Give cash and give it soon: 'Vietnam can afford it'

By Viet Anh   August 22, 2021 | 08:30 pm GMT+7
Vietnam can afford more direct Covid-19 relief, and it should speed up the process and avoid scrimping in fighting the pandemic, experts say.

On August 16, soon after the HCMC government announced the extension the social distancing for another month until September 15, hundreds of migrant workers tried to return to their hometowns on motorbikes, but they were blocked at Covid-19 checkpoints and forced to go back as authorities feared many would carry and spread the virus.

Many of the migrant workers have been stuck in HCMC without financial resources to overcome the current crisis. The situation is similar in Hanoi but the numbers are smaller.

Adam McCarty, chief economist, Mekong Economics Ltd., a consulting firm active in the Greater Mekong sub-region with its head office in Hanoi, said the Vietnamese government can and should quickly provide cash to people affected by Covid-19 through grassroots administrative units.

He noted that Vietnam is organized down to the grassroots level, and authorities could make a list of people without income in every local area, check identity documents and make a list of people who have received money.

"The system can help authorities identify people who have completely lost their income and need assistance."

He suggested the government sends money straight to community level officials, who could disburse it and report back.

Giving people money is the easiest way to help them because it is easy to organize and receivers can decide what they need to spend on, McCarty stressed.

People wait in line for free food in District 1, HCMC, June, 2021. Photo by VnExpress/Quynh Tran.

People wait in line for free food in District 1, HCMC, June 2021. Photo by VnExpress/Quynh Tran

He said Vietnam has many people who need help during Covid-19 times because they are unofficial workers in big cities – migrants from different provinces working at construction sites, selling food on the street or transporting goods.

Local governments need to ensure that food, medicines and other necessities are still flowing into local areas, especially in lockdown zones. Also, they must guarantee control and stop speculators from increasing goods prices, he added.

McCarty said charity groups in HCMC and Hanoi are just filling the gap, and that the provision of relief is the government's job. Donations are good but not a solution to the whole problem, which needs to be systematic.

He urged the Vietnamese government to provide cash to poor people, saying that this should be done in the next four weeks because it could be "late" otherwise.

The economist estimated that around 12 million of Vietnam's 27 million households might qualify to have cash and at VND2 million for each, Vietnam will spend around $1 billion.

McCarty said Vietnam has solid revenues and the budget deficit as a percentage of GDP is not too high. The country has not done the huge spending that many other countries have done. Therefore it is the time for the government to spend a serious amount of its own money, helping people who have lost their jobs.

"Vietnam can afford it."

A woman waits near a gateway of HCMC as she was stopped from leaving for her hometown in the north central Thanh Hoa Province, August 15, 2021. She worked for a construction site in the city but had been jobless as the site closed due to Covid-19 social distancing order. Photo by VnExpress/Quynh Tran

A woman waits near a gateway of HCMC as she was stopped from leaving for her hometown in the north central Thanh Hoa Province, August 15, 2021. She worked for a construction site in the city but had been jobless as the site closed due to Covid-19 social distancing order. Photo by VnExpress/Quynh Tran

Not stretched

Citing the International Monetary Fund’s (IMF) fiscal tracking data, Dr Hinh Dinh, former Lead Economist with the World Bank, said that as of mid-July 2021, Vietnam had spent scant budgetary resources on Covid-19, at least compared to other countries at the same economic development level and even compared to those at lower levels.

As of March 2021, support to households amounted to VND12.7 trillion ($564 million, 0.2 percent of GDP) or about $6 per person. Even this very modest amount was provided only to some selected poor people. Updated data as of June 2021 showed a marginal increase.

Not only was the planned spending on households smaller than for businesses, the implementation shortfall was also higher. Only 31 percent of the amount destined for household support was disbursed, compared to 42 percent for businesses.

"This is concerning because in the context of the Vietnamese economy, workers in the informal sector have been hardest hit by Covid-19, especially during the lockdowns because of the destruction of jobs, limited savings, and limited access to the financial sector."

Hinh said the most difficult part remains how to get the cash transfers to people who need them in a transparent and simple way. Residents need to know how much money they will receive and those who embezzle this money should be punished severely. He suggested the cost of giving money to the wrong people is less than that of not giving to the right people, because the priority now is to reduce the sufferings of the population.

Vietnam government issued its second Covid-19 relief package of VND26 trillion ($1.13 billion) in July, following up on the first one of VND62 trillion ($2.6 billion) that came out in April last year.

However, many workers, especially factory employees, have complained that the papers needed to prove that one has been truly affected by the Covid-19 pandemic have prevented them from accessing even the first package.

No ‘cheap’ way

Dr Tuan Ho, senior lecturer in Accounting and Finance at University of Bristol, urged Vietnam to follow other countries and pass bills for large economic stimulus and relief packages.

Tuan stressed that the Vietnamese government should recognize that there is no "cheap" way to fight the pandemic. If the government wants to achieve the dual goal of controlling the pandemic while achieving strong economic growth under the "new normal", it has to increase fiscal expenditure significantly.

In his calculation, if the relief package size can be raised to 3 to 5 percent of GDP, there will be $8-13 billion more to support those who need support the most during the pandemic.

"If neighboring countries in the ASEAN region as well as countries heavily indebted like Spain can spend over 5 percent of their GDP on relief packages, it is hard to see how Vietnam cannot commit to a bill of similar size."

Tuan noted that Vietnam does not necessarily have a limited budget. It still has a lot of money committed for fiscal expenditure and infrastructure projects that has not been spent.

As of July 31, 2021, just 36.71 percent of the planned public investment for 2021 had been disbursed. Furthermore, Vietnam can adjust its budget to allow for larger deficits, which most of the countries are doing, Tuan said.

If the U.S., Europe, Japan, China and ASEAN countries cannot avoid "spending big", then Vietnam should not be an exception when the outbreak is killing hundreds of people a day and putting millions in difficult situations, he added.

HCMC estimates that the number of poor working people waiting for support is more than 4.74 million. As several provinces and cities are still under strict social distancing, the overall number of people who are desperately waiting for support nationwide will be much higher.

"A trade-off between fiscal deficit and human wellbeing is a hard problem. However, the government needs to act quickly if it still wants to meet the so-called dual goal."

Tuan also said that the IMF has recently allocated $650 billion to support pandemic-hit countries, and Vietnam is among those. However, as the new money is distributed in proportion to the corresponding country’s share of the global economy, Vietnam is unlikely to get much. Initial calculations suggest that Vietnam can get around $1.5 billion in the form of new foreign reserves. Nonetheless, it is still far from what is much needed to support the poor people and businesses.

As other countries are still struggling to fight the pandemic, it is hard for Vietnam to ask for more support from foreign countries.

Dr Hinh suggested that an important portion of the potential increase in fiscal spending of Vietnam could and should be used for cash transfers to help the vulnerable groups most adversely affected by Covid-19. These are the classified poor, workers in the informal sector (especially the service sectors: street vendors, coffee stands, restaurants, transportation, etc.) where physical contact is unavoidable.

He said cash transfers can be raised 15 times, from 0.2 percent of GDP to 3 percent of GDP in 2021 and 2022, about VND260 trillion per annum, without jeopardizing macroeconomic stability. In this case, the primary budget deficit would rise from about 3 percent of GDP to about 6 percent each year. This scenario still represents a sustainable position of public finances, as the ratio of public debt to GDP would remain below 50 percent by 2025, well below the 65 percent threshold.

Hinh urged Vietnam to consider making use of the IMF’s newly created Special Drawing Rights (SDR) allocation of $650 billion to support the global recovery from the Covid-19 crisis. Although it was still too early to find out how the new SDR allocation will be distributed to IMF member countries, it is possible that Vietnam will receive an amount corresponding to its quotas in the fund (about $2 billion). Vietnam could also consider borrowing from the international organizations to reduce its long-term debt burden.

The above excerpt is from Hinh's research findings that are part of an unpublished book compiled by the Policy Center for the New South, a research institute in Morocco, on the impact of Covid-19 crisis on developing countries.

McCarty said "he is not sure Vietnam needs more money" from borrowing to provide for people affected by Covid-19. Vietnam now is a middle income country, not rich but not poor, either. If the country wanted to spend seriously on social security, it can borrow from the IMF and World Bank. Also, it could issue a "Covid bond" to mobilize money from residents and pay back with interest.

McCarty highlighted the fact that Vietnam does not have formal social security system for everybody; and this may take around 10 or 20 years. Therefore, it should "repeat" financial assistance for people if Covid-19 lasts for a longer period of time.

"You should do it again and again, three months or six months later."

 
 
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