Need to tackle bad debts and weak consumption issues urgently

Bad debts and weak consumption have been currently the two major problems for the economy, which if tackled successfully, could help surmount side effects of inflation as well as facilitate economic growth.

Currently, inflation has to some extent, been put under control, which has, however, added drag to the economic growth in both two first quarters of the year. Although the National Assembly is still sticking to the economic growth of 6pct for this year, many domestic experts and international organisations predict the highest rate to be 5.7pct, well below last year’s of 5.89pct and below the year’s given target.

Notably, economic slowdown has been observed in three sectors. In all likelihood, agriculture  –  forestry  –  seafood could barely enjoy the growth rate of 4pct as in the previous year. Industry and construction that grew only 5.53pct edged up as low as 2.94pct in the first quarter making the six month rate probably modest. Services sector climbed 5.31pct while growing at 7.08pct for the whole last year.

The urgent matter for the present time is to address bad debts and weak consumption. Regarding the first, the Governor of the State Bank of Vietnam has introduced four solutions listed below:

First of all, interest rates need softening further. Ceiling lending rate in dong for below one year fell to 9pct on 11 June, thus fostering lending rate easing. However, some doubted mobilisation rate cuts could hurt depositors’ interests yet benefit commercial banks thanks to lower input costs. Whether lending rates are lowered or not would, meanwhile, would depend on these lenders. Interest rate cuts may principally boost up supply while indirectly touching demand.

Secondly, a national debt trading company could be set up to handle some 100 trillion dong bad debts of banking sector with a view to enhance credit institutions’ liquidity that may then provide funds for further loaning. The matter in question is which source of funds to acquire such bad debts. Many have opposed to state budget being deployed to purchase commercial banks’ non-performing debts. Moreover, it is vital that debts be carefully selected so as not to be involved in those incurred due to commercial banks and enterprises’ weaknesses. Also, clear criteria and transparency should be guaranteed during its operations.

Also, what is noteworthy is the combination of monetary and fiscal policies. The Governor assumed the likely disbursement of some 50 trillion dong treasury’s deposits at commercial banks may remarkably improve liquidity and boost credit growth.

Lastly, low and average income home buyers should be financially supported in order to release the substantial real estate inventories and so should small and medium sized enterprises.

Regarding weak consumption, it is high time halted production, business and dissolution be swiftly addressed in order to hamper soaring unemployment, decreasing income and weaker purchasing power. In addition, the campaign “Vietnamese use Vietnamese goods” should be further promoted. Selling price reduction should also be available so as to speed up commodity consumption and capital turnover.

 

Category: Economy