Experts warn of risks to premature economic reopening

By Dat Nguyen   September 12, 2021 | 10:30 pm PT
Experts warn of risks to premature economic reopening
A wielder is seen at a factory in Binh Chanh District, Ho Chi Minh City. Photo by VnExpress/An Phuong
Reopening the economy is necessary but any untimely decision amid low vaccination rates and high contagion risks could stymie the country’s efforts to defeat Covid-19, experts warn.

"The premature lifting of the lockdown and reopening the economy while the full vaccination rate remains low, new infections and fatality rates are still soaring and the health system is overburdened may even endanger the economy and people’s lives more badly," Nguyen Minh Cuong, principal country economist at the Asian Development Bank said.

But the country stands at a crossroads since lengthening strict social distancing is likely to inflict further socio-economic costs and endanger its medium- and long-term growth prospects, he told VnExpress International in an emailed statement.

Prime Minister Pham Minh Chinh and Ho Chi Minh City leaders have spoken about letting economic activities resume gradually and how the lockdown "cannot go on forever."

Vietnam has been struggling in its Covid-19 fight since the end of April when a fourth wave began and infected nearly 609,000 people and killed over 15,000.

HCMC, the largest city and major manufacturing and exporting hub, has imposed strict social distancing for over two months but still thousands of new cases are being found every day.

This is why analysts are reluctant about resuming economic activities now.

"It is complicated to find the perfect moment to reopen the economy," Tim Evans, CEO of HSBC Vietnam, said.

The risks of doing this too early at a time when vaccination is not up to optimum speed and the medical system is overwhelmed could lead to additional Covid cases resulting in a further increase in mortality rates, he said.

Other experts concurred.

"In our view, reopening the economy, especially in the epicenter HCMC, is a risky move," Jason Yek, senior Asia country risk analyst at market research company Fitch Solutions, said.

The rate of full vaccination in Vietnam is low, and reopening before the outbreak has been suppressed would possibly elicit a lukewarm response from consumers, he said.

Vietnam has vaccinated 24 percent of its population, but only 5.2 percent have received two doses.

The country has received 29.8 million doses of vaccine, or only one-fifth of its target of 150 million doses to vaccinate 70 percent of the population.

This is why a premature opening risks a surge in infections which would overwhelm the healthcare system and could force the government to tighten restrictions again, Yek said.

Won’t last long

Businesses, however, are expecting to see restrictions lifted as soon as possible due to major financial difficulties after months of limited operation or closure.

Sixty nine percent of companies, most of them small and micro sized, closed temporarily and are suffering severely, a recent online VnExpress survey which polled 21,517 respondents found.

"The economy as a whole suffers and cannot be ‘closed’ indefinitely," Dorsati Madani, senior economist for the World Bank in Vietnam, said.

Businesses are not selling goods or services while bearing various costs, and people who are temporarily unemployed cannot earn a living and some even eat up their savings, she said.

"There is a lot of social costs associated to this, especially among women, households in the lower 20 percent of the welfare distribution and informal workers."

Many businesses said they have reached the end of the road.

"Companies are trying to hold on, but perhaps they will not last long," Nguyen Thanh Huong, country human resources manager at recruitment company ManpowerGroup Vietnam, said.

Military personnel do grocery shopping for residents in Binh Thanh District, Ho Chi Minh City on August 25, 2021. Photo by VnExpress/Quynh Tran

Military personnel do grocery shopping for residents in Binh Thanh District, Ho Chi Minh City on August 25, 2021. Photo by VnExpress/Quynh Tran

Safety first

But as much as businesses want an early reopening of the economy, experts said any decision needs to first take into account people’s safety.

Once a relatively higher full vaccination rate is reached, a gradual and staged reopening could be considered, Cuong of ADB said.

The top priority should be to reestablish the food supply chain as the closure of wholesale markets and limiting distribution outlets has severely disrupted the food supply, hitting not just food availability but also people’s resilience and confidence, he said.

The next reopening priority should be transportation services and transport hubs, and later shops, restaurants, bars, and hotels, he said.

Madani of the World Bank said government support for low-income people is crucial in reopening.

World Bank data shows that households in the bottom 20 percent of the welfare distribution, women and informal workers have been more affected by Covid-19 than other groups.

The government announced two packages (in April 2020 and July 2021) to support affected households and informal workers, but the relief amounts were low and there were implementation issues, and the number of beneficiaries ended up being much lower than was hoped, she said.

"Authorities should consider strengthening the coverage, targeting and benefit levels of the country’s social protection programs."

Evans of HSBC stressed the importance of targeted investment in the medical system as lessons from other countries show that this helps the economy bounce back quickly despite pent up demand.

"The government should continue to invest in vaccines given there may be a need at a future juncture for a third booster shot in the fight against the pandemic."

He added that banks should be allowed to lend more as cash is the lubricant of the economy, and concessions should be considered like reducing the tax burden on corporates, individuals and banks.

Huynh The Du, a lecturer in public policy at the Fulbright School of Public Policy and Management, said the reopening of exporting companies, such as garment firms, is key to ensuring Vietnam does not lose its position in the supply chain.

Huong of ManpowerGroup backed the government’s initiative to reopen the economy in areas deemed safe by establishing ‘green’ factories and zones.

"The most important thing is Vietnam should be able to keep foreign companies interested by ensuring that its factories can make up for the shutdown of regional companies."

Despite the apparent difficulties, analysts remained upbeat about the prospects of recovery post-pandemic.

Beyond the near-term challenges, Vietnam’s medium-term economic prospects remain favorable, analysts at lender ANZ said in a recent note.

Evans said: "Vietnam has all the ingredients to return to its economic growth rates of 7 percent per annum and I remain very bullish on the future of the country."

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