The effects of recent

global economic
disturbances on
Vietnam’s economy
& the policy responses
by Vietnam
Group 1
 Đỗ Quyên Nguyễn Lê Trúc Anh

Dương Thị Hương Nguyễn Kim Hải Vũ Cao Minh Châu

Vũ Quỳnh Anh Trần Thảo Linh

Table of contents

Effects of recent global economic

01
disturbances on Vietnam’s economy

02 The policy responses by Vietnam

 01
Effects of recent global
economic disturbances
on Vietnam’s economy
 1.1 Impacts of Covid Epidemic

Economic growth International trade

Foreign investment Tourism

Impacts of Covid Epidemic on Economic growth
Impacts of Covid Epidemic on Economic growth

On the demand front: the Covid-19

pandemic has reduced aggregate
demand growth as well as slowed
down production and economic
growth.
• Consumption expenditure: The
pandemic and the social
distancing measures mandated
caused a strong decline in
domestic consumption.
• Investment: Total investment
increased by 5% in 2020 and
3,2% in 2021. This comprised
investments from three main
sources
• Exports: There was also a slight
decrease in export growth.
 Impacts of Covid Epidemic on Economic growth
On the supply front:
The pandemic and social distancing measures have disrupted inputs for supply
chains and labor supply. Many enterprises, especially those that rely on foreign
specialists and workers, have also been heavily affected by Covid-19 due to a shortage in
labor supply and an increase in the cost of labor for businesses.
Unemployment:
 Impacts of Covid Epidemic on Foreign investment

• The 4th wave of Covid-19 epidemic has directly affected major industrial centers of the
country, such as: Ho Chi Minh City, Bac Giang, Bac Ninh, Dong Nai, Binh Duong ... are
places where many FDI enterprises, causing businesses to be severely affected,
brightening the production supply chain, many enterprises have their production turned
upside down, some have to stop a part, even some businesses have to stop the whole
operation, capital, and attracting development investment capital of the FDI sector
reached the lowest level.

• The total FDI capital into Vietnam in 2020 decreased by 25% compared to 2019.
Particularly in the 10 months of 2021, the total capital allocated new, adjusted and capital
contribution, share purchase, purchase of capital contribution from foreign investors
reached 23.74 billion USD, up 1.1% over the same period in 2020. It is estimated that foreign
investment projects have disbursed USD 15.15 billion, down 4.1% over the same period in
2020, a slight decrease of 0.6 percentage points compared to the first 9 months of 2021.
Impacts of Covid Epidemic on International trade

• Consequently, Vietnam’s exports have been hurt by

the fall in world demand for, and world price of, most
of Vietnam’s export products.

• Border closing worldwide prevented goods

movement and trade activities.

• Vietnam’s major export items such as smart-phones,

garment and footwear slumped in the first 7 months
of 2020. Exports to main markets plummeted

• On the import side, supply of intermediate goods

(much needed for Vietnam’s largely assembly-based
industry) dipped due to disruption of GSCs (Global
supply chain). Imports from main supply sources
dropped.
 Impacts of Covid Epidemic on Tourism
After many years of continuous impressive growth, in 2020, for the first
time, Viet Nam recorded a sharp decline in the number of domestic and
international tourists due to the Covid-19 epidemic.
 Impacts of Covid Epidemic on Tourism

• The total number of tourists served by accommodation, food and beverage service
established in 2020 reached 97.3 million VND, a decrease of 44% over the previous year
• The number of tourists served by travel agencies was 3.7 million, down 80.1%
• International arrivals to Vietnam decreased 78.7% year on year, gaining only 3.8 million
arrivals.
• The sharp decline in the number of domestic and international tourists has led to a
significant decline in revenue for accommodation, food and beverage service, estimated
at 61.8 trillion VND, down by 43.2 percent
• Due to the border closure to prevent Covid-19, international visitors to Vietnam only
reached about 3.7 million arrivals, down 79.5% compared to 2019
• Domestic tourists reached 56 million arrivals, down 34.1%
• About 95% of international travel service businesses across the country stopped
operating, in May 2020 only some domestic travel activities were restored but closed
again in August 2020; Many hotels had to close, stopping operations
 1.2 Impacts of Rising inflation
worldwide in recent months
Economic growth

Production and business activities, employment of people and businesses were

affected; rapidly increasing interest rates put great pressure on capital mobilization
and increase production costs; The driving force for export promotion in major
markets faced many challenges when orders and export markets were narrowed
due to declining demand…

Foreign investment

Rising inflation will increase financial risks, leading to a negative impact on FDI
inflows into Vietnam
 1.2 Impacts of Rising inflation
worldwide in recent months
International trade

The second half of the year saw sluggish growth in the textile, clothing, leather and
footwear sectors. Inflation led to higher raw material and logistics costs, together
with a decline in demand and sales, sending businesses into a tailspin.

Tourism

Inflation and fuel prices skyrocketed globally. But that can't stop tourists from
spending on tourism, because demand has been pent-up during the pandemic
 1.3 Impacts of The tightening of
the US monetary policy
Economic Foreign International
Tourism
growth investment trade
Due to the tightening The US Federal
monetary policies of Reserve raising
the US Federal interest rates may
Reserve, continuously cause some indirect When the US dollar Stronger dollar hits
raising interest rates investment flows into appreciates against outbound tourism
to slow down Vietnam to be affected other currencies, it operators, Travel
economic growth to but the scale will not increases the price companies offering
combat excessively be large. Meanwhile, competitiveness of tours are concerned
high inflation in the US, FDI inflows mainly exported goods from that the rising dollar
the State Bank of look at Vietnam's long- Vietnam. However, it will eat into their
Vietnam had to term prospects, so it raises costs for profits this year or
increase operating will NOT be affected Vietnamese importers. even cause losses.
interest rate to 100 much by the Fed's
basis points on tightening monetary
September 2022. policy.
 1.3 Impacts of The tightening of
the US monetary policy
Economic Foreign International
Tourism
growth investment trade
Due to the tightening The US Federal
monetary policies of Reserve raising
the US Federal interest rates may
Reserve, continuously cause some indirect When the US dollar Stronger dollar hits
raising interest rates investment flows into appreciates against outbound tourism
to slow down Vietnam to be affected other currencies, it operators, Travel
economic growth to but the scale will not increases the price companies offering
combat excessively be large. Meanwhile, competitiveness of tours are concerned
high inflation in the US, FDI inflows mainly exported goods from that the rising dollar
the State Bank of look at Vietnam's long- Vietnam. However, it will eat into their
Vietnam had to term prospects, so it raises costs for profits this year or
increase operating will NOT be affected Vietnamese importers. even cause losses.
interest rate to 100 much by the Fed's
basis points on tightening monetary
September 2022. policy.
02
The policy responses
by Vietnam
 A. Fiscal policies
To support the recovery of economy, Vietnam’s National
Assembly (NA) adopted Resolution 43/2022/QH15 (Resolution 43)
and Resolution 11 on fiscal and monetary policies to support
Vietnam’s economic recovery due to the pandemic and
subsequent lockdowns in 2021.

❏ VAT reduction and CIT deduction: Resolution 43 sets a 2

percent reduction in VAT as well as CIT deduction for businesses.
VAT has been reduced to 8 percent.
❏ Airline industry: 50 percent reduction in environmental
protection tax on aviation fuel.
❏ Land rent: A 30 percent reduction for businesses, households,
and individuals that lease directly from the State and that have
endured businesses suspensions due to the pandemic. The
government has similarly reduced land rent for those affected by
the pandemic in 2021 as well.
❏ Automobile industry: 50 percent reduction on registering
vehicles that are manufactured or assembled locally.

While most policies have been issued for 2022 and 2023, the
government may extend some incentives depending on the
economy and post-pandemic recovery.
 A. Fiscal policies
• Healthcare: commits VND 14 trillion (US$620 million) for the
construction and modernization of health and medical facilities,
disease control, hospitals, and human resources, as well as
treatment related to COVID-19.
• Social security: Funds of VND 5 trillion (US$220 million) allotted
for Vietnam Bank for Social Policies for preferential loans. This
includes investment in job training, vocational education, and
social security.
• Support for businesses, business households, and
cooperatives: VND 40 trillion (US$1.76 billion) of funds for loans
with a rate of 2 percent a year through commercial banks for a
variety of industries.
• Infrastructure development: Funds of 113.55 trillion (US$5
billion) allocated for infrastructure projects in transportation, IT,
digitalization, water security, climate change, and natural
disasters.
• House rent: commits VND 6.6 trillion (US$2.9 million) for
employee housing for those working in industrial zones, export
processing zones, and key economic areas
B. Monetry policies
• On 24 October, the State Bank of Vietnam (SBV) increased a host of interest rates, including hiking the
refinancing rate from 5.00% to 6.00%.
• The move came amid the need to support the currency as the Vietnamese dong continued to depreciate in
October to record lows. The rate increase followed the SVB’s decision to widen the dong’s trading band from
3.0% to 5.0% in October, in order to tolerate greater FX volatility and protect international reserves. Rising
inflation, which was above the government’s 4.0% target in October, was also a factor behind the hike.
• Looking ahead, the SBV is likely to continue tightening into 2023, in line with the global monetary
tightening cycle. Two rate hikes in quick succession strengthen the idea that going forward, the Central Bank
is likely to put more focus on interest rate hikes versus open market operations in a bid to protect its
international reserves.
SBV Governor Nguyen Thi Hong said the industry has in 2022
solved three problems simultaneously

Provide capital and credit.

Stabilize the foreign exchange

market amid the gaining greenback.

Stabilize the monetary market and

the banking system’s liquidity,
C. Exchange rates
• By the end of 7/2022, the USD/VND exchange rate
increased by about 2.4% compared to the beginning
of the year. To keep the increase of 2.4% the State
Bank of Vietnam has spent a large amount of foreign
exchange

• Besides, the central bank (SBV) has repeatedly sold a

large amount of dollars to support the Vietnamese
dong. However, the USD/VND forex rate started to
soar in August, exceeding the level of VND25,000 in
mid-October.

• The SBV on October 17 decided to widen the

(tolerance) VND/USD trading band to ±5% from ±3%
to help banks more flexibly trade the greenback.
 C. Exchange rates
• Since Vietnam is a developing country, the exchange rate is quite
heavily influenced by developed countries (especially US)

• By the end of 7/2022, the USD/VND exchange rate increased by

about 2.4% compared to the beginning of the year. To keep the
increase of 2.4% the State Bank of Vietnam has spent a large
amount of foreign exchange

• As a net importer of oil, Vietnam was affected by the rise in crude oil
prices. At the same time, currencies in emerging Asian countries
continue to fluctuate slightly against the USD. It is the smaller
decline that increases domestic speculation significantly, pushing
the black market exchange rate up faster than the bank rate.

• Vietnam's exchange rate partly depends on external factors such as

the global economic recession and increasing political instability,
accompanied by inflation and Fed's interest rates. However,
according to experts, the exchange rate will gradually stabilize and
not be a problem in 2023.
D. Social policies
Viet Nam has achieved and exceeded many of the UN
Millennium Development Goals:
• By the end of 2014, the poverty rate according to the national
standard was less than 6%

• Many people have jobs, the unemployment rate is low, less than
2%; the proportion of employees participating in social
insurance reached over 20%, while those participating in
unemployment insurance reached 17%.

• The majority of employees have access to grassroots health, the

health insurance participation rate is over 71.6%; about 3% of
people in extremely difficult circumstances receive monthly
cash assistance and other forms.

• In 2020, Vietnam basically forms a social security system that

covers the whole population, ensuring people's access to
employment policies, poverty reduction, participation in social
insurance, supporting people with extremely difficult
circumstances, strengthening basic social services at a
minimum level, raising incomes, ensuring people's safe and
equal lives.