Fiscal policy forecast to be key driver for Vietnam’s growth in 2023

As global demand is slowing and adversely affecting export countries including Vietnam, fiscal policy will significantly help support Vietnam’s economic growth in 2023, experts said.

Deputy Minister of Industry and Trade Do Thang Hai said the fall in global import demand for Vietnam’s strong goods would negatively impact the country’s exports this year.

According to Hai, the global economy continues to face several challenges, particularly in the world’s biggest import markets, such as the US, the EU and Japan.

Besides, global inflation is high and inventories are large, which affects consumer demand for imported products, with the greatest impact on non-essential items.

Reports from the General Statistics Office also showed Vietnam’s manufacturing and processing sector in the first month of 2023 was no longer the country’s export growth driver, as the sector’s export turnover grew the least compared to agricultural, forestry, fisheries supplies, and mineral fuels groups. In January 2023, the total export value of industrially processed products had declined by 22.7% compared to the same month last year, falling to an estimated 21.52 billion USD.

Viet Capital Securities Joint Stock Company (VCSC) forecast Vietnam’s growth in export and import turnover in 2023 to be downgraded from 7.5% and 8% to 6% and 6.5%, respectively, due to weakening global demand.

Under the context of the gloomy export, VCSC’s experts believed the fiscal policy could help Vietnam reduce negative impacts due to slowing global demand.

Under a 2023 strategy report released recently, VCSC’s experts said the supporting factors for Vietnam’s growth in 2023 included a large fiscal room that could help support the country’s growth through public investment.

Sharing the same view, experts of BIDV Securities Joint Stock Company (BSC) said the 792 trillion VND fiscal policy package, which was the highest level in the country’s history, was one of the key drivers boosting the country’s GDP growth this year.

According to BSC, in the context of high interest rates and inflation in 2023, the difficult business environment of domestic enterprises will make the disbursement of State budget investment capital one of the strong drivers to promote economic growth.

Recently, in the 2023 stock market prospect report, financial data provider FiinGroup also said public investment disbursement was one of the factors that needed to be monitored as that would help remove the ‘bottleneck’ of capital in the economy.

According to FiinGroup, the Government’s decision to allow the Ministry of Transport to appoint construction contractors in 12 major expressway projects showed the Government’s determination to accelerate the disbursement of public investment capital, but it noted it was necessary to pay attention to the progress of site clearance at the projects to be able to evaluate the actual disbursement.

Prime Minister Pham Minh Chinh this month called for management to be enhanced to speed up the progress of major projects, especially key traffic works.

“The disbursement of public investment must be accelerated from the beginning of the year,” the PM stressed, adding that the focus must be on the project preparation works and capital allocation.

Agencies and localities were also gearing up for the disbursement of public investment. Hanoi and HCM City - the country’s economic locomotives - recorded the highest disbursement of public investment capital in January, with nearly 2.7 trillion VND and more than 1.63 trillion VND, respectively, according to the General Statistics Office.

Besides public investment, VCSC’s experts expected the recovery of international visitors to Vietnam would also support the country’s growth this year.

According to the Vietnam National Administration of Tourism (VNAT), international visitors to Vietnam in January 2023 reached more than 871,000 arrivals, an increase of 23.2% compared to December 2022 and 44.2 times higher than last year. According to official statistics, tourism revenue in January 2023 was estimated at 2.2 trillion VND, up 113.4% over the same period last year.

Travel experts around the world also forecast 2023 would see strong growth in international travel demand and Vietnam’s tourism would not be out of this trend. Therefore, VNAT’s General Director Nguyen Trung Khanh believed 2023 would have many breakthroughs in both the number of visitors and revenue, adding in 2023, VNAT and related agencies would actively conduct promotional activities throughout the year such as participating in international events and promoting national tourism on major media channels.

In addition, the reopening of the Chinese economy after a long period of COVID-19 blockade orders would be a positive factor for Vietnam’s exports and tourism.

Besides, public investment and tourism, disbursement of foreign direct investment (FDI) continue to increase and would also help the country’s growth in 2023.

VCSC expected disbursed FDI to remain stable and grow by 7-8% per year to reach about 24-26 billion USD in 2023 and 2024. Two supporting factors for this forecast include feasible research activities for new projects after the disruption caused by the COVID-19 pandemic and multinational companies diversifying their investment activities out of China amid the ongoing trade tensions between the US and China.

In addition, Vietnam has some basic advantages such as geographical location, competitive labour costs, and a wide range of free trade agreements.