More Support to Improve Economic Performance

The second stimulus package will have different enforcement duration, size and beneficiaries. Phuc elaborated: "The stimulus package, which mainly focused on granting four percent of interest rate of medium and long-term loans for investments for boosting business operations and purchasing machinery for agricultural production, will last until December 31, 2010. However, the new interest subsidy will be trimmed from four percent to two percent." 

In regards to working capital, the interest rate subsidy will be extended one more quarter to March 31, 2010, instead of December 31, 2009. However, the subsidy will be reduced to 2 percent from 4 percent at present. At the same time, subsidised loans will be mainly channelled to labour intensive companies and exporting enterprises. Service suppliers like hotels and restaurants will not be allowed to get subsidised loans.

Financially, in the second stimulus package, Vietnam will only allow tax deferment until March 31, 2010 while maintaining credits for investment. According to the Government, the amount of reduced and deferred taxes will climb to VND20,000 billion (US$1.15 billion). The benchmark rate will be revised down to suit the new context of global economies and avoid the return of inflation.

Phuc added: "The purpose of extending the interest rate subsidy by three months is to strengthen the health of the Vietnamese economy because it has not completely revived. At the end of the first quarter of 2010, based on specific developments of global and domestic economies, the Government will introduce suitable policies."

Mr Phuc pointed out problems facing the Vietnamese economy. Particularly, the trade deficit accelerated, with US$1.9 billion in October, outnumbering the forecast of US$1.5 billion by the Ministry of Industry and Trade, sending up the aggregate trade gap to US$8.78 billion in the first 10 months, equalling 19 percent of export revenues. The State budget collection reached VND305 trillion (US$17.5 billion) in the year to October 15, down 8.2 percent from the corresponding period of 2008 and equal to 78.2 percent of the yearly estimation, while State spending amounted to VND371 trillion (US$21.2 billion), equal to 75.6 percent of the estimation and up 5.3 percent year on year.

Based on economic performances in Vietnam and in the world in October, the Ministry of Planning and Investment forecast that the economy will continue reviving in all fields. The value of agriculture, forestry and fishery will expand 2.5 percent in the fourth quarter, the industry and construction will grow 7.4 percent and service sector will add 8 percent, it said. The construction sector is projected to expand 13.8 percent and the industry sector by 5 percent in the quarter. The fourth quarter GDP growth is expected to increase by 6.8 percent. 

Minister Nguyen Xuan Phuc aknowledged positive economic progresses, with GDP growth at 5.2 percent in the first 10 months of the year, higher than the full-year target of 5 percent. Inflation is expected to be capped at 7 percent in 2009 because it grew only 4.49 percent in the 10 months’ time. However, there are still problems in several economic fields such as foreign exchange, balance of payments, trade deficit and tourism.

When asked about the economic development plans for 2010, Mr Phuc said: "Vietnam will target to drive GDP growth above 6.5 percent in 2010 and 7.2 percent a year after. In 2010, the Government will execute the economic restructure. The Government has assigned the Ministry of Planning and Investment to build the economic restructure plan."

As the economy weakened in 2009, the Government had to reduce public spending and slow down several projects but it will focus on these aspects in 2010. Accordingly, the investment and infrastructure fields will get VND150 trillion in 2010, compared with a mere VND56 trillion this year.

In 2010, the Government pledged to cut budget deficit, not spending. The budget deficit is expected to stay within 6.5 percent in 2010 from 6.9 percent expected for this year. The budget deficit will be offset by increasing collections and reducing unnecessary items such as meeting, reception and fuel for mission cars, not reducing spending for social security.

Huong Ly