After the complicated infancy of dealing with Covid-19 – seemingly the biggest game changer of the global economy in the 21st century – Vietnam found its way to respond appropriately to the pandemic and even thrive economically.
In September 2022, NIKKEI Asia ranked Vietnam at the 2nd place in terms of dealing well with the pandemic. Which policies drove Vietnam to those commendable results? And how did these policies affect the economic recovery post-Covid-19? We answer these questions in-depth in this publication.
Vietnam had applied the “zero-Covid” policy during the first half of 2021 and gained certain success in controlling the number of Covid-19 cases across the country. Nevertheless, Vietnam was not well prepared for the April outbreak; this wave of the coronavirus led to severe negative effects on the overall society and on the economy of the country. The government, worried about the emergence of numerous variants of the coronavirus, encountered many struggles in managing the situation.
In early July, a late but relatively successful national vaccination campaign was launched. By late December 2021, just within five months of the vaccination campaign launch, over 75% of the population had received one jab and over 55% had been fully vaccinated (two jabs). This was a remarkable achievement, despite some regional variations. Also, at this point, Vietnam still had some way to go compared to its neighboring countries (figure 1).
Figure 1. Share of people vaccinated against Covid-19 in Vietnam in December 2021, compared to selected countries (%). Source: Our World in Data.
The notable speed of the Covid-19 vaccination coverage also allowed the government to switch from a “zero Covid-19” policy (which led to strict lockdowns in the major metropolitan areas and serious economic effects) to a “living with Covid-19” policy under which the economy could be reopened while maintaining health precautions.
The new policy has led to an increase in infection rates, however rapid vaccination (see figure 2) and booster shots have helped lower the case fatality rate.
Figure 2: The number of anti-Covid vaccine doses administered in Vietnam from March 2021 to September 2022. Source: CSSE, John Hopkins University.
As of today, Vietnam can be considered as one of the success stories when it comes to dealing with Covid-19. The anti-Covid vaccination campaign is the country's largest-ever immunization campaign.
After the start of the pandemic in 2020, Vietnam faced a significant slowing in economic growth. According to the World Bank, the Covid-19 pandemic resulted in a decline in GDP growth from 7.02% in 2019 to 2.91% in 2020 and 2.58% in 2021. However, it’s important to note that Vietnam is one of the few countries in the world which showed positive economic growth during this period of time.
Resolution No. 11/NQ-CP
To face the consequences of the pandemic upon the Vietnamese economy and accelerate the GDP growth, the government issued on 30 January 2022, Resolution No. 11/NQ-CP. This resolution is on the socio-economic recovery and development program and implementation of resolution No. 43/2022/QH15 of the National Assembly on fiscal and monetary policies for supporting the program.
It aims to recover production and business activities of companies and promote an optimized economic growth by stabilizing the economy and ensuring social security for the people of Vietnam. Resolution No. 11/NQ-CP includes various policies such as tax reduction and investment plans. Below are the notable points of those measures:
Resolution No. 11/NQ-CP includes a 2% VAT reduction in 2022. This reduction is regulated under Decree No 15/2022/ND-CP.
This reduction concerns all goods and services subject to the 10% VAT, except for goods and services as follows: telecommunication, financial activities, banking activities, securities, insurance, trading of real estate, metal, precast metal products, mining products (excluding coal mining), coke mining, refined oil, chemical products, goods and services subject to excise tax.
The incentive of the value added tax reduction includes 2 parts defining the application of this policy1:
Apply export and import duty rates under Decree No. 101/2021/ND-CP2, which supplements items subject to the preferential import tax rate of 0% and adjusts import/export tax rates for several commodity items.
Corporate Income Tax (CIT)
This measure, regulated by Decree No. 15/2022/ND-CP3, now allows donations and sponsors made by companies/organizations for Covid-19 epidemic control operation in Vietnam to be included in deductible expenses for CIT calculation purposes. Please note that it concerns the tax period 20224.
Environmental protection tax
This measure puts in place a 50% reduction on aviation fuel5.
Land rent, water surface
A 30% reduction is granted to companies, households, and individuals that are directly leasing land from the State if they meet both of the following conditions6;
A 50% reduction is granted to fiscal agents on registering for cars manufactured or assembled in Vietnam7.
Tax payment extension
Eligible taxpayers can apply for an extension of the deadlines for certain payments of Value-added tax (VAT), corporate income tax, personal income tax, and land rental fees in 20228.
According to Resolution No. 43/2022/QH15, the Government decided to increase the government expense up to 176 billion USD for the period 2022-2023 (reaching 4% of GDP in 2021). This increase in government spending includes the measures below9:
To allocate up to VND 14 thousand billion to invest in new construction, renovation, upgrading and modernization of local health system, preventive medical system, regional Centers for Disease Control (CDC), improve epidemic control capacity of central institutes and hospitals together with providing training, improving personnel in the health sector, domestic vaccine and Covid-19 medicine production.
Social security, labor and employment sectors
To grant Vietnam Bank for Social Policies (VBSP) up to VND 5 thousand billion, including interest rate cover and management fees of VND 2 thousand billion in order to implement preferential credit policy within the Program. And to support interest rate of up to VND 3 thousand billion for debtors of policy credit programs with an applicable interest rate of more than 6% per year.
To support interest rate (2% per year) of up to VND 40 thousand billion via commercial institution system for important sectors, enterprises, cooperatives and household businesses capable of repaying debt and recovering. Additionally, to grant a loan for the renovation of old apartment buildings, construction of social houses, and houses for purchase, rent, and lease purchase. Lastly, to grant the Tourism Development Assistance Fund up to VND 300 billion in charter capital.
To add up to VND 113,55 thousand billion to investment capital from the state budget to develop infrastructures in telecom, internet, energy, and transport .
The main goal of the Vietnamese Central Bank is the contain inflation to under 4%.
Vietnam is trying hard to develop an export-based economy in order to become a key member of the global supply chain and global exchanges. The Entry into force of the RCEP (Regional Comprehensive Econ Partnership), which is a Free Trade Agreement between all the members of the ASEAN and five other key partners of the region (Australia, China, Japan, South Korea, and New Zealand) is also part of Vietnam’s strategy to recover from Covid-19’s impact.
The RCEP replaces multiple FTAs with one single agreement and provides common rules, in order to synchronize all of them and aim to foster economic relations partnership and trade. This agreement, ratified in the context of the global pandemic which has deeply affected international exchanges on trade, will eliminate tariffs on more than 90% of goods in the next 15 years and introduces rules on investment and intellectual property to promote free trade, integration, and foreign direct investment.
Figure 3. Map of the 15 RCEP members. They account for about 30% of the world’s population and 30% of global GDP, making it the largest trade bloc in history. Source: RCEP.
In March 2022, the government reopened the borders after 2 years of isolation, allowing individuals to enter the country. Later in the month, the government voted a resolution to simplify the settlement in Vietnam for both people and companies coming from abroad.
Thanks to the policies mentioned, Vietnam obtained very encouraging results and can be qualified as a model in the region. Below are the most important improvements of the economic recovery post-Covid-19.
Vietnam is now experiencing its most positive period since the appearance of Covid-19. The country is targeting a GDP growth of 6.5% to 7% per year10.
Economic growth accelerated during the 2nd quarter of 2022 to reach 7.7% year-on-year, its best result since 2011. Growth is driven by the rise in industrial production (+10.8% in Quarter 2), but above all by the rebound in consumption (+19.5% in Quarter 2 compared to +4.6% in Quarter 1).
Thanks to the reopening of borders, sales of travel and hotel and catering services experienced strong growth (Source: OECD).
The stock market also has many positive prospects with the stock market capitalization estimated to increase by 28% over the same period of last year (Source: Bloomberg).
Figure 4. Industrial production growth in the first 8 months of 2022 compared to the same period last year in 2021 in Vietnam with a focus on the main sectors of the Vietnamese industry. Source: General Statistics Office of Vietnam – Social-economic situation in August 2022.
According to the General Statistics Office of Vietnam, the FDI disbursed during the first half of the year reached USD 10.1 billion, an increase of 8.9% compared to 2021 and the highest level for five years.
Among those FDI, a non-negligible part comes from the fact that the country has become the destination of multiple supply chains. Vietnam has emerged as a leading hub for the manufacturing of electronics in the ASEAN. We can, for example, quote the increase in the presence of important electronic companies such as the American Synopsys or the Korean giant Samsung, who respectively started to increase their production of microchip software and semiconductor in Vietnam (source: CCIFV).
According to the General Statistics Office of Vietnam, the consumer price index (CPI) in July 2022 increased by 0.4% compared to the previous month; increased by 3.59% compared to December 2021 and increased by 3.14% over the same period last year. On average in the 7 months of 2022, CPI increased by 2.54% over the same period last year; core inflation increased by 1.44%.
The inflation is staying under the level of 4% of inflation announced by the Central bank.
According to the General Statistics Office of Vietnam, in July 2022, the total export and import turnover were estimated at 60.63 billion USD, down 6.8% over the previous month and up 6.1% compared to the same period last year.
Generally, in 7 months of 2022, the total export and import turnover of goods reached 431.94 billion USD, up 14.8% over the same period last year, of which exports increased by 16.1%; imports increased by 13.6%.
The trade balance of goods in seven months of the year was estimated to have a trade surplus of 764 million USD.
Vietnam has been an attractive destination for international investors for many years and sustained this throughout the pandemic. The policies mentioned in this publication have helped the country to thrive economically, despite the challenges of the past two years. The expectation is that Vietnam’s economic indicators continue to improve.
Competitive edges of Vietnam include its stable political environment and open society, an abundant, young and highly-educated labor force with competitive costs, transparent investment policies and favorable business incentives.
Furthermore, the country is improving its global supply chain connectivity with 15 signed FTAs, including the RCEP, linking Vietnam to major global markets.
As a result, many international businesses have chosen Vietnam as a destination to invest and transform their global production and supply chains.
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