the state budget, but also nurturing sources of revenue and creating driving forces for economic recovery. This is particularly important during this crisis.

The PM asked government agencies to support new business models, production of new materials or energies, along with new driving forces.

The MoF should look for ways to create more resources for socio-economic development and ensure social security, Phuc stated, adding this is the best way to build a strong and sustainable national financial foundation in the mid- and long term.

In the immediate future, the MoF is tasked with supervising market prices, especially state-administered goods and services such as petroleum, electricity, water, education, and healthcare.

The government is determined to keep inflation below 4%, Phuc stressed.

Additionally, the MoF should stabilize and support the development of the stock market and financial services, preventing illegal acquisitions and merging (M&A) activities.

Phuc also requested the MoF to support the disbursement of VND700 trillion (US$30 billion) of public investment targeted for this year, which is considered a key solutions to boost economic growth in the remaining months of 2020.

Among measures to accelerate the disbursement progress, Phuc expected government agencies and local leaders to play a more active role; establish a government’s working group to speed up the process; to allocate funds from projects that suffer delays in disbursement to those having a faster pace, starting from August; to evaluate the performance of ministries, provinces/cities in the disbursement progress.

At the meeting, Minister of Finance Dinh Tien Dung informed that state budget revenue collection in the first six months of 2020 met 44.2% of the year’s target, the lowest since 2013, and was down 10.5% year-on-year.

The government has set up two growth scenarios for this year, in which both public debt and fiscal deficit indicators in the 2016 – 2020 period would stay below the ceilings of 65% and 3.9% of GDP, respectively.

For the first scenario where Vietnam’s GDP growth is forecast at 4.5%, the budget deficit would be around 4.73% of GDP (representing an increase of VND75 trillion (US$3.25 billion) compared to the year’s estimate), and public debt at 55.5% of GDP.

In a worse case scenario with a slower economic expansion of 3.6%, the fiscal deficit will likely be 5.02% of GDP, or VND90 trillion (US$3.9 billion) higher than the estimate, and public debt at 56.4% of GDP.

The Hanoitimes – Together, the two countries have crafted a shared vision for a free and open Indo-Pacific.

US Assistant to the President for National Security Affairs (APNSA) Robert C. O’Brien has ended his two-day Vietnam visit with a speech highlighting the rules-based principles in the Indo-Pacific.

US National Security Advisor Robert C. O’Brien. Photo: US Embassy Hanoi

The two countries share a deep commitment to an Indo-Pacific rooted in rules of respect, fairness, and principles of international law such as sovereignty and freedom of navigation, O’Brien said in a speech delivered at the Diplomatic Academy of Vietnam (DAV) in Hanoi on November 22.

“This region has no interest in returning to an imperial era in which “might makes right,” O’Brien noted.

As such, America has taken a firm stance against China’s coercion in the South China Sea and the growing security threats in the Mekong region, he added.

Talking about the visit, he said it reaffirms and strengthens the two countries partnership to support peace, stability, and the unimpeded flow of commerce in the Indo-Pacific.

The US values Vietnam’s partnership and close coordination on shared strategic concerns, including upholding peace and stability in the South China Sea and the Mekong.

“Our two nations have also addressed a wide range of regional issues. Together, we have crafted a shared vision for a free and open Indo-Pacific.”

O’Brien went on to talk about the upholding of territorial integrity and national sovereignty by noting “From the South China Sea to the Mekong Riverine, the bounteous resources of your nation belong to your children and grandchildren. Their inheritance cannot be taken away simply because a neighbor is bigger and desires what is yours for itself.”

“We respect your patriotism, your vision, your determination, and your passion for an independent and truly sovereign nation that is not subservient to another.”

He also discussed with Vietnamese leaders Washington’s intent to launch a new US-Vietnam dialogue on international law enforcement.

DAV student raised questions for O’Brien. Photo: US Embassy Hanoi

Regarding the US-Vietnam bilateral relations , O’Brien said it is a friendship built upon shared interests and deep respect for one another’s freedom, independence, and sovereignty.

He affirmed that the US and Vietnam’s political systems may be different, but the same values are enshrined in the American and Vietnamese declarations of independence.

O’Brien highlighted the journey of 25 years in the bilateral relations, saying the friendship has grown into a strong and comprehensive partnership, one rooted in trust and understanding. “It is a friendship built atop a foundation of people-to-people ties, including those created by people deeply affected by our past conflict — Veterans, bereaved family members, and civilians on both sides.”

Over the past quarter century, Americans and Vietnamese have traded and invested in each other’s countries, creating countless jobs for both our people, for example, a large community of millions Vietnamese people in the US and nearly 30,000 Vietnamese students studying in the US.

They have resolved war legacies and promote maritime security. The two nations have also addressed a wide range of regional issues. Together, they have crafted a shared vision for a free and open Indo-Pacific.

O’Brien talked about Washington’s support in Vietnam through humanitarian projects over the past 15 years.

He emphasized the port calls of American aircraft carrier to Vietnam since the end of the war and the US Air Force Academy welcomed its first Vietnamese cadet this year.

He said the two countries are also working closely to combat transnational crime and wildlife trafficking, strengthen water security, and increase energy security following the launch of the Mekong-US Partnership in September.

“We are deeply invested in a strong and prosperous Vietnam at the center of a free and open Indo-Pacific. We look forward to accomplishing great things with you in the future.”

What should be the development priorities for the country in 2021 to build on the successes of the previous 12 months?

All the free trade agreements (FTAs) Vietnam has inked with foreign partners in recent years have opened new doors to global markets, helping to widen export potential. These markets are demanding, so our success in clinching these agreements is just the first step. More important is how Vietnam can avail of the advantages these new-generation FTAs can bring, such as tax advantages and the ease of exploiting market potential.

To be eligible for such advantages, Vietnamese goods must be of high quality and be on par with the requirements set in these agreements, as well as customers’ taste in these markets. Our major exports like coffee and rice have established a reputation in the global market, however there are technical barriers (in healthcare or in food sanitation, for example) that in many cases our products still fail to meet.

The government has set forth major guidelines for development moving forward, where security, national defence, and international cooperation and integration are taken into consideration. The signing of the FTAs paves the way for our country to meet a high level of these considerations. Ushering in a new development period, the government has given birth to a very concrete action plan that is set to bring Vietnam’s economy to new heights.

In the past year, Vietnam has successfully accomplished the goals of containing COVID-19 and achieving positive economic growth. These factors will lay the bedrock for our continued development and pushing up international integration in successive years. In addition, the launching and development of 5G is expected to bring Vietnam’s mobile communications traffic to a new level with high volumes, enabling smartphone users to grab information more swiftly and efficiently.

How can the efficient implementation of the amended versions of laws on investment, enterprises, and securities be ensured?

The amended laws, which came into force in 2021, aim to facilitate development of the stock market and investment market, but set new rules for market participants. That means while they are supposed to continue to support businesses, they are designed to create a stricter legal corridor to regularise the markets..

As the country’s economy evolves, legal mechanisms must adapt to the market and provide clear and concrete guidance for enterprises to follow, while eliminating overlaps and outdated regulations.

To join the new playing field, firms must strictly comply with these regulations. We all know that economic activities, once governed by strict regulations, could ensure a fair competition between diverse economic sectors, and that is a prerequisite for development.

One of the essential matters to ensure the effective enforcement of these laws is that the relevant admin agencies that implement the laws – such as the Ministry of Industry and Trade, the Ministry of Planning and Investment, the State Bank of Vietnam (SBV), and tax authorities – must craft particular action programmes. The government’s supervisory office should be continuingly tracking the performance by these administrative agencies and alert the agencies for any irregularities and obstacles.

As government changes now take place, the new administration needs to present a report by the end of the year showcasing to policymakers and people what we have achieved with the laws, what the shortcomings are, and which contents need to be supplemented to have practical views on whether these revisions could bring the expected results.

One of the most outstanding points in the domestic market in 2020 was the intensified appearance of mobile money services. What are the challenges to be resolved to promote these services and ensure the market’s healthy performance?

Several leading telecom groups including Viettel, MobiFone, and VinaPhone were green lit by the government to come up with mobile money services through acquiring intermediary payment licenses. This means a large proportion of the population in rural areas who are still unbanked can now carry out transactions if they have a smartphone and deposit some money on their accounts opened by these groups.

These mobile money services can be deemed digital money as it could be used for business transactions. This, however, also poses a risk of “money creation” outside the banking system. Until now only the central banks and commercial banks are allowed to “create” money.

Now, telecoms companies may be able to give any credits to their customer’s account and their customers may use these credits to pay for purchases – and so the telecoms companies are in fact given the ability of “money creation”.

Of course, we may expect that any credits are equivalent to the money their customers give to them or deposit. In that case it is balanced out, and there is no money creation. But what kind of control needs to be in place so that the telecoms companies don’t abuse the ability is the crucial issue the banking authority needs to consider.

Further, we must ensure that the telecom groups must not use deposited money for any other purpose, other than to settle customer purchases. Any company may utilise short-term investments including intra-day investments where the money flow returns at the end of the day but such investments may risky by essence.

If telecoms firms use money deposited by their customers for such investment, they are exposed to potential losses. Regulations should be in place to prevent the telecoms companies from being engaged in such transactions.

I do believe all telecoms groups are overseen by the government and strictly adhere to the law, but the problem is we must have in place a proper supervisory mechanism and I do not see that at this point at time.

Vietnam’s financial landscape has seen the strong emergence of foreign exchange trading floors, meaning colossal risks to investors. What is the state of the current operation of forex trading floors in this country?

Scores of forex trading floors have sprung up around Vietnam in the past year that invite investors with very tempting profits that may be 10-fold higher than bank rates. Such trading floors are often fraudulent, however. They secured people to participate with high profits and security against losses. They actually pay their investors with profits as promised but when investors invest in a big sum, they cause the forex floors to collapse.

The victims can do nothing in the absence of legitimate contracts, and so this mandates prudent consideration by the central bank and the MoF.

In fact, albeit some trading floors – some functioning as information portals – are based in Vietnam, all the transactions occur outside the country’s territories. For example, these platforms for forex trading can claim they are part of UK-based exchanges. Vietnamese people can do business transactions in the UK through the Vietnamese-based platform. The payment can be processed through customers’ credit cards in foreign currencies and the procedure seems legal as it appears not to impinge on regulations on forex trading.

The operation of such a forex market would raise a question as to whether their operation is legal or not, especially if Vietnamese participants transact only in foreign currencies and have nothing to do with VND, and they pay for their currency purchases with credit cards.

To increase the appeal of Vietnam’s stock exchanges, how can foreign-invested enterprises be encouraged to participate?

Most foreign firms receive capital injections from their parent companies or from foreign financial institutions, which is their advantage. They therefore are not as much reliant on local capital sources compared to Vietnamese ones. Partly foreign-owned firms may consider listing on a bourse once having a certain volume of potential local shareholders.

We should encourage foreign companies to move into the stock market because in doing so they will need to ensure information transparency and this will bring benefits to both shareholders and investors.

We know that many such enterprises operating in Vietnam have relations with overseas companies which also export their products to Vietnam. Through trade agreements, we may encourage these overseas firms to not only sell products to Vietnam, but also support their subsidiaries here to go on the bourse to participate in Vietnam’s financial market.

In addition, relevant government agencies and ministries would help firms go on the bourse here, wading through a complexity of procedures and legalities. With simpler procedures, foreign firms may participate in the stock market more vigorously.

*Nguyen Khac Giang is a Vietnamese researcher at the Vietnam Institute for Economic and Policy Research. The opinions expressed are his own.