By Market Research Vietnam | Posted May 12, 2020
The COVID-19 pandemic is hitting Vietnam’s economy hard but the country’s economy is seen to be resilient. According to the Asian Development Bank, despite the economic deceleration and the downside risks from the COVID-19, the economic growth in Vietnam is projected to remain one of the highest in the region. The country’s economy is projected to bounce back to its initial 2020 economic growth of 6.8% in 2021.
The World Bank also recorded that in the first two months, exports have expanded by 8.0%, FDI inflows amounted to USD 2.5 billion and retail sales were up by 5.4%. With adequate policy buffer in hand, Vietnam appears to be well-positioned to overcome the ongoing health and economic crisis.
Given its deep integration with the global economy, Vietnam was hit hard by the COVID-19 outbreak, with manufacturing, tourism, and transport activities falling abruptly during the first two months of 2020.
The government has warned that the growth could slow to 5.96% if disruptions to supply chains continue due to the virus. Vietnam’s GDP fell to 3.8% in the Q12020, compared to 6.8% in the same period in 2019 according to the General Statistics Office of Vietnam (GSO). Almost 35,000 businesses went bankrupt in the first three months of 2020 which also showed that the number of companies shutting down was higher than newly registered businesses.
In order to dampen the economic impact of the COVID-19 outbreak in the country, the government of Vietnam issued Decree 41/2020/ND-CP on April 8, 2020. The decree which costs the government VND 27 trillion provides various incentives, including tax breaks, tax payments delay, and land-use fees delay for businesses.
The decree applies to several businesses including banking, food processing, mechanical processing, transportation, education and training, construction, real estate, labor and employment services, travel agents, entertainment activities, small and medium enterprises among others.
The Value-Added Tax (VAT) and Corporate Income Tax (CIT) for the listed sectors will be extended by five months. Meanwhile, the VAT and Personal Income Tax (PIT) deadlines are extended to December 31, 2020, for individuals and business households. For those that lease directly from the government, land rent fees have also been delayed for five months.
Adding to that, from February 2020 the central bank has cut interest rates by 0.5-1 percentage points. The SVB also ordered commercial banks to follow suit. They also offered VND 293 trillion in preferential credit to affected businesses.
With neighboring countries reporting thousands of cases and continuing various forms of lockdowns, Vietnam has done well in handling the cases. Vietnam’s model to curb the outbreak has been proclaimed as a successful low-cost model. Whereas its neighbors such as Taiwan and South Korea could afford mass testing, Vietnam preferred for selective but proactive prevention.
Over the period of three months since the first case, Vietnam has not hesitated to restrict movements where needed, including the lockdown of villages and communes, as well as closure of schools. The government is also being transparent in communicating with the public and was able to maintain public confidence.
Vietnam boasts a significantly low infection rate with only 271 confirmed cases, 22 recovered patients, and zero death as of May 2020. Vietnam reported its first two cases on January 28 on flights from China. On February 1, the country immediately suspended all flights from mainland China, followed by all international flights on March 25. Visas and visitors were also stopped to curb the spread of the virus.
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