Application of fiscal policy to control the business cycle in Vietnam? Impact of fiscal policy on investment activities in Vietnam? Application of fiscal policy to control the business cycle in Vietnam? Impact of fiscal policy on investment activities in Vietnam? CHAPTER 1: THEORY CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM Measures taken by governments to stabilize the economy: adjusting the level and allocation of taxes and government spending. + Taxes affect the economy by determining how much the government should spend on certain sectors and how much money individuals should spend. (For example, if the government is trying to boost consumer spending, it could lower taxes. The tax cuts give families more money, which the government hopes will be spent on goods. and services, thus fueling the economy as a whole.) + Spending is used as an instrument of fiscal policy to move government money to a number of sectors that need economic boost. - Fiscal measures are often used in parallel with monetary policy to achieve certain targets.
NATIONAL ECONOMICS UNIVERSITY Welcome to the presentation Application of fiscal policy to control the business cycle in Vietnam? Impact of fiscal policy on investment activities in Vietnam? TITILE 01 02 03 CHAPTER 1: CHAPTER 2: CHAPTER 3: THEORY APPLICATION OF FISCAL IMPACT OF FISCAL POLICY POLICY IN VIETNAM IN VIETNAM CHAPTER 1: THEORY I OVERVIEW OF FISCAL POLICY Definition - Measures taken by governments to stabilize the economy: adjusting the level and allocation of taxes and government spending + Taxes affect the economy by determining how much the government should spend on certain sectors and how much money individuals should spend (For example, if the government is trying to boost consumer spending, it could lower taxes The tax cuts give families more money, which the government hopes will be spent on goods and services, thus fueling the economy as a whole.) + Spending is used as an instrument of fiscal policy to move government money to a number of sectors that need economic boost - Fiscal measures are often used in parallel with monetary policy to achieve certain targets CHAPTER 1: THEORY I OVERVIEW OF FISCAL POLICY Types of fiscal policy Two main types of fiscal policy: expansion, adjustment Expanded fiscal policy Contractionary fiscal policy - Objective: put more money in the hands of consumers so they spend - Objective: used to slow economic growth (like more and stimulate the economy (increase aggregate demand in case when inflation increases too quickly) private demand falls) - By raising taxes and cutting spending - Most commonly used during recession, high unemployment or other low periods of business cycle - It requires the government to spend more money, reduce taxes or both 01 02 CHAPTER 1: THEORY I OVERVIEW OF FISCAL POLICY Pros and cons of fiscal policy Advantage: Can Use Taxation to Discourage Negative Short Time Lag Can Direct Spending To Specific Purposes Externalities Taxing polluters or those that overuse limited The effects of fiscal policy tools Unlike monetary policy tools, which are general in nature, resources can help remove the negative effects they can be seen much quicker than a government can direct spending toward specific projects, cause while generating government revenue the effects of monetary tools sectors or regions to stimulate the economy where it is perceived to be needed to most CHAPTER 1: THEORY I OVERVIEW OF FISCAL POLICY Pros and cons of fiscal policy Disadvantage: Can Create Budget Deficits May Be Politically Motivated Tax Incentives May Be Spent on Imports Raising taxes can be The effect of fiscal stimulus is muted when the money put A government budget deficit is when it spends more unpopular and into the economy through tax savings or government money annually than it takes in If spending is high and politically dangerous spending is spent on imports, sending that money abroad taxes are low for too long, such a deficit can continue to implement instead of keeping it in the local economy to widen to dangerous levels CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM General General current current state state of of application application of of fiscal fiscal policy policy in in Vietnam Vietnam Vietnam's economic growth rate in the period 2005–2015 CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM General General current current state state of of application application of of fiscal fiscal policy policy in in Vietnam Vietnam Current state of state budget revenue Vietnam's State budget revenue comes from four main sources: • • • • Domestic revenue Revenue from crude oil Balance revenue from import and export activities Aid revenue CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM General General current current state state of of application application of of fiscal fiscal policy policy in in Vietnam Vietnam Current state of state budget expenditure In Vietnam, State budget spending focuses on the following items: • • • • Development investment spending Debt and aid repayment only Socio-economic development expenditures, Administration, security, administrative management Expenditures on additional financial reserve funds CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM General General current current state state of of application application of of fiscal fiscal policy policy in in Vietnam Vietnam State budget revenue and expenditure for the period 2011–2015 CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM The The current current situation situation of of applying applying fiscal fiscal policy policy to to control control the the economic economic cycle cycle in in Vietnam Vietnam The Government needs to implement the counter-cyclical policy: • The world - negative growth, major economies - output losses • Covid-19 : Goverment Two operating scenarios: - Scenario 1: GDP growth - 4.5%, the balance of the local budget, public debt 55.5% of GDP - Scenario 2: GDP growth - 3.6%; public debt 56.4% of GDP CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM The The current current situation situation of of applying applying fiscal fiscal policy policy to to control control the the economic economic cycle cycle in in Vietnam Vietnam The Government needs to implement the counter-cyclical policy: • Use counter-cyclical fiscal policy Targets by the National Assembly's Resolution for 2020 + Situation of the epidemic Dr Vu Tien - the growth rate is only 4.5% as forecast, the current solutions are not strong enough to achieve the increase this chief The fiscal policy still conservative, delaying the deadline for paying taxes and fees for businesses => reducing public debt in a period of favorable economic development but increasing public debt in a difficult economic period CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM The The current current situation situation of of applying applying fiscal fiscal policy policy to to control control the the economic economic cycle cycle in in Vietnam Vietnam Lesson learned However, in addition to the achieved results, the coordination of fiscal and monetary policy in recent years still has some limitations and challenges: The coordination of the monetary policy and the There is not enough scientific basis to There is no specialized organization to monitor, coordinate and monetary policy is only aimed at solving each decide which monetary policy or evaluate the coordination, lack of a system of integrated policy priority macroeconomic target at each time, but monetary policy will promote the assessment tools as well as strong sanctions to handle violations there is not really any coordination in solving all strongest impact on aggregate demand in coordinating management practice Macroeconomics macro objectives CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM I CURRENT STATE OF APPLICATION OF FISCAL POLICY IN VIETNAM Some Some comments comments 01 02 03 counter-cyclical fiscal policy to cope with Going forward in the economic cycle, Use of the "automatic stabilization" tool epidemics and economic recovery needs to secure fiscal improvements and commit a confidence that fiscal stimulus is only a temporary policy CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM Lessons Lessons from from history history - In the 2007-2013 period, due to the economic integration deeply into the global economy, Vietnam was also affected by the world economic and financial crisis in 2008 and 2009 Domestic economic developments complex and the world economy has made Vietnam facing many macroeconomic instabilities - In order to strengthen the coordination between the two financial and monetary policy-making agencies, on February 29, 2012, the Ministry of Finance and the State Bank of Vietnam (SBV) signed the Regulation on cooperation and information exchange - The coordination of fiscal - monetary policies in the 2007-2013 period has achieved certain successes such as preventing economic recession, curbing inflation, maintaining growth rate CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM Lessons Lessons from from history history However, the coordination of fiscal and monetary policies in recent years still has some limitations: - In the time when the economy is facing inflation, even though monetary policy and monetary policy have been implemented in the direction of tightening, using most monetary policy tools, the game has not been successful In 2008, inflation reached 19.89%; in 2010 it was 11.75% and in 2011 it was 18.13% CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM Solution Solution In Vietnam and other countries To enhance the close coordination between monetary policy and fiscal policy right from the stage of policy formulation and formulation More synchronous coordination in implementation progress of Government bond bidding and public investment disbursement progress CHAPTER 2: APPLICATION OF FISCAL POLICY IN VIETNAM III RECOMMENDATION FOR THE APPLICATION OF FISCAL POLICY TO CONTROL THE ECONOMIC CYCLE IN VIETNAM Solution Solution In Vietnam and other countries Gradually reduce budget deficit in the direction that the Government only invests in key infrastructure projects related to national livelihoods, and encourages the private sector to invest in construction projects To coordinate the development of the money market and the bond market Restructuring the economy in general, the restructuring of state corporations and corporations has not achieved the desired effect, affecting banking credit activities and monetary policy management CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM I IMPACTS OF FISCAL POLICY ON VIETNAM ECONOMY The government of Vietnam implemented fiscal policy and monetary policy in the early 2008 to control its own home-made mini crisis (running inflation and twin deficits). To weather the economy from the adverse impacts of the global crisis the government announced a large fiscal stimulus package (amounting to almost 10% of GDP). GDP growth rate bounced back to 7.7% in the fourth quarter of 2009. In overall assessment, Vietnam has weather the global financial crisis relatively well CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM I IMPACTS OF FISCAL POLICY ON VIETNAM ECONOMY While the government's stimulus helped to support GDP growth and has enabled Vietnam to escape the worst of the global downturn, keeping GDP growth in 2009 at a relatively high estimated level of 5.3%, it has also fuelled rapid credit growth and has amplified concerns about both the country's fiscal accounts and the government's ability to keep inflation in check. Early 2010 when statistics indicated relatively strong recovery and emerging inflationary pressures, the government was urged to normalize its macroeconomic policies CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM II IMPACTS OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM Positive Positive effects effects 01 02 Capital flows and job opportunities: Inflation control: Foreign investors will invest more in Vietnam when taxes is lower so Adopting tight fiscal policy allows the Government to cut or suspend investment that projects will be processed and need more employees projects that are not really urgent and investment projects are ineffective CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM II IMPACTS OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM Negative Negative effects effects 01 02 03 Crowding Out: Rational Expectations: Risk in increasing inflation an government debt: expansionary fiscal policy could lead to Expansionary fiscal policy is used to provide a temporary the increase in government spending will make the reduced investment in the private sector boost to a lagging economy to increase consumption and budget deficit become larger It directly affects the investment to pre-recession levels interests of the population and that could cause a wave of opposition to the government CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM II IMPACTS OF FISCAL POLICY ON INVESTMENT ACTIVITIES IN VIETNAM Conclusion Conclusion of of fiscal fiscal policy’s policy’s impact impact on on investment investment activities activities in in Vietnam Vietnam Conclusion of fiscal policy’s impact on investment activities in Vietnam A good fiscal policy must achieve goals: Timely; On target and Timeliness When the fiscal state changes, it changes the fiscal impulse, and changes the economic cycle Therefore, it is necessary to make the right choice of fiscal policy to minimize harm, while at the same time achieving its best advantages Fiscal policy affects taxes of one's economy and it will define how low or how high the FDI is so that the government must adjust fiscal policy the right way CHAPTER 3: IMPACT OF FISCAL POLICY IN VIETNAM III SOLUTION First, the Government needs to set up a fiscal Second, change the mindset and way of Third, it is necessary to adhere to the fiscal policy in the direction of "automatic stability" operating fiscal policy There is a need to discipline, not to break the approved budget plans The designed policy that self-adjusts makes continue creating transparency in fiscal To minimize spending on consumption It is fiscal policy expand during recession and narrow policy development to increase credibility necessary to increase the proportion of domestic during high growth through policies to match and reduce risks revenue, limit dependence on resource export and adapt to economic cycles and fluctuations, revenues, reduce the situation of using tax policies especially in the current integration period for social policy requirements,