This is the first of a series of seminars on the impacts of Covid-19 pandemic held by the Fulbright School of Public Policy and Management.

Industrial production, retail plummet due to Covid-19

At the beginning of the presentation, Dr. Vu Thanh Tu Anh gave a panoramic picture of the pandemic's impact from a global perspective. By analyzing and showing data collected thus far, it can be confirmed that this is an unprecedented crisis in the history of the modern world.

According to him, although the Covid-19 pandemic is a global crisis, its impact will depend on the specific context and response of each country. In each country, the impact of the pandemic and each sector’s ability to adjust and adapt is also different.

Những bài toán đánh đổi trong cuộc chiến chống dịch Covid-19

Both industrial production and retail plummeted with the industrial production index only equal to 50% of 2018.

Vietnam has small economic scale and one of the most open economies in the world today, so it is not surprising that any external changes can immediately and seriously affect Vietnam. Vietnam's growing reliance on foreign investment (the FDI sector accounts for more than 70% of total exports, nearly 50% of total industrial output) makes the economy more vulnerable to outside shocks.

The processing and manufacturing industries of Vietnam are also heavily dependent on the supply of external raw materials due to the weakness of local supporting industries. In Vietnam, to produce export products, businesses have to import a lot of materials. Therefore, when global supply chains are stalled because of epidemics, businesses struggle to produce in moderation when input materials become gradually exhausted.

The current economic structure of Vietnam also makes the impact of Covid-19 more serious. The proportion of the services industry in the economic structure is relatively high, while this is the industry that suffers the most from epidemics and economic recession.

The serious impact of Covid-19 is clearly reflected in the statistics of the first quarter. Vietnam's economic growth reached 3.82%, a decline of nearly half compared to the same period last year. Both industrial production and retail plummeted with the industrial production index only equal to 50% of 2018.

The export growth rate was only 0.5%, a record low increase, while imports were negative at nearly 2%, indicating that businesses were running out of raw materials for production. Regarding foreign investment, this is also the only year that both registered capital and disbursed capital decreased significantly (negative 20.9% and 6.6% respectively).

In particular, businesses - the mainstays of the economy - suffered strong shocks. The number of newly established enterprises increased by 4.4%, but both capital and labor scales decreased, of which labor decreased by nearly a quarter compared to the first quarter of 2019. Meanwhile, the number of enterprises that temporarily suspended operations skyrocketed to 26%.

A quick survey by the Private Economic Development Research Committee in early March of 1,200 enterprises showed that if the pandemic lasted six months, 60% of the businesses would lose over 50% of their revenue, and nearly 30% of businesses would see their revenue decreasing from 20% to 50%. In other words, about 90% of businesses surveyed suffered a serious decrease in revenue and 74% of businesses were facing possible bankruptcy or dissolution.

Dr. Vu Thanh Tu Anh warned, without effective and timely intervention of the Government, some economic sectors and many businesses may collapse, leading to serious consequences for growth and employment, as well as many other negative social consequences.

Pandemic response policy

Những bài toán đánh đổi trong cuộc chiến chống dịch Covid-19

Dr. Vu Thanh Tu Anh, Director of the Fulbright School of Public Policy and Management.

In the current context, there is an urgent need for each country as well as the whole world to respond quickly and effectively, using all possible resources to prevent a health crisis from turning into an economic crisis and even financial crisis and public debt, Dr. Vu Thanh Tu Anh said.

However, when countries adopt strategies to prevent diseases, on the one hand it helps to reduce infections, but at the same time causes the economy to become worse as production, business and supply chains, and distribution, halt due to blockade measures. Economic recession is the inevitable price for the fight against the epidemic.

 

Emphasizing this is a trade-off problem that all countries have to accept. Dr. Vu Thanh Tu Anh recommended that countries should not run after GDP and neglect the anti-epidemic target. Recent predictions of international organizations such as the Asian Development Bank (ADB) that Vietnam can achieve 4.8% growth this year is too optimistic, according to his assessment.

“Keeping growth is not the main goal right now. The ultimate goal is how to conserve forces so that we can prepare the foundation for recovery when we get out of crisis. The forces here are the lives of the people, the health of businesses, of the banking - financial system, and the people's trust in the State.

"If we try not to lose a few percentage points of GDP growth and disregard or terminate anti-epidemic measures too soon, we may have to pay a high price,” warned Dr. Vu Thanh Tu Anh.

The system of government intervention policies to deal with the harms of the Covid-19 pandemic must therefore meet five objectives: lowering the epidemic infection curve; protecting corporate health; strengthening social trust; building a foundation for recovery; and limiting future harm.

Dr. Tu Anh especially noted the importance of the goal of "building the foundation for recovery" and "limiting future damage".

"Every crisis will pass. The point is what kind of state will we get out of the crisis," he added.

Những bài toán đánh đổi trong cuộc chiến chống dịch Covid-19

The agricultural sector, farmers and rural areas have always been the foundation of the Vietnamese economy when it has fallen into crisis.

The agricultural sector, farmers and rural areas have always been the foundation of the Vietnamese economy when it has fallen into crisis.

Therefore, if the proposed policies only address immediate problems but lack vision for the future, we will be unable to build the foundations for recovery, but may even create consequences that will be difficult to solve later.

For example, without careful consideration, policies made in times of crisis can be too much or create "ethical risks" or "reverse choices" when one group has multiple approaches to accessing information and policy than the remaining groups. Consequently, it will create interest groups or institutions that, after the crisis, will hinder the economy's ability to recover and develop healthily, Dr. Tu Anh warned.

The recent proposal to suspend rice exports of the Ministry of Industry and Trade is discussed as an example of a phenomenon of policy overreaction that can cause long-term damage. While Vietnam's rice production was still stable, only slightly lower than the same period last year, and enough to ensure both food security and rice exports, we missed the opportunity to export rice at high prices.

“That is not to mention that we are very unfair to the agricultural sector, farmers and rural areas, which have always been the foundation of the Vietnamese economy when it falls into crisis. In fact, many people who lost their jobs in urban areas returned to rural areas to take refuge. If rice cannot be exported, the countryside will be overloaded, and the burden will be added to the farmers' shoulders, who have suffered many difficulties due to extreme weather and recent drought. If we cannot help farmers, we should not take their benefits away,” Dr. Tu Anh said, referring to the lesson of missing an opportunity to export rice at high prices that happened during the crisis in 2008-2009.

Thanh Lam

To be continued…

Vietnam’s economy in first seven months on a tightrope

Vietnam’s economy in first seven months on a tightrope

Giving forecasts about economic performance has never been so difficult as there are now too many influencing factors.

The pandemic and a positive outlook

The pandemic and a positive outlook

Nations have closed borders, economies are isolated, and supply chains are fragmented. And Vietnam's economy is no exception.