Monetary and Fiscal policies
against COVID-19

2


Contents
I.

Introduction........................................................................................................................................4
1.

Purpose of report...........................................................................................................................4

2.

Conceptual background.................................................................................................................4

II.

Analysis of Vietnam’s monetary and fiscal policies against COVID-19 pandemic............................5
1.

Vietnam’s monetary policies against COVID-19 pandemic...........................................................5

2.

Vietnam’s fiscal policies against COVID-19 pandemic..................................................................6

Difficulties and Challenges of Vietnam’s monetary and fiscal policies against COVID-19
pandemic................................................................................................................................................7

3.

4.

Impacts of monetary and fiscal policies on Vietnam’s economy.................................................7

III.

Recommendations for Government..............................................................................................8

IV.

Conclusion......................................................................................................................................8

V.

References..........................................................................................................................................9

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I.

Introduction

1. Purpose of report
The purpose of this report is to present the results of the monetary policy and fiscal
policy analysis proposed by the Government and the Central Bank to address the
economic difficulties of the country during the COVID-19 pandemic outbreaks in
Vietnam. This study has analyzed the effects of the COVID-19 pandemic on the

Vietnamese economy. The monetary and fiscal policies adopted by Vietnam during
this period will also be analyzed to see the difficulties, challenges and both
positive and negative effects on the Vietnamese economy. Recommendations also
give to help address monetary and fiscal constraints and economic constraints.
This report organized as follows:
Section I – Introduction
Section II – Analysis of Vietnam's monetary and fiscal policies against COVID-19
pandemic
Section III – Recommendations for Government
Section IV – Conclusion Section V - References

2. Conceptual background
The global economy has been affected by the 2019 coronavirus outbreak. This
epidemic that happened in early 2020 in China has caused negative impacts on the
economies of the countries, especially in eight sectors: health and human resources,
tourism, transportation, retail (people's consumption), foreign trade, investment (both
direct and indirect), chain production industries, and financial services.
In the general context of the COVID-19 epidemic, the growth rate of the Vietnamese
economy is also decreasing, and most notably, the eight sectors mentioned above.
According to data from the General Statistics Office, Vietnam's economic growth in
the first quarter of 2020 was only 3.82%, which is the lowest increase compared to the
same period of years in the period of 2011-2020. In the first two months of the year,
16,151 enterprises were stopping their business activities nationwide, up 19.5% over
the same period. About 2,807 enterprises have completed dissolution procedures. The
production scale of enterprises also narrowed.
In the economic sectors, tourism with a specific feature of an integrated economic field is
expected to suffer many injuries and can last even after the end of the epidemic. In March
2020, the number of international visitors to Vietnam estimated at 449.9 thousand arrivals
- down 63.8% from the previous month, of which arrival by air4



dropped 62.3%; by road 65.9% reduction; by sea by 83.6% (Le, 2020). Along with the
decline in international arrivals, properties closed, and tourism workers were
unemployed. Tourism is an integrated economic sector, related to many other
industries, such as transportation, accommodation, food and drink services ..., so the
impact of the Covid-19 epidemic causes all revenue to decline.
According to the Vietnamese News Agency, the Government, Ministries and Branches
have made great efforts to prevent and fight the epidemic, protect the people, and at
the same time have made a policy to promptly support the business community - the
force to keep a pivotal role in the economy. The Ministry of Planning and Investment
has proposed to the Government to assign the State Bank to coordinate with relevant
agencies to immediately study several monetary and financial policy packages to solve
the difficult economic situation.
Fiscal policy is the use of government spending and revenue to influence the economy. In
principle, it manipulates the level of aggregate demand in the economy to achieve
economic goals, stabilize prices, and economic growth. The Government sets fiscal
policies with the tools for implementing taxes and government spending amounts.

Monetary policy is the process by which a country's monetary authority controls the
money supply, often targeting a rate of interest to achieve a set of targets towards
growth and stability of the country's economy. It manipulates the money supply to
influence outcomes like economic growth, inflation, the exchange rate for other
currencies and the unemployment rate. Compared with the fiscal policy, the monetary
policies are introduced by the Central Bank with the implementation tool which is the
interest rate; reserve requirement; exchange rate policy; quantitative easing; open
market operations etc.
The combination of both types of policies to help realize the economic growth target
and solve the current difficulties of our country during the COVID-19 epidemic has
not pushed back.


II.

Analysis of Vietnam’s monetary and fiscal
policies against
COVID-19 pandemic

1. Vietnam’s monetary policies against COVID-19 pandemic
According to a report of the International Monetary Fund (IMF), the State Bank of
Vietnam (SBV) has issued guidelines to commercial banks to reschedule loans,
reduce/exempt interest, and provide loan forbearance.
By mid-July, banks registered a credit package with a lower interest rate (a credit
package worth 300 trillion dong - about 3.8 per cent of GDP). Moreover, banks have
also supported about 950,000 customers with outstanding loans of about VND 2,100
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trillion. Financial institutions are offering discounts and fees, such as securities service
fees.
The Vietnam Social Policy Bank (VSPB) has agreed to allow affected businesses to
borrow money without interest (as planned, the total value of the loan is 16.2 trillion
dong - about 0.2% of GDP) to pay salaries for temporary workers.
For credit institutions, the State Bank required credit flows to 5 priority economic sectors
and accelerated consumer lending to meet the legitimate needs of individuals and
households. From March 31st, the SVB directed credit institutions to proactively reduce
salaries and bonuses, reduce operating costs, adjust business plans, and reduce interest
rates by using savings. The SVB is willing to pump liquidity (including through the
refinancing mechanism) so that VSPB and credit institutions can implement the programs
of the Government and credit institutions to deal with bad debts. SBV has issued a
circular on refinancing VSPB up to VND16 trillion at 0% interest rate.


2. Vietnam’s fiscal policies against COVID-19 pandemic
When the COVID-19 pandemic is booming, the Government's fiscal policies become
very important. According to the IMF, the Government has launched a financial
support package with a total value of 279 trillion VND - about 3.6% of GDP with
mainly tax-related measures.
According to Decree 41/CP, the Government postpones paying VAT, corporate income
tax and land rental obligations for five months, and deferred PIT payment until the end
of the year. The estimated deferred payment is VND 180 trillion, equivalent to 2.4% of
GDP. In which, 56 trillion VND, more than 1/3 of the total tax amount and land rental
extension package, has been disbursed. The Government also passed new measures
including a 50% reduction in registration tax and a postponement of excise tax on
domestically produced cars, a 15% reduction in land rent, a 30% deduction of current
environmental protection tax for jet fuel from August to December 2020, a reduction
or exemption of charges, a 30% reduction in CIT rate for small and micro-enterprises,
and an increase in PIT deduction ahead of schedule.
Besides, other measures targeting those who are medical facilities, businesses, companies
and businesses are also being implemented. These include: medical device duty
exemption; business registration fee reduction is ready from February 25th (exemption of
1-year business registration tax for newly established business households; exemption of
business registration tax for the first 3-years for small and medium enterprises);
streamline tax and custom checks and inspections at companies; and allow businesses and
employees to postpone contributions (up to 12 months) to the retirement and death fund
without interest penalty (total late payment estimated at VND9.5 trillion or 0.1% of
GDP). According to Resolution 42/CP, the amount of cash,
6


worth 36 trillion VND, was approved to be transferred to the workers and affected
households during the period from April to June. About 13 trillion VND has disbursed
for the subjects under this Resolution. Currently, the number of people benefiting

estimated at more than 10% of the population.

3. Difficulties and Challenges of Vietnam’s monetary and
fiscal policies
against COVID-19 pandemic
Fiscal policy and monetary policy are two main policies that Vietnam introduced to
deal with the difficulties that the country's economy is facing during the COVID-19
epidemic outbreak in Vietnam and affected by the global economy. However, these
policies are causing difficulties and challenges.
In the current period, when the COVID pandemic is present in most countries around
the world, and the global economy tends to decline seriously, the economic downturn
is inevitable. The use of monetary and fiscal policies only intended to maintain the
stability of the country's economy. During the epidemic period, the total supply and
consumption capacity of the people increased, and the risk of inflation was always
high. The uncontrolled COVID-19 epidemic causes people to reduce spending and
increase savings. Therefore, the purpose of economic support policies is not to support
growth but to maintain the economy’s capacity and ensure that it is not exhausted.
In a special situation like the COVID-19 pandemic, the old monetary policies won't
work. Since the primary purpose of monetary and fiscal policies is to stabilize the
economy, policies aimed at promoting consumption are no longer appropriate in
situations where most businesses, shopping centres and entertainment forced to close
the door. Monetary policies such as lowering interest rates and increasing liquidity are
ineffective. The main reason is that businesses do not have the demand for loans
during this period. At the same time, due to the interrupted supply, many enterprises
will have no revenue, leading to insolvency then no banks will lend at any interest
rates, and the cost of borrowing is a burden for them.

4. Impacts of monetary and fiscal policies on Vietnam’s
economy
Thanks to the combination of using fiscal and monetary policies, Vietnam's economy

is on the way to recovery and development. According to The Economist, Vietnam
belongs to the group of safe economies after the Covid-19 pandemic thanks to stable
financial indicators (there are four financial strength indicators, including public debt,
external debt, expenses for borrowing and foreign reserves). In June 2020, retail,
import and industrial sales all increased. That is a more positive point than most
regional economies. According to a report of the General Statistics Office on the
socio-economic situation, in the second quarter of 2020, Vietnam's gross domestic
product (GDP) estimated to still grow slightly, about 0.36% over the same period last
year while the GDP of many other economies declined significantly in this quarter.
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Along with the positives taking place in the economy, policies have also been limited.
In fiscal policy, the government is targeting a 100 per cent disbursement of public
investment capital valued at VND 686 trillion or nearly 9 per cent of GDP (of which
VND 225 trillion carried over from previous years). However, despite the
government's efforts, disbursement of public investment is still slow, meeting merely
36 per cent of the budget plan in the first seven months. Moreover, the State Treasury
may face liquidity challenges in the short term. Since most of the solution is to
postpone tax payments for the next few months, the tax administration will recover
this tax revenue before the end of this year.

III.

Recommendations for Government

In the current difficult period, the solution that the Government can apply to restore
the economy is to continue using fiscal and monetary policies, especially fiscal
policies. That is a more effective policy with current constraints. Both of these two
policies need to aim at overcoming difficulties, supply-demand activities rather than

promoting the economy to create a stepping stone for economic development.
With monetary policy, the Government should pay attention to the liquidity of business
households and businesses. The State Bank of Vietnam needs to issue guiding documents
soon, specifying criteria to identify beneficiaries and continue indirect support such as
refinancing loans, lending on the open market so that credit institutions can access a
lower cost funding share. Moreover, the use of many tools and measures to control
inflation, stabilize the exchange rate, the forex market and the gold market is also
necessary. That helps people and businesses feel secure to do business.

With fiscal policy, supporting aggregate demand is an urgent task. The Government
should accelerate the disbursement of public investment, especially large projects, and
infrastructure investment projects that have been approved under the plan. According
to estimates in Vietnam, when public investment disbursement increases by 10%,
GDP growth will increase by 0.6%.
In addition, the Government can integrate other policies to support workers to find
jobs and increase income. Regulating production activities of industries is to avoid
high inflation. Strengthening the management of information and communication
activities, helping people and businesses are to raise awareness and responsibility
while the COVID-19 epidemic breaks out in Vietnam.

IV.

Conclusion

In summary, monetary and fiscal policies are the most important policies that have
direct effects on the national economy against COVID-19 pandemic. In the context of
the 2nd COVID-19 pandemic outbreak in Vietnam, the choice of monetary and fiscal
policies for the economy is necessary. Stabilizing the economy, especially the balance
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of supply and demand in the market, is the goal that the monetary and fiscal policy
should focus. To solve the current problem, we need to use a combination of these
policies together and address the hard-solving issuses facing the economic sector.

V.

References

The impact of the COVID-19 pandemic on Vietnam by economy: Scenarios And
Actions. Retrieved from:
/>nd%20Actions.pdf
Le, K.A., (2020, June). Ảnh hưởng của Covid-19 dịch vụ tới ngành Du lịch Việt Nam.
Tạp chí Công thương. Retrieved from: />COVID-19: Tác động tới kinh tế Việt Nam và giải pháp ứng phó . (2020). Tạp chí Tài
chính. Retrieved from: />Policy responds to COVID-19. Retrieved from: />
The Economist: Kinh tế Việt Nam an toàn sau dịch Covid-19. (2020). Retrieved from:
/>Báo cáo tình hình kinh tế xã hội Quý II và 6 tháng đầu năm 2020. Retrieved from:
/>Việt Nam cần làm gì để sớm hồi phục kinh tế?. Retrieved from:
/>
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