Application of fiscal policy to control the business cycle in Vietnam? Impact of fiscal policy on investment activities in Vietnam?

Application of fiscal policy to control the business cycle in Vietnam? Impact of fiscal policy on investment activities in Vietnam? Application of fiscal policy to control the business cycle in Vietnam? Impact of fiscal policy on investment activities in Vietnam? CHAPTER 1: THEORY CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM Measures taken by governments to stabilize the economy: adjusting the level and allocation of taxes and government spending. + Taxes affect the economy by determining how much the government should spend on certain sectors and how much money individuals should spend. (For example, if the government is trying to boost consumer spending, it could lower taxes. The tax cuts give families more money, which the government hopes will be spent on goods. and services, thus fueling the economy as a whole.) + Spending is used as an instrument of fiscal policy to move government money to a number of sectors that need economic boost. - Fiscal measures are often used in parallel with monetary policy to achieve certain targets.

NATIONAL ECONOMICS UNIVERSITY

APPLICATION OF FISCAL POLICY TO CONTROL THE BUSINESS CYCLE IN VIETNAM? IMPACT OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM?

Welcome to the presentation

CHAPTER 3: IMPACT OF FISCAL POLICY

IN VIETNAM

TITILE

+ Spending is used as an instrument of fiscal policy to move government money to a number of sectors that need economic boost.

- Fiscal measures are often used in parallel with monetary policy to achieve certain targets

CHAPTER 1: THEORY

I OVERVIEW OF FISCAL POLICY

2 Types of fiscal policy

01 02

Two main types of fiscal policy: expansion, adjustment

Expanded fiscal policy

- Objective: put more money in the

hands of consumers so they spend more

and stimulate the economy (increase

aggregate demand in case private

demand falls)

- Most commonly used during recession,

high unemployment or other low periods

of business cycle

- It requires the government to spend

more money, reduce taxes or both

Contractionary fiscal policy

- Objective: used to slow economic growth (like when inflation increases too quickly)

- By raising taxes and cutting spending

CHAPTER 1: THEORY

I OVERVIEW OF FISCAL POLICY

3 Pros and cons of fiscal policy

tools

Unlike monetary policy tools, which are general in nature, a government can direct spending toward specific projects, sectors

or regions to stimulate the economy where it is perceived to

be needed to most

Taxing polluters or those that

overuse limited resources can

help remove the negative

effects they cause while

generating government

revenue

CHAPTER 1: THEORY

I OVERVIEW OF FISCAL POLICY

3 Pros and cons of fiscal policy

or government spending is spent

on imports, sending that money abroad instead of keeping it in the

local economy

A government budget deficit is when it spends more money annually than it takes in If spending is high and taxes are low for too long, such a deficit can continue to widen to

dangerous to

implement

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

1 General current state of application of fiscal policy in Vietnam

Vietnam's economic growth rate in the period 2005–2015

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

1 General current state of application of fiscal policy in Vietnam

Current state of state budget revenue

• Domestic revenue

• Revenue from crude oil

• Balance revenue from import and export activities

• Aid revenue

Vietnam's State budget revenue comes from four main sources:

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

1 General current state of application of fiscal policy in Vietnam

Current state of state budget expenditure

• Development investment spending

• Debt and aid repayment only

• Socio-economic development expenditures, Administration,

security, administrative management

• Expenditures on additional financial reserve funds

In Vietnam, State budget spending focuses on the following items:

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

1 General current state of application of fiscal policy in Vietnam

State budget revenue and expenditure for the period 2011–2015

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

1 General current state of application of fiscal policy in Vietnam

Firstly, overspending increases the public

debt situation when the Government has to

issue more bonds to mobilize more capital

Secondly, the budget deficit causes

commodity prices to increase

Thirdly, budget deficit creates overwhelming

effects on the investment sector as the cost of

borrowing is now more expensive

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

Lesson learned

In general, the results of operating fiscal and monetary policies in the 2011-2015 period

brought a more stable macroeconomic environment, solving difficulties for businesses, and

the economy began to show signs of recovery better

Gross domestic product (GDP) in 2015 increased by 6.68%, the highest level in the past

5 years Macro balances are also better, with inflation remaining at the lowest level in 14

years (11 months of 2015 up 0.58%), foreign exchange reserves rising, interest rates

falling

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

Vietnam - developing countries is Pro-Cyclical

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

Evaluate the impact of fiscal policy on our economy

- From 1994 - now, continuously expanded

=>However, the fiscal situation reacts not consistent with the state of the economic cycle

=> As a result, the amount of money in circulation 135%, while GDP growth only 27%

+ 2005 - 2007, ICOR very high (> 5),

=> the ability for growth is very low

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

Vietnam's fiscal rules

Public debt ceiling:

65% of GDP

Budget deficit depends on

each year decided by the

planning

Overall Deficit vs Primary deficit

Local authorities have allowed budget deficits (planning decision)

Mid-term budget planning

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

The relationship between budget expenditure and economic growth:

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

Some problems in operating Vietnam's fiscal policy:

• Regular and high budget deficit

• Limited space / fiscal space

• Fiscal policy is cyclical

• Low efficiency of public investment

(high ICOR state sector)

• Soft budget constraints

• Medium-term budgeting and poor fiscal policy flexibility

• Policy latency is often large

• Limited transparency and accountability

• The role of fiscal policy is very important given the less flexible exchange rate mechanism

• Coordinate with limited monetary policy

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

The Government needs to implement the counter-cyclical policy:

• The world - negative growth, major economies - output losses

• Covid-19 : Goverment

Two operating scenarios:

- Scenario 1: GDP growth - 4.5%, the balance of the local budget, public debt 55.5%

of GDP

- Scenario 2: GDP growth - 3.6%; public debt 56.4% of GDP

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

The Government needs to implement the counter-cyclical policy:

• Use counter-cyclical fiscal policy

Targets by the National Assembly's Resolution for 2020 + Situation of the epidemic

Dr Vu Tien - the growth rate is only 4.5% as forecast, the current solutions are not

strong enough to achieve the increase this chief.

The fiscal policy still conservative, delaying the deadline for paying taxes and fees for

businesses

=> reducing public debt in a period of favorable economic development but increasing

public debt in a difficult economic period

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

2 The current situation of applying fiscal policy to control the economic cycle in Vietnam

Lesson learned

However, in addition to the achieved results, the coordination of fiscal and monetary

policy in recent years still has some limitations and challenges:

The coordination of the

monetary policy and the

monetary policy is only

aimed at solving each priority

macroeconomic target at each

time, but there is not really

any coordination in solving

all macro objectives

There is not enough scientific basis to decide which monetary policy or monetary policy will promote the strongest impact on aggregate

demand

There is no specialized organization

to monitor, coordinate and evaluate the coordination, lack of a system of integrated policy assessment tools as well as strong sanctions to handle

violations in coordinating management practice

Macroeconomics

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM

3 Some comments

counter-cyclical fiscal

policy to cope with

epidemics and economic

recovery

Going forward in the economic cycle, needs to

secure fiscal improvements and commit a confidence that fiscal stimulus is only a temporary policy

Use of the "automatic stabilization" tool

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM

1 Lessons from history

- In the 2007-2013 period, due to the economic integration deeply into the global economy, Vietnam was also affected by the world economic and financial crisis in 2008 and 2009 Domestic economic developments complex and the world economy has made Vietnam facing many macroeconomic instabilities

- In order to strengthen the coordination between the two financial and monetary making agencies, on February 29, 2012, the Ministry of Finance and the State Bank of Vietnam (SBV) signed the Regulation on cooperation and information exchange

policy The coordination of fiscal policy monetary policies in the 2007policy 2013 period has achieved certain successes such as preventing economic recession, curbing inflation, maintaining growth rate

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM

1 Lessons from history

However, the coordination of fiscal and monetary policies in recent years still has some limitations:

- In the time when the economy is facing inflation, even though monetary policy and monetary policy have been implemented in the direction of tightening, using most monetary policy tools, the game has not been successful In 2008, inflation reached 19.89%; in 2010 it was 11.75% and in 2011 it was 18.13%

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM

2 Solution

In Vietnam and other countries

To enhance the close coordination between monetary policy and fiscal policy right from the stage of policy formulation and formulation

More synchronous coordination in

implementation progress of Government bond

bidding and public investment disbursement

progress

CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM

III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM

2 Solution

In Vietnam and other countries

Gradually reduce budget deficit in the direction that the Government only invests in key infrastructure projects related to national livelihoods, and encourages the private sector to invest in construction projects

Restructuring the economy in general, the restructuring of state corporations and corporations has not achieved the desired effect, affecting banking credit activities and monetary policy management

To coordinate the development of the money market and the bond market

CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM

I IMPACTS OF FISCAL POLICY ON VIETNAM ECONOMY

The government of Vietnam implemented fiscal policy and monetary policy in the early 2008 to control its own home-made mini crisis (running inflation and twin deficits)

To weather the economy from the adverse impacts of the global crisis the government announced a large fiscal stimulus package (amounting to almost 10% of GDP)

GDP growth rate bounced back to 7.7% in the fourth quarter of 2009

In overall assessment, Vietnam has weather the global financial crisis relatively well

CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM

I IMPACTS OF FISCAL POLICY ON VIETNAM ECONOMY

While the government's stimulus helped to support GDP growth and has enabled Vietnam to escape the worst of the global downturn, keeping GDP growth in 2009 at a relatively high estimated level of 5.3%, it has also fuelled rapid credit growth and has amplified concerns about both the country's fiscal accounts and the government's ability to keep inflation

in check

Early 2010 when statistics indicated relatively strong recovery and emerging inflationary pressures, the government was urged to normalize its macroeconomic policies

CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM

II IMPACTS OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM

1 Positive effects

Capital flows and job opportunities:

Foreign investors will invest more in

Vietnam when taxes is lower so that projects will be processed and need

CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM

II IMPACTS OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM

Expansionary fiscal policy is used

to provide a temporary boost to a lagging economy to increase consumption and investment to

a wave of opposition to the

government

CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM

II IMPACTS OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM

3 Conclusion of fiscal policy’s impact on investment activities in Vietnam

Conclusion of fiscal policy’s impact on investment activities in Vietnam

A good fiscal policy must achieve 3 goals: Timely; On target and Timeliness

When the fiscal state changes, it changes the fiscal impulse, and changes the

economic cycle

Therefore, it is necessary to make the right choice of fiscal policy to minimize

harm, while at the same time achieving its best advantages

Fiscal policy affects taxes of one's economy and it will define how low or how high

the FDI is so that the government must adjust fiscal policy the right way