Vietnams monetary policy during Covid 19 PDF

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FOREIGN TRADE UNIVERSITYFACULTY OF INTERNATIONAL ECONOMICSo0oMID-TERM REPORTMajor: Macroeconomics 2Vietnam's Monetary Policy During Covid-LECTURER: Hồ Thị Hoài Thương CLASS: K59CLC4 - GROUP 11####### MEMBER LIST2011155284 Lê Phan Thùy Linh 2011155435 Nguyễn Bảo Nhiên 2011156082 Nguyễn Phương Nam 201...

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FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS ____________o0o____________

MID-TERM REPORT Major: Macroeconomics 2

Vietnam's Monetary Policy During Covid-19

LECTURER: Hồ Thị Hoài Thương CLASS: K59CLC4 - GROUP 11

MEMBER LIST

2011155284

Lê Phan Thùy Linh

2011155435

Nguyễn Bảo Nhiên

2011156082

Nguyễn Phương Nam

2011156077

Phạm Trần Trúc Mai

2011155280

Cao Thị Yến Linh

Ho Chi Minh City, March 7th 2022

TABLE OF CONTENTS

INTRODUCTION ......................................................................................................... 1 1.

Rationale of research ........................................................................................ 1

2.

Aims and objectives .......................................................................................... 1

3.

Scope of research .............................................................................................. 2

4.

Research method .............................................................................................. 2

5.

Structure of research ........................................................................................ 2

CHAPTER 1: THEORETICAL FRAMEWORK ...................................................... 3 1.1 Definition of monetary policy ............................................................................. 3 1.2 Objectives ............................................................................................................. 3 1.2.1 Inflation .................................................................................................... 3 1.2.2 Unemployment .......................................................................................... 3 1.2.3 Currency Exchange Rates........................................................................ 3 1.3 Types of monetary policy.................................................................................... 3 1.3.1 Expansionary Monetary Policy ................................................................ 3 1.3.2 Contractionary Monetary Policy .............................................................. 4 1.4 Monetary policy tools of SBV ............................................................................. 4 1.4.1 Re-financing ............................................................................................. 4 1.4.2 Interest rates ............................................................................................. 4 1.4.3 Exchange rates ......................................................................................... 4 1.4.4 Reserve requirements ............................................................................... 5 1.4.5 Open market operations ........................................................................... 5 1.4.6 Other tools ................................................................................................. 5 CHAPTER 2: COVID-19 CURRENT SITUATIONS AND ITS IMPACTS ON VIETNAM’S ECONOMY ............................................................................................ 6 2.1 Current situations in Vietnam ............................................................................ 6

2.1.1 Total cases and deaths from current community outbreak .................... 6 2.1.2 Vaccine supply and vaccination rate ....................................................... 7 2.2 Effects of Covid-19 on Vietnam’s economy ...................................................... 8 2.2.1 From January 2020 to April 2021: The third three waves ..................... 8 2.2.2 May 2021 to present: The fourth wave .................................................. 10 CHAPTER 3: VIETNAM’S MONETARY POLICY DURING COVID-19 ......... 13 3.1 SBV’s orientations of the monetary policy management............................... 13 3.1.1 Overall goal and mission ........................................................................ 13 3.1.2 Specific tasks ........................................................................................... 13 3.2 Monetary policy taken by SBV ........................................................................ 14 3.2.1 Reducing interest rates ........................................................................... 14 3.2.2 Promoting credit growth......................................................................... 15 3.2.3 Rescheduling debt ................................................................................... 15 3.2.4 Other measures ....................................................................................... 16 CHAPTER 4: EVALUATION AND SUGGESTIONS FOR VIETNAM’S MONETARY POLICY ............................................................................................... 18 4.1 Evaluation of monetary policy taken by Vietnam ..........................................18 4.1.1 Effectiveness ........................................................................................... 18 4.1.2 Limitations .............................................................................................. 19 4.2 Suggestions ......................................................................................................... 20 CONCLUSION ............................................................................................................21

ABBREVIATIONS Abbreviation

Explanation

BOT

Build-operation-transfer

BT

Build-transfer

FDI

Foreign Direct Investment

GDP

Gross Domestic Product

NPL

Non-performing loan

SBV

The State Bank of Vietnam

VBSP

Vietnam Bank for social policies

LIST OF FIGURES Figure 2-1 – Total coronavirus cases in Vietnam from February 15, 2020 to March 8, 2022 ................................................................................................................................. 6 Figure 2-2 - Total coronavirus deaths in Vietnam from February 15, 2020 to March 8, 2022 ................................................................................................................................. 7 Figure 2-3 – GDP annual growth rate in Vietnam from 2016 to 2021 ........................... 9 Figure 2-4 – Share of three sectors in Vietnam’s economy in 2020 ............................... 9 Figure 2-5 – Share of three sectors in Vietnam’s economy in 2021 ............................. 11 Figure 4-1 – CPI average growth rate from 2016 to 2021 ............................................ 18

1

INTRODUCTION 1. Rationale of research Monetary policy is a critical macroeconomic regulatory policy of the state in a market economy because it has a large influence on macro variables such as employment, economic growth, inflation, and so on. Monetary policy tools play a critical and decisive role in achieving its objectives. Since Vietnam's reform until now, monetary policy and its tools have gradually been formed, perfected, and implemented in the socialist-oriented market economy. With the characteristics of the Vietnamese economy, the choice of monetary instruments and methods to be used in each specific period is something that must be closely monitored. National monetary policymakers and operators, as well as economic researchers, must comprehend the situation and provide timely and appropriate solutions. From the beginning of 2020 until now, the Covid-19 pandemic has had a significant impact on Vietnam's economy, both in the short-term and medium-term. This is viewed as a challenge for a fledgling economy. When confronted with these issues, the government must implement appropriate policies and strategies in order to overcome obstacles and restore economic stability. Because of its high theoretical and practical significance, monetary policy is regarded as an effective policy to research for implementation. For the aforementioned reasons, the topic "Vietnam's Monetary Policy During Covid-19" is being researched in the hope of presenting the economic realities of Vietnam in the context of the pandemic, as well as analyzing the impact of monetary policy, from which specific directions to overcome difficulties and capitalize on opportunities to return Vietnam's economy to stable growth can be given. 2. Aims and objectives The overall goal of this study is to clarify the characteristics, tools, and impacts of monetary policy, followed by a summary of the epidemic situation in Vietnam, and then analyze the monetary policies applied by Vietnam to the economy during the COVID19 epidemic. From there, the research group shows the impact of those policies and evaluates their effectiveness. The research group then shows the impact of those policies

2 and evaluates their effectiveness. Based on this, the research group will propose future solutions for Vietnam's monetary policy. 3. Scope of research Geographic Scope The study will have an overview of the monetary policy, from thence it will go into details about the covid pandemic in Vietnam and the impact of monetary policy on the Vietnamese economy during that time. Time Range Research on Vietnam's economy from the time the pandemic took place in 2020 to the current time (2022). 4. Research method -

Methods of data collection: Secondary data is needed to serve the topic collected from sources: websites, and especially the national statistics reports and other calculating reports.

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Methods of synthesis and analysis: The research uses a system of methods economic statistics, data collection and analysis.

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Synthesize data: Use a disaggregation method to systematize the collected data collected in accordance with the purpose of the research.

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Data analysis: Applying the methods of economic and statistical analysis collect and analyze the collected data. 5. Structure of research The research consists of 4 chapters:

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Chapter 1: Theoretical framework

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Chapter 2: Covid-19 current situations and its impacts on Vietnam’s economy

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Chapter 3: Vietnam’s monetary policy to control the inflation during the covid-19

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Chapter 4: Evaluation and lessons f rom the monetary policy

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CHAPTER 1: THEORETICAL FRAMEWORK 1.1 Definition of monetary policy Monetary policy is the macroeconomic policy laid down by the central bank. It involves the management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth, and liquidity. 1.2 Objectives The primary objectives of monetary policies are the management of inflation or unemployment, and maintenance of currency exchange rates. 1.2.1 Inflation Monetary policies can target inflation levels. A low level of inflation is considered to be healthy for the economy. If inflation is high, a contractionary policy can address this issue. 1.2.2 Unemployment Monetary policies can influence the level of unemployment in the economy. For example, an expansionary monetary policy generally decreases unemployment because the higher money supply stimulates business activities that lead to the expansion of the job market. 1.2.3 Currency Exchange Rates Using its fiscal authority, a central bank can regulate the exchange rates between domestic and foreign currencies. For example, the central bank may increase the money supply by issuing more currency. In such a case, the domestic currency becomes cheaper relative to its foreign counterparts. 1.3 Types of monetary policy Depending on its objectives, monetary policies can be expansionary or contractionary. 1.3.1 Expansionary Monetary Policy This monetary policy aims to increase the money supply in the economy by decreasing interest rates, purchasing government securities by central banks, and lowering the reserve requirements for banks. An expansionary policy lowers

4 unemployment and stimulates business activities and consumer spending. The overall goal of the expansionary monetary policy is to fuel economic growth. However, it can also possibly lead to higher inflation. 1.3.2 Contractionary Monetary Policy The goal of a contractionary monetary policy is to decrease the money supply in the economy. It can be achieved by raising interest rates, selling government bonds, and increasing the reserve requirements for banks. The contractionary policy is utilized when the government wants to control inflation levels. 1.4 Monetary policy tools of SBV 1.4.1 Re-financing Re-financing is a form of credit extension by the SBV, aiming to provide shortterm loans and payment facilities for credit institutions. The SBV stipulates and performs the refinancing for credit institutions in the forms of extending loans guaranteed by valuable papers; discounting valuable papers; and other forms of refinancing. 1.4.2 Interest rates The SBV shall announce the re-financing interest rates, the key interest rates and other interest rates to implement the monetary policy, and to prevent high-interest lending. In the case of unexpected developments in the money market, the SBV may stipulate the mechanism for managing the interest rates applied to lending-borrowing transactions among the credit institutions, and between the credit institutions and their customers, as well as other credit relations. (See SBV's Table of Interest Rates in Appendix 1) 1.4.3 Exchange rates The exchange rates of VND against different foreign currencies shall be determined on the basis of foreign currency supplies and demands in the market with certain State regulation. The SBV shall announce the exchange rates, determine the exchange rate regime and the mechanism for regulating the exchange rates. (See Table of Central Exchange Rates in Appendix 2)

5 1.4.4 Reserve requirements Reserve requirements mean the amount of money that the credit institutions must deposit at the SBV to facilitate the implementation of the national monetary policy. The SBV shall stipulate the ratio of reserve requirements for each type of credit institutions and each kind of deposits at the credit institutions. The SBV shall also stipulate the interest payment on the reserve deposits, and any excess deposits applicable to each type of credit institutions for each kind of deposit. (See Table of Reserve Requirements in Appendix 3) 1.4.5 Open market operations The SBV shall perform the open market operations by purchasing and selling valuable papers with the credit institutions; and shall stipulate the types of valuable papers to be traded via the open market operations. 1.4.6 Other tools 1.4.6.1 Credit control Credit Control is a function performed by the Central Bank to control the credit, i.e. the demand and supply of money or say liquidity in the economy. With this function, the central bank regulates the credit granted by the commercial banks to its customers. It aims to achieve economic development with stability as well as to manage the inflationary and deflationary pressure. 1.4.6.2 Debt rescheduling Debt rescheduling refers to the formal deferment of debt-service payments and the application of new and extended maturities to the deferred amount. Rescheduling debt is one means of providing a debtor with debt relief through a delay and, in the case of concessional rescheduling, a reduction in debt-service obligations.

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CHAPTER 2: COVID-19 CURRENT SITUATIONS AND ITS IMPACTS ON VIETNAM’S ECONOMY 2.1 Current situations in Vietnam 2.1.1 Total cases and deaths from current community outbreak The current community outbreak has been taking place from April 27, 2021 up to now. As of March 9, 2022, Vietnam’s Ministry of Health confirmed a total of 4,776,873 cases of COVID-19. However, 2,789,342 of the affected patients have recovered and been discharged from hospitals. Vietnam has also recorded 40,977 deaths due to the pandemic. The latest community transmission cases have been reported from Hanoi, Nghe An, Bac Ninh, Phu Tho, and Son La among others.

Figure 2-1 – Total coronavirus cases in Vietnam from February 15, 2020 to March 8, 2022

Source: Worldometers

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Figure 2-2 - Total coronavirus deaths in Vietnam from February 15, 2020 to March 8, 2022

Source: Worldometers Ha Noi – over the past more than two months, the city continued to report sharp increase in the daily numbers of new cases, with an average of 8,680 cases per day reported during past week. The real number could be higher due to a considerable amount of under-reporting, i.e., self-testing is widely being conducted and people with positive results would undergo home recovery and may not report to local health authorities. About 96% of current cases are either asymptomatic or with mild symptoms and under home recovery. HCMC – the city continued to record an increase (almost 3 times) in the numbers of cases but with a continued decline in the number of deaths (a total of 10 deaths reported) during in the last week of February, 2020. The cumulative number of local cases and deaths accounts for 16% and 51%, respectively, of the national tallies in the current wave. 2.1.2 Vaccine supply and vaccination rate As of 27 February, a total of 207,762,816 doses of COVID-19 vaccines have arrived in Viet Nam. In which: COVAX: 52,524,120 doses, donation from countries: 31,765,800 doses, and bilateral procurement: 123,472,896 doses. There will be approximately 87,036,214 doses in the plan from all sources.

8 As of 27 February, a total of 193,625,095 doses have been administered: 79,482,026 people from 12 years of age and above got 1st dose (approximately 81% of total population) and number of people from 12 years and above completed 2nd dose has reached 75,357,653 (about 76.8% of total population). There are 13,714,859 immunocompromised people and high risk people got additional dose and 23,628,334 people who fully vaccinated got booster dose (24.1% of total population). 2.2 Effects of Covid-19 on Vietnam’s economy 2.2.1 From January 2020 to April 2021: The third three waves Vietnam's economy in 2020 was heavily affected by a strong outbreak of the Covid-19 epidemic and its unpredictable developments on a global scale. In addition to the complicated and unpredictable Covid-19 epidemic, which has slowed growth in most industries and fields, the disruption of international trade has caused negative consequences for production and investment activities. However, Vietnam’s economy in this period still showed some positive signs. By the end of 2020, Vietnam has achieved the "dual goal" of preventing Covid-19 and maintaining economic growth. According to the General Statistics Office report, GDP in 2020 increased by 2.91% compared to the previous year. However, it was the lowest increase in the period 2011- 2020. Still, in the context of the complicated developments of the Covid-19 epidemic in 2020, this is a great success for Vietnam with the growth rate in 2020 among the highest in the world. In particular, the agriculture, forestry and fishery sector increased by 2.68%, contributing 13.5% to the growth rate of total added value of the whole economy; industry and construction increased by 3.98% (highest among 3 economic sectors) contributing 53%; and the service sector increased by 2.34%, contributing 33.5%. The service sector is hardest hit in 2020 by the Covid-19 pandemic, so the growth rate is very low (2.34%) compared to the last 10 years. GDP in the first quarter of 2021 was estimated to increase by 4.48% over the same period last year, higher than the growth rate of 3.68% in the first quarter of 2020. In which, the agriculture, forestry and fishery sector increased by 3.16%, contributing 8.34% to the overall growth; the industry and...