Support packages take effect, but need to be stronger

Monday, Mar 09, 2020 08:26

Aviation is one of industries hardest hit by the epidemic. – Photo

Support packages from the Government and banks would contribute to partly reducing difficulties for enterprises affected by COVID-19, but stronger measures should be taken for the hardest-hit industries, experts said.

Prime Minister Nguyen Xuan Phuc announced at a meeting last week that a VND30 trillion (US$1.3 billion) fiscal support package would be implemented to help businesses cope with the coronavirus epidemic.

Commercial banks also pledged to offer a VND285 trillion (US$12.39 billion) preferential credit package to affected enterprises, Phuc said.

According to finance expert Can Van Luc, the fiscal support package will be made by the Government through measures such as tax breaks, delayed tax payments and acceleration of State spending on infrastructure projects.

The Government hasn’t so far detailed the plans for the fiscal package, but it was forecast that on top of fast-tracked public spending on infrastructure projects, government spending will also be directed toward industries which are hard-hit by the virus. These industries include tourism, transport and agriculture.

Meanwhile, the credit support package will cover interest rate reduction and debt payment rescheduling for struggling firms conducted by commercial banks.

"As capital for the VND285 trillion preferential credit package comes from commercial banks without aid from the Government, it will not be a Government's stimulus package," Luc noted.

Banking and financial expert Nguyen Tri Hieu said it was necessary and urgent for the Government to provide the support packages for businesses as many firms had used bank loans but now, they had to scale down or even disrupt their production and business due to the epidemic.

However, Hieu suggested, for businesses seriously hit by the epidemic, stronger support measures should be taken.

He explained that though commercial banks pledged VND285 trillion preferential loans with interest rate cuts of some 0.5-1 per cent per year for firms, the interest rate was still high when production and business performance has been seriously affected.

“As the loans come from commercial banks, without any aid from the central bank, I think the interest rate will remain high for struggling firms as banks still have to pay high input costs and earn profits,” Hieu told Viet Nam News.

Currently, the short-term lending rate at banks averages at 7-9 per cent per year, and 9-11 per cent per year for medium- and long-term loans.

Nguyen Quoc Hung, director of the State Bank of Viet Nam (SBV)’s Credit Department, also admitted he was not sure whether enterprises could absorb the VND285 trillion credit package as the businesses were facing both production and market difficulties.

It was difficult for banks to boost lending at this time as capital demands were very low, Hung said, citing SBV’s data that credit growth of the entire banking system in the first two months of this year slowed sharply, inching up only 0.06 per cent against the 1 per cent rate in the same period last year, due to adverse impacts of the COVID-19 epidemic. Compared with the end of last year, credit even decreased by 0.18 per cent.

“The Government should offer stronger support, such as cutting the policy interest rate by some 0.5 percentage points to provide lower interest rate fund for commercial banks, who then can lend to struggling firms at better interest rates,” Hieu suggested.

A lower interest rate was very important, especially under the current context when businesses were shrinking production or even closing their doors, and had no capital demands, Hieu noted.

Central banks of many other countries have so far also taken strong measures, attempting to contain the coronavirus’ economic fallout, Hieu said, citing the Federal Reserve last week was the latest to slash its interest rates by half a percentage point, its biggest single cut and first emergency rate move in more than a decade since the depths of the 2008 financial crisis, as a pre-emptive move to protect the economy from the coronavirus.

Meanwhile, analysts from Fitch Solutions believed the Government’s fiscal support package would see a larger deficit this year versus the Government’s prior forecast.

“We are revising our forecast for Viet Nam to record a fiscal deficit of 3.8 per cent of GDP (excluding debt principal repayments) in 2020, versus 3.4 per cent previously... Accounting for debt repayments, our 2020 deficit forecast is revised to 7.4 per cent of GDP, from 7.0 per cent previously,” Fitch analysts said.

In light of this fiscal package, Viet Nam’s expenditures will be also expected to grow by 8.1 per cent, from 7.4 per cent previously, over the first 2019 full year estimates, according to the analysts. VNS

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