Public Investment - Catalyst for Economic Recovery

10:52:27 AM | 21/4/2020

While the epidemic fallout is downsizing other investment channels, public investment is considered one of powerful boosts to economic recovery. Disbursing VND700 trillion (over US$30 billion) or possibly more will create more jobs and offset the growth gap to accelerate economic growth in the context of the Covid-19 epidemic outbreak.

Direct support of the economy

According to a report by the General Statistics Office (GSO), the first-quarter social investment fund rose by only 2.2% as compared to the same period of 2019, the lowest growth in the 2016-2020 period as the Covid-19 pandemic had affected all business operations. However, State-funded investment was impressively VND61,591 billion in the first quarter of 2020, equaling 13.1% of the investment plan in 2020, higher than the growth of 11.2% in the same period of 2019. On average, public investment disbursement reached 91-93% of the yearly plan in 2016-2019.

Mr. Nguyen Viet Phong, Director of Construction and Investment Statistics Department (GSO), this positive signal portrayed the outcome of the Government’s drastic solutions to boost public investment disbursement. In addition, public investment increased in the first quarter of 2020 - the last year to fulfil the medium-term public investment plan from 2016 to 2020 and carry out the socio-economic development plan in 2016-2020. Moreover, the Law on Public Investment (amended), effective from January 1, 2020, gives more power to ministries, branches and localities to accelerate investment and relocate the fund planned for slowly-disbursed projects to feasible projects.

Remarking on its effect on economic development, experts said that boosting public investment will help prevent economic downturn and save businesses and workers before recession caused by the Covid-19 pandemic. Furthermore, disbursing this huge investment fund will also enable the economy to rebound, not being affected too much, if it has to undergo expensive and time-consuming revival after the epidemic ends.

Remarking on its effect on economic development, experts said that boosting public investment will help prevent economic downturn and save businesses and workers before recession caused by the Covid-19 pandemic. Furthermore, disbursing this huge investment fund will also enable the economy to rebound, not being affected too much, if it has to undergo expensive and time-consuming revival after the epidemic ends.

In addition, when the State funding channel is unlocked, private and foreign investment will flow into the economy, an extremely important factor to boost manufacturing and business operations, economic growth, employment and fiscal revenue.

According to the GSO, just 1% of public investment funding disbursed will increase non-state capital by 0.92 percentage points and increase GDP by 0.06 percentage points. If 100% of the planned funding is disbursed, only 7 percentage points added will help spur economic growth by over 0.42 percentage points. This does not take ripple effects of non-state investment into account.

Recently, at the online cabinet meeting with localities on urgent tasks and solutions to address business difficulties on April 10, public investment and accelerated disbursement was a key matter of debate. Prime Minister Nguyen Xuan Phuc emphasized that a potential recession is forecast to be worse than the crisis in 2008. There is a dire need for “boosts” and support packages for many fields. And, speeding up public investment disbursement will help increase growth and revive the economy quickly after the epidemic.

Full disbursement

According to a report by the Ministry of Finance, State-funded public investment is nearly VND700 trillion in 2020, 2.2 times as much as the disbursed value in 2019 (VND312 trillion). Maximum focus on public investment is considered an imperative in the time to come.

At a government meeting on March 27, Prime Minister Nguyen Xuan Phuc stressed that the remaining fund in 2019 and the planned fund in 2020 must be disbursed in full. Most recently, at the video conference between central and local authorities on April 10, he underlined the complete disbursement of public investment this year.

To demonstrate this willpower, he affirmed that leaders of agencies failing to disburse the investment fund will be reprimanded. By September, if disbursement is unsuccessful, the situation will be reported to the National Assembly and an inspection panel will be set up to probe the case.

Reporting to the video conference of the cabinet on the Government’s draft resolution on tasks and solutions to remove business difficulties and promote public investment amid the Covid-19 pandemic, the Minister of Planning and Investment said that the amount of capital needed to be disbursed in 2020 is enormous. Therefore, when drafting the resolution, the ministry requested relevant ministries, branches and localities to concentrate all measures to spend all public investment funds in 2020, direct investors, project management units and contractors to accelerate construction and ensure safety for workers in line with regulations on Covid-19 prevention and control to  make construction big enough to get disbursed.

Ministries and localities must also actively review and adjust funding plans or report to competent authorities to adjust funding plans from slowing-moving projects and allocate capital to fast-moving projects.

In addition, on business support, Minister of Planning and Investment Nguyen Chi Dung said that policies need to be further reviewed to promptly remove barriers and difficulties to access budget, conduct construction investment, accelerate decentralization and simplification of administrative procedures. Regulations on public debt ratio and state budget overspending need to be researched and reviewed to propose amendments to inappropriate matters and ensure increased resources for development investment.

However, according to many specialists, while boosting public investment is important, a new bold and innovative way of doing this is needed. Priority should be given to motivational and influencing projects. For example, important projects can change the form of investment to accelerate progress.

Previously, to speed up the disbursement of medium-term public investment fund in 2016-2020, Prime Minister Nguyen Xuan Phuc agreed with proposals submitted by the Ministry of Transport and the Ministry of Planning and Investment on conversion of eight Eastern North-South expressway projects and My Thuan - Can Tho Expressway project to public investment. These proposals will be further submitted to the National Assembly for approval under the Law on Public Investment.

By Ha Thu, Vietnam Business Forum