Volatility in global economy in 2020

SGI

The economic targets set for 2020 are relatively high with many challenges, as the global and domestic economy face many difficulties and unpredictable risks. Hence, in order to achieve an average price growth target of less than 4%, many synchronous measures need to be implemented.

At the Government's regular meeting, one of the key topics is to curb inflation.

At the Government's regular meeting, one of the key topics is to curb inflation.

Value of VND stable

The graph of the Consumer Price Index (CPI)in 2019 shows the main reasons for curbing low inflation, including the stability of the exchange rate, sustainability of VND value, and a resolute direction of price management agencies, namely, Ministry of Finance, Ministry of Industry and Trade, and other related ministries.

Last year, the exchange rate of world currencies showed unpredictable fluctuations. The dollar was up and down following the decisions of the Government, the US Federal Reserve (Fed) and the signals of the stock market. China's CNY sometimes fluctuated 7-8% and passed the threshold of 7 CNY/USD. Many currencies in the region and in the world also dropped significantly against the US dollar. However, by managing the exchange rate according to the flexible daily exchange rate mechanism, based on the group of eight basic currencies in the economic trade, the State Bank of Vietnam (SBV) helped the Vietnam dong to stabilize in the long-term.

The stability of the VND exchange rate and macro balances have helped the financial and monetary markets, and prices of goods and services were stable. The stability of market prices has created confidence in investors, and in people to invest in production and businesses. On an average for the whole year of 2019, VND decreased by only 0.99% against the US dollar. In 2019, the world gold prices and Vietnam gold prices increased sharply. But the increase in gold price had little impact on the value of the VND or prices in the domestic market. As a result, while CNY and many currencies depreciated, the value of VND increased compared to other currencies.

In order to support businesses in production, the State Bank also lowered the discount rate, refinanced the interest rate, and reduced the reserve requirement ratio for some commercial banks, and at the same time pulled down the SBV treasury bill rate many times. This enabled commercial banks to lower deposit and lending rates, enabling businesses to access loans at lower interest rate.          

Many challenges in 2020

The National Assembly has approved twelve basic targets for 2020, based on forecasts in fluctuation in world economy, volatility of world financial and monetary markets, and capabilities and conditions of Vietnam's economy. The final year plan for the period 2016-2020 has been completed with preparation for the new period of 2021-2025, while paving the way for the entire period of 2021-2030. In particular, the Gross Domestic Product (GDP) increased by 6.8%, CPI was less than 4%, total export turnover increased by 7%, trade deficit compared to total export turnover was less than 3%, and total investment capital for social development was about 33-34% of GDP.

In order to achieve these relatively high and challenging targets, firstly there is need to maintain macro-economic stability, control inflation, ensure large balances, and lay the foundation for rapid and sustainable development. It is necessary to closely monitor fluctuations in world economy and the financial and monetary markets, and proactively manage and adjust the exchange rate flexibly, in accordance with the development of the economy, and gradually stabilize and raise the value of the VND.

Besides, strengthening inspection and supervision of price and market activities, especially with essential goods and services, it is necessary to ensure stability of price. It is now imperative to monitor, manage and supervise fluctuations in real estate market and stock market and take timely adjustment measures, to avoid abnormal fluctuations that adversely affect the economy. Alongside, actively restructure state budget revenues and expenditures, accelerate tax policy reforms, restructure and enhance the efficiency of public spending, actively reduce the state budget deficit, sustainably reduce the proportion of public debt and foreign debt to GDP.

Along with these measures, continue reviewing and perfecting the legal system of prices, speed up the formulation and adjustment of economic-technical norms to serve as a basis for determining goods prices and service prices for various types of health, educational and social services, according to schedule. Correctly and adequately calculate implementation costs into prices and the equitization roadmap of public non-business units.

Specifically, strictly control the price constituents of price stabilization goods, goods on the list of prices declared, goods and services with prices set by the State, avoiding price adjustment, and unreasonable price increase. For commodities that have a roadmap of price increase, we should clearly define the level and time of implementation, and avoid overlapping periods that may cause great fluctuations in the price level of the economy. For goods purchased with state budget money or national reserves, goods and public service should be checked for authenticity, completeness and accuracy. Public goods and services should be organized for bidding to ensure competitiveness, efficiency, fairness and transparency.

Asso. Prof. Dinh Trong Thinh, Economic Expert at Financial Academy

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