Macro-economic stabilization: Lessons learnt and future directions

PM Nguyen Xuan Phuc. Photo: VGP

Macroeconomic stability has close links with economic growth as the former helps boost investment and consumption while the latter creates foundation for achieving the former.

Since Viet Nam launched the reform process more than three decades ago, macroeconomic stabilization has always been the fundamental principle. Despite ups and downs of the economy due to low starting point, the country has spared no effort to maintain macroeconomic stability.

During the 1997-1998 financial crisis and the 2008 global economic recession, the Party and State took drastic and comprehensive measures to control inflation and stabilize marco-economy. Since 2012, the economy entered a stable stage of recovery and development, especially the consumer price index dipped from 18.13% in 2011 to 6.81% in 2012 and 2.6% in 2017. The GDP growth accelerated from 5.25% in 2012 to 6.81% in 2017.

Back in 2017, the country witnessed positive socio-economic situation across fields, most noticeably macroeconomic stability. Exports soared, contributing to the yearly trade surplus of US$2.8 billion and foreign reserves rose to nearly US$60 billion.

The exchange rate became stable and interest rates tended to fall, thus facilitating business activities.  Total budget revenues exceeded the goal by 5.9% meanwhile overspending rate reduced to 3.48% of the GDP and public debt ratio decreased to 61.2% of the GDP.

More importantly, growth was no longer heavily dependent on short-term stimulus measures and mineral exploitation.

A part from stable macro-economy, the country’s business environment also made improvements as the index jumped by 14 places from 82^nd to 68/190 economies while national competitiveness climbed up 5 places to 55/137 countries and territories. The banking system was rated “positive” from “stable”.

The above figures have built up confidence among businesses.

In addition, the successful  APEC Year has made significant contributions to heighten Viet Nam’s position and prestige in the international arena.

Lessons learnt

According to PM Phuc, the aforesaid achievements came as result of the outstanding efforts of the whole political system, levels, sectors and business community.

He also pointed out five lessons learnt as follows:

First, macroeconomic management requires smooth, effective and flexible coordination of policy tools in terms of degree and time for implementation.

Second, there must be thorough considerations of the impacts of each policy in order to take proper and prompt responses as macroeconomic policies often produce widespread effects on sectors and industries

Third, as the global economy is changing fast and is difficult to forecast, it needs to closely monitor the international and domestic situations so that appropriate and prompt interventions could be taken in combination with ceaseless innovations.

Fourth, the marco-economy could only be stable if micro foundations are stable and effective. Public investment could only take effect if it helps stimulate private investment.

In addition, as an open economy, it is essential to pay special care for the independence and self-reliance of the economy and to have proper policies to strengthen the resilience of the economy amid the fast changing world.

Fifth, it is of significant importance to build a transparent information system and enhance analysis and forecast capacity in order to support good policy making process. Good and long-term policies will create favorable conditions for investors and businesses to design effective development strategies.

Sixth, human resource is the decisive factor in both policy making and implementation processes. A number of ministries still lack qualified personnel for the two processes, leading to the fact that the quality of some policies still remains low and it takes time and costs to amend and improve.

Future directions

PM Phuc stressed that the Government will continue firmly ensuring macroeconomic stability in a drastic, proactive and flexible manner in order to achieve higher growth this year and lay firm foundation for faster and more sustainable growth in the years ahead.

To realize the above consistent viewpoint, the Government chief figured out the following directions.

Firstly, the Government will continue pursuing cautious monetary policy in order to avoid causing pressure on inflation while accelerating the restructuring of credit organizations, settlement of non-performing loans in association with guaranteeing credit quality.

PM Phuc said it would be a huge task to control inflation in 2018 as prices of oil and essential goods tend to rise on the global market.

Secondly, the fiscal policy will be strictly implemented to ensure financial discipline while drastic measures are needed to counter budget revenue losses, price transferring, tax fraud and tax base erosion.

PM Phuc urged inferior levels to study changes in the tax policies of other countries, including the U.S. for timely and proper amendments to the current tax, trade and investment policies.

Thirdly, properly allocate resources at national, sectoral, regional and local levels while beefing up disbursement and allocation of public investment capital in order to stimulate private investment.

Fourthly, continue implementing the roadmap to soon abolish price subsidies for electricity, education and healthcare services in association with renewing support and assistance for policy beneficiaries and poor people.

Fifthly, clarify sectors, industries, products having competitive edge in order to design proper development assistance policies. Focus on improving labor productivity, competitiveness and resilience of the economy.

Consolidating macroeconomic stability must be carried out in parallel with restructuring the economy, especially the sectors recommended by local and foreign pundits and organizations.

Continue accelerating reform of administrative procedures and improving the business environment.

Sixthly, it is necessary to mobilize and utilize technical assistance from foreign countries and learn international experiences.

In order to maximize the benefits of the free trade agreements, inferior levels need thorough preparations and double efforts in improving related mechanisms and policies. Viet Nam’s trading value with the rest of the world increased to nearly US$425 billion last year, four times higher than that of ten years ago when Viet Nam joined the Word Trade Organization.

Seventhly, comprehensively improve the quality of policy coordination through promoting the role of each and every ministries and agencies. Macro-policies must be developed for the benefits of all instead of partial benefits.

Inferior levels need to focus on building information and early warning systems for macro-economy and key sectors and industries of the economy./.

By Huong Giang