High interest rates impact Vietnamese competitiveness

As part of his opening speech, Florian Constantin Feyerabend, Resident Representative of the Konrad-Adenauer-Stiftung Vietnam, emphasized that the global economy experienced a hugely challenging period of COVID-19 pandemic, 2020-2022.

In the first quarter of the year, the global economy recovered with difficulty, despite the fact that inflation had passed its peak and was gradually being reduced

During this period, Vietnam received 2.7 million international visitors, a figure nearly 30 times higher compared to the same period from last year and almost equivalent to one third of the annual target.

This represents a hugely positive indicator for the tourism industry and for the economy amid GDP growth in the first quarter being low with 3.3%, while industrial production and exports decreased.

However, the Government has carried out a number of solutions aimed at removing bottlenecks in a bid to accelerate the economy by pushing up disbursement of public investment, as well as relaxing and deferring taxes.

Despite these efforts, high interest rates remain a significant obstacle faced by businesses and for the national economy in general, as well as affecting the overall competitiveness of firms and the demand for the establishment of new enterprises.

Sharing this viewpoint, Nguyen Tu Anh, director of the General Department of the Central Economic Commission, said the Vietnamese economy has encountered difficulties in both the real estate market and the corporate bond market, along with a sharp decline in terms of export activities in the fourth quarter of last year.

He added that the average lending interest rate of several banks is up to 12% to 13%, even reaching 14.6%, a factor which has eroded the overall competitiveness of Vietnamese enterprises.

Experts have assessed that there remains plenty of room for the reduction of interest rates for businesses in order to restore the national economy.

With regard to short-term policy recommendations, Dr. Nguyen Quoc Viet, vice president of the Vietnam Institute for Economic and Policy Research (VEPR), underlined the need to balance the target of maintaining “macro-economic stability”, as well as looking for solutions of the government to promote economic recovery.

He emphasized the importance of fiscal policies in supporting the recovery of the economy, as well as devising policies aimed at promoting export growth, even deploying “order diplomacy” like “vaccine diplomacy”.

Furthermore, speeding up institutional reform is a vital step in ensuring an efficient business and investment environment, while forecasting and policy evaluation must be done regularly, continuously, and in a timely transparent manner, he said.

With regard to medium-term policy recommendations, he underlined the need to  monitor and assess risks, provide proactive and flexible solutions for fiscal policies, thereby combining them with other monetary and macroeconomic policies to stabilise the economy and maintain sustainable growth whilst enabling new growth models.

Moreover, it is necessary to strengthen social security, energy security, and the resilience of the banking system, whilst also extending social security packages to reach more beneficiaries with more simple procedures, focusing on workers in informal sector.

It is therefore crucial for Vietnam to switch to green, renewable energy to ensure energy security and supply chain for production and business, he added.