MID TERM REPORT major macroeconomics 2 vietnams monetary policy during covid 19

5 CHAPTER 2: COVID-19 CURRENT SITUATIONS AND ITS IMPACTS ON VIETNAM’S ECONOMY..... Rationale of research Monetary policy is a critical macroeconomic regulatory policy of the state in a m

FACULTY OF INTERNATIONAL ECONOMICS

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MID-TERM REPORT Major: Macroeconomics 2

Vietnam's Monetary Policy During Covid-19

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

MEMBER LIST

Ho Chi Minh City, March 7 th 2022

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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

2.1.1 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

VBSP Vietnam Bank for social policies

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

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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 asemployment, economic growth, inflation, and so on Monetary policy tools play acritical and decisive role in achieving its objectives

Since Vietnam's reform until now, monetary policy and its tools have graduallybeen formed, perfected, and implemented in the socialist-oriented market economy.With the characteristics of the Vietnamese economy, the choice of monetaryinstruments and methods to be used in each specific period is something that must

be closely monitored National monetary policymakers and operators, as well aseconomic researchers, must comprehend the situation and provide timely andappropriate solutions From the beginning of 2020 until now, the Covid-19 pandemichas had a significant impact on Vietnam's economy, both in the short-term andmedium-term This is viewed as a challenge for a fledgling economy Whenconfronted with these issues, the government must implement appropriate policiesand strategies in order to overcome obstacles and restore economic stability.Because of its high theoretical and practical significance, monetary policy isregarded as an effective policy to research for implementation

For the aforementioned reasons, the topic "Vietnam's Monetary Policy DuringCovid-19" is being researched in the hope of presenting the economic realities ofVietnam in the context of the pandemic, as well as analyzing the impact of monetarypolicy, from which specific directions to overcome difficulties and capitalize onopportunities 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 COVID-19 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

and evaluates their effectiveness Based on this, the research group will proposefuture 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 monetarypolicy 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)

- 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

methods economic statistics, data collection and analysis

collected data collected in accordance with the purpose of the research

collect and analyze the collected data

5 Structure of research

The research consists of 4 chapters:

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

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

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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 thedemand side economic policy used by the government of a country to achievemacroeconomic objectives like inflation, consumption, growth, and liquidity

1.2.2 Unemployment

Monetary policies can influence the level of unemployment in the economy.For example, an expansionary monetary policy generally decreasesunemployment because the higher money supply stimulates business activitiesthat 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 ratesbetween domestic and foreign currencies For example, the central bank mayincrease the money supply by issuing more currency In such a case, thedomestic 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 bydecreasing interest rates, purchasing government securities by central banks,

unemployment and stimulates business activities and consumer spending Theoverall 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 governmentbonds, 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 provideshort-term loans and payment facilities for credit institutions The SBV stipulatesand performs the refinancing for credit institutions in the forms of extending loansguaranteed by valuable papers; discounting valuable papers; and other forms ofre-financing

1.4.2 Interest rates

The SBV shall announce the re-financing interest rates, the key interestrates and other interest rates to implement the monetary policy, and to preventhigh-interest lending In the case of unexpected developments in the moneymarket, the SBV may stipulate the mechanism for managing the interest ratesapplied to lending-borrowing transactions among the credit institutions, andbetween the credit institutions and their customers, as well as other creditrelations (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 bedetermined on the basis of foreign currency supplies and demands in the marketwith certain State regulation The SBV shall announce the exchange rates,determine the exchange rate regime and the mechanism for regulating theexchange rates (See Table of Central Exchange Rates in Appendix 2)

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1.4.4 Reserve requirements

Reserve requirements mean the amount of money that the credit institutionsmust deposit at the SBV to facilitate the implementation of the national monetarypolicy The SBV shall stipulate the ratio of reserve requirements for each type ofcredit institutions and each kind of deposits at the credit institutions The SBVshall also stipulate the interest payment on the reserve deposits, and any excessdeposits 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 andselling valuable papers with the credit institutions; and shall stipulate the types ofvaluable 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 thecredit, i.e the demand and supply of money or say liquidity in the economy Withthis function, the central bank regulates the credit granted by the commercialbanks to its customers It aims to achieve economic development with stability aswell 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.

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 of4,776,873 cases of COVID-19 However, 2,789,342 of the affected patients haverecovered and been discharged from hospitals Vietnam has also recorded 40,977deaths due to the pandemic The latest community transmission cases have beenreported 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 sharpincrease in the daily numbers of new cases, with an average of 8,680 cases per dayreported during past week The real number could be higher due to a considerableamount of under-reporting, i.e., self-testing is widely being conducted and people withpositive results would undergo home recovery and may not report to local healthauthorities About 96% of current cases are either asymptomatic or with mild symptomsand under home recovery

HCMC – the city continued to record an increase (almost 3 times) in thenumbers 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 cumulativenumber of local cases and deaths accounts for 16% and 51%, respectively, ofthe 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 vaccineshave arrived in Viet Nam In which: COVAX: 52,524,120 doses, donation fromcountries: 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

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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 ofthe Covid-19 epidemic and its unpredictable developments on a global scale Inaddition to the complicated and unpredictable Covid-19 epidemic, which hasslowed growth in most industries and fields, the disruption of international tradehas 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-19and maintaining economic growth According to the General Statistics Office report,GDP in 2020 increased by 2.91% compared to the previous year However, it wasthe lowest increase in the period 2011- 2020 Still, in the context of the complicateddevelopments of the Covid-19 epidemic in 2020, this is a great success for Vietnamwith 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 economicsectors) contributing 53%; and the service sector increased by 2.34%,contributing 33.5% The service sector is hardest hit in 2020 by the Covid-19pandemic, 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 construction sector increased by 6.3%, accounting for 55.96%; and the service sector increased by 3.34%, making up 35.70%.

Figure 2-3 – GDP annual growth rate in Vietnam from 2016 to 2021

Source: General Statistics Office of Vietnam

Figure 2-4 – Share of three sectors in Vietnam’s economy in 2020

Source: Summarized by group research

2020 also recorded impressive results of import and export activities Total import and export turnover of goods in 2020 reached 543.9 billion USD, up 5.1% over the previous year,

of which export turnover of goods reached 281.5 billion USD, up 6.5% and goods import reached 262.4 billion USD, up 3% The trade balance in goods in 2020

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10experienced a trade surplus of 19.1 billion USD, 10 times higher than in 2017 (1.9 billion USD).

The first quarter of 2021 recorded a strong recovery of import and exportactivities Total import and export turnover of goods in the first quarter of 2021was estimated at $152.65 billion, up 24.1% over the same period last year, ofwhich export turnover of goods reached $77.34 billion, up 22 %; goods importreached 75.31 billion USD, up 26.3%

As regards foreign direct investment, as of April 20, 2021, Vietnam has 33,463valid projects with a total registered capital of 394.9 billion USD The accumulatedrealized capital of foreign direct investment projects is estimated at 238.36 billionUSD, equal to 60.4% of the total valid registered investment capital

Due to the impact of the Covid-19 pandemic, the realized investmentcapital of foreign investment projects in 2020 decreased compared to 2019 butthe reduction level was lowered (reduced 2% compared to 2019) Many foreign-invested enterprises are gradually recovering and maintaining good productionand business activities and expanding projects The highlight in 2020 is adjustedinvestment capital increasing by 10.6% over the same period in 2019 In the firstfour months of 2021, foreign-invested enterprises continued to recover andmaintain good production and business activities after the impact of the Covid-19pandemic Realized investment capital of foreign investment projects in the first

4 months of the year increased by 6.8% over the same period

2.2.2 May 2021 to present: The fourth wave

The fourth wave of the pandemic had a significant effect on economicactivities Growth in Vietnam's real GDP slowed to 2.58% in 2021 (the secondquarter increased by 6.73%; the third quarter decreased by 6.02%; 4th quarterincreased 5.22%), dropping from 2.91% the year before as the coronaviruspandemic casts a long shadow over Vietnam’s economy

In particular, the agriculture, forestry and fishery sector increased by 2.9%, contributing 13.97% to the growth rate of total added value of the whole economy; the industry and construction sector increased by 4.05%, contributing 63.80%; the service sector increased by 1.22%, contributing 22.23% The complicated development of the