SHOULD BOLDLY LOWER INTEREST RATES BY 2%

“The opportunity to reduce interest rates is there and the reduction from now until the end of 2023 should boldly be at least 2%, offsetting last year's interest rate increase.” That is the opinion of Dr. Le Xuan Nghia, an economist.

From the world context, in your opinion, what factors support Vietnam's current interest rate lowering?

In terms of the world market, I think the most important thing is that the strength of the USD may continue to decline.

Firstly, the Fed raised interest rates by 0.25%/year in the meeting at the beginning of May, to 5.0 - 5.25%/year and this will most likely be the last rate hike of the Bank. The US central bank before staying flat and possibly cutting interest rates later this year. There are many factors supporting this statement such as inflation in the US in general is still on the way of cooling down, although the labor market is still stable, there are many signals indicating the possibility of a reversal in the near future.

Besides, there is a potential risk of widespread bankruptcy of the banking system (recently added difficult cases such as PacWest Bank, Western Alliance). At the same time, the Fed's prime rate has caught up with the Taylor model (the central bank's response to a changing economic landscape is the inflation rate and the output deviation).

Second, the war between Russia and Ukraine is long and has not yet ended, causing the US and European economies to face the possibility of recession. This is also a factor leading to the trend of USD-Index falling below 100 points, even 96 points. VND is pegged to the USD, so it will also depreciate, but Vietnam will benefit from exports.

Vietnam's inflation is mainly due to external influences, especially imports, so this context will reduce inflation pressure, thereby supporting the domestic interest rate reduction.

What about the domestic factor, sir?

Total retail sales of consumer goods and services in April increased 11.5% year-on-year, equal to the growth rate of the previous month, the General Statistics Office said. However, I think service sector growth may decelerate over the next few months due to emerging challenges, including a shrinking manufacturing sector, bleak real estate market and low consumer lending rates. use high anchors.

Should boldly lower interest rates by 2%

Vietnam's inflation is mainly due to external influences, especially imports, so this context will reduce inflation pressure, thereby supporting the domestic interest rate reduction. Dr. Le Xuan Nghia

We also witnessed Vietnam's exports in April 2023 have the strongest decrease in the past 3 months, with export turnover estimated at 27.54 billion USD, down 7.3% over the previous month and down 17.5%. 1% year-on-year in 2022. But more importantly, exports will likely face difficulties until at least the end of the second quarter, because of the gloomy global economic outlook, orders resulting in the manufacturing industry of Vietnam decreased.

Vietnam's Purchasing Managers' Index (PMI) dropped to 46.7 in April from 47.7 in the previous month. The data showed that PMI fell for the fifth time in the past six months and April PMI reflects the steepest drop in manufacturing activity since early 2023. The drop in orders could persist for several more months. . Meanwhile, production capacity of enterprises needs time to fully recover when the market recovers even if export orders increase again.

At the same time, the import value continued to decline in April 2023, reflecting a decline in demand for imported raw materials, production materials and intermediate products in the context of new orders of manufacturing decreased. Data from the General Statistics Office shows that Vietnam's import spending in April 2023 decreased by 20.2% over the same period to about 25.2 billion USD (down 10.7% over the previous month). ). This is a sharper drop than the 16.9% year-on-year decline in the previous month.

Notably, the Government has stepped up public investment to support economic growth in the context of weakening private investment and foreign direct investment. According to the General Statistics Office, realized State capital (public investment) in April 2023 increased by 16.4% over the same period to 39,300 billion VND (compared to an increase of 18.6% over the same period in March). 2023). In the first four months of 2023, realized state capital increased by 17.9% over the same period, to 131,200 billion VND, higher than the growth rate of 10.8% over the same period in 2022.

However, public investment capital implemented in the first four months of 2023 will only reach about 19% of the whole year plan in 2023. This means that, if it is not urgent, it will be a long way to complete the goal of disbursing more than 700,000 billion VND of capital public investment in 2023.

In the first four months of 2023, realized FDI decreased by 1.2% year-on-year to $5.9 billion, while registered FDI also decreased by 17.9% year-on-year to $8.9 billion. According to data from the State Bank of Vietnam, as of May 9, 2023, the credit of the whole economy only reached VND 12.24 million billion, an increase of only 2.69% compared to the end of 2022, an increase of 9.56 % over the same period in 2022.

With such data, I emphasize that this is an opportunity to reduce interest rates and the reduction from now until the end of 2023, should boldly be at least 2%, to offset last year's increase in interest rates.

Many businesses complain that they are in a difficult spiral because the interest rates on bank loans are too high. With the expected reduction of interest rates at least from now until the end of the year, as you think, 2%, surely businesses will breathe easier?

Even if interest rates are lowered again, businesses cannot get out of the difficult spiral because the current secret of businesses is not being able to borrow new, due to many reasons, including the main problem of bad debt. In other words, most of the current difficulties of businesses are not caused by banks, but by real estate corporations.

As an example, real estate corporations owe construction contractors up to VND 120,000 billion, which means that construction contractors owe many related businesses. Construction contractors as well as related businesses basically borrowed capital from banks and invisibly created a large amount of bad debt at the bank. By my calculations, the construction sector accounts for 10% of Vietnam's GDP and we are falling into a steady rise in debt. This is the main reason why businesses cannot access new loans at banks and solving this problem cannot be overnight.

Therefore, the bank's extension or postponement of debt group transfer is one of the very important measures, but it needs to be very selective. That is, it is necessary to choose which industries the bank can support or select areas with opportunities for development. In particular, it is necessary to select businesses with good governance capacity, the current difficulties are only temporary, freezing debt to prevent the transfer of groups for new loans will help businesses recover quickly.

Many people think that, if public investment is boosted, the construction, manufacturing and retail sectors will recover, helping the market to warm up again, reducing pressure on the interest rate story. What is your opinion?

We need to be frank, it is very difficult to rely on the external market now in the context that the current Vietnamese economy actually has certain internal forces, not like before. I think it is necessary to promote public investment to boost domestic consumption again. In particular, there are supporting factors to further accelerate this year's public investment projects to fulfill the goal of disbursing more than VND 700,000 billion of public investment in 2023.

Firstly, with good GDP growth in the period 2016-2022 and tight spending control, Vietnam's public debt has dropped rapidly from 51% at the end of 2016 to 40% at the end of 2022 (IMF estimates), much lower than Vietnam's public debt ceiling of 60% of GDP. Low public debt creates room for expansion of fiscal policy to support economic recovery.

Second, inflation has cooled down in the past few months. As inflation pressure eases, the Government may consider loosening fiscal policy to support economic recovery.

Third, the Prime Minister directed the Transport - Transport sector to complete the preparations to start the construction of 3 expressways Chau Doc - Can Tho Soc Trang, Bien Hoa - Vung Tau, Khanh Hoa - Buon Ma Thuot and 2 highways. Ring road includes Ring Road 4 in Hanoi and Ring Road 3 in Ho Chi Minh City. These projects need to start before June 30, 2023. If the construction of infrastructure projects is accelerated in all localities, it will create new resources and opportunities for the development of urbanization, new industrial parks and services, and at the same time an opportunity for recovery of real estate market.