A helping hand for SMEs

tHAnH BInH

Overcoming obstacles for dual goals

Despite Covid-19, Vietnam showed positive economic growth in the first six months of 2021 at 5.64 percent.

POSITIVE GROwTH

Vietnam’s GDP expanded 5.64 percent in the first half of the year, marking a jump from 1.81 percent in the same period in 2020, yet stepping back from 6.76 percent in 2019. In the second quarter only, GDP grew by 6.61 percent, surging from 4.65 percent of the previous quarter, while staying uniform with 6.71 percent of Q2/2019. Amid the Covid-19 pandemic, Vietnam showed its high potential growth and desire to maintain “the dual goals”. Inflation was under control despite the increase of global money supply and commodity prices. CPI and core inflation in the first half of 2021 increased by 1.47 percent and 0.87 percent, respectively compared to the same period last year due to commodity prices.

Despite pandemic-hit industrial zones, import and export activities strived to maintain growth momentum. In the first 6 months of the year, total import and export turnover of goods was estimated at USD316.73 billion, increasing by 32.2 percent compared to the same period last year, thanks to both import and export’s growth. In particular, export of goods was estimated at USD157.6 billion and import of goods USD159.1 billion, growing by 28.4 percent and 36.1 percent, respectively. As a result, the trade balance witnessed a trade deficit of USD1.5 billion, implying a sign of economic recovery as imported goods were mainly raw materials and machinery for production.

Foreign direct investment prospered in terms of newly and additionally registered capital. By 20 June 2021, registered FDI capital was estimated at USD15.27 billion, of which newly and additionally registered capital increased by 13.2 percent and 10.6 percent, respectively compared to the same period last year. FDI disbursement in the first 6 months reached USD9.24 billion, an increase of 6.8 percent over the same period last year.

Stable interest rates and exchange rates contributed to macroeconomic stability. Deposit and lending interest rates were relatively stable, despite a slight increase in deposit interest rates at some banks. Meanwhile, exchange rates also maintained a stable level as the central exchange rate increased only by 0.2 percent and the interbank exchange rate decreased by 0.32 percent, despite the 2.2 percent increase of USD compared to the beginning of the year. The figures were reached thanks to flexible monetary policy and stable lending rates from the government and the State Bank of Vietnam to support the people and businesses.

The stock market set many records, including a historic peak of over 1,400 points, cumulatively 483,000 new accounts opened by the end of May 2021. The bond market was also active in both the government bond and corporate bond segments.

Vietnam's international reputation has been enhanced thanks to positive results in integration and external relations activities. Vietnam is one of the few countries in the globe whose outlook has been recently upgraded to "Positive" in the first 6 months of 2021 by all three reputable credit rating agencies, Moody's, S&P and Fitch. At

the same time, Vietnam has fulfilled its role as the chair of the United Nations Security Council, raising an active voice at the ASEAN Leaders' Meeting, and promoting foreign affairs and international integration.

CHALLENGES AHEAD

On the other hand, Vietnam's economy is still facing a lot of difficulties and challenges which require great efforts and determination to achieve the “dual goals” of fighting the pandemic while promoting social-economic development.

While the pandemic is still ongoing in an unpredictable trajectory, Vietnam’s vaccination rate stays low. The 4th wave of the pandemic in Vietnam has spread in 50 localities, seriously affecting socio-economic activities and has yet been controlled; thereby potentially affecting the economic recovery, production and business activities, as well as the health system. By 30 June, only 3.6 percent of the population had been vaccinated, far to reach herd immunity (70 percent).

Enterprises continue to face a lot of difficulties due to the outbreak of the pandemic. The number of enterprises suspending business for a definite term increased by 22.1 percent over the same period in 2020; the number of enterprises completing dissolution procedures increased by 33.8 percent (the highest rate in the period of 2018 - 2021). Public investment disbursement was slower than planned. In the first 6 months of the year, total disbursement reached VND171.9 trillion (USD7.8 billion), contributing to 36.8 percent of the year plan, increasing by 10.2 percent over the same period last year and seemed to slow down due to the pandemic.

Despite positive business results of banks, bad debts are increasing, thus year-end results will be affected due to provision for credit risk in the 3-year roadmap (2021 - 2023) for restructured debts according to State Bank’s Circular 03. In addition, difficulties in the business operation will result in the increase of bad debts.