Remedy for Businesses in Covid-19 Pandemic

As the Covid-19 pandemic is causing more and more serious impacts on the economy of Vietnam, Prime Minister Nguyen Xuan Phuc issued Directive 11/CT-TTg to help businesses deal with difficulties and ensure social security. This is considered a very positive move of the government and businesses will benefit directly from this stimulus package.

According to data from the Ministry of Planning and Investment, in the first two months of the year, as many as 16,151 enterprises temporarily suspended their operations, 19.5% more than a year-ago period and 2,807 enterprises completed dissolution procedures. Notably, many companies started to see Covid-19 pandemic impacts in this two-month period.

In the coming time, Vietnamese businesses and economy will certainly be in more difficulty, especially those involved in tourism, aviation and hospitality.

Economist Vo Tri Thanh said economic difficulties caused by the Covid-19 pandemic are hurting both supply and demand. Economic growth in many countries is plummeting. The likelihood of a world recession, even a crisis, is becoming clearer on the horizon.

In Directive 11, removing obstacles for access to capital and credit is the first solution mentioned by the Government. Specifically, the Government assigned the State Bank of Vietnam (SBV) to request credit institutions to meet capital needs for businesses, shorten the time of reviewing borrowing applications, improve access to loans, restructure debt repayment terms, consider lending interest exemption and reduction, keeping debt categories unchanged and reducing service fees.

In the near future, the credit support package of VND250 trillion will be launched by banks for new customers with preferential interest rates reduced by 0.5% -1.5% per annum. Companies and business households affected by the Covid-19 pandemic will be considered for new loans from this credit package to restore operations.

More notably, the State Bank of Vietnam also recently made a strong move in reducing regulatory interest rates, of which the ceiling rate for short-term loans in Vietnamese dong decreased to only 5.5% per annum, refinancing rate to 5% and rediscount rate to only 3.5%.

Mr. Su Ngoc Khuong, Senior Manager at Savills Vietnam, said, the Covid-19 pandemic can cause a loss by 3-4 times that of the SARS epidemic, possibly up to US$160 billion globally. Vietnam was one of most affected ASEAN countries.

He affirmed, “With Directive 11/CT-TTg on urgent tasks and solutions to overcome difficulties in production and business and ensure social security during the Covid-19 pandemic, we are seeing the Government taking aggressive and realistic efforts, and real estate businesses are especially benefiting from this.”

Real estate firms can expect the Government and relevant authorities to review and cut administrative procedures and reduce costs for businesses. For all businesses, administrative procedures are considered a years-long burden. This is really a solution to revive businesses in the epidemic time - the real thing that businesses always need.

Second, central and local agencies are required to accelerate investment disbursement and improve the business environment, helping to speed up economic development and infrastructure development.

Third, promoting transparent and objective communication on results of Covid-19 pandemic prevention and control in Vietnam is a huge plus in the Government-backed stimulus package. This is a policy to cope with and prevent the plague. Thus, we can be confident that the resilience of the Vietnamese market is quite good compared to other countries, as it is managing the Covid-19 epidemic well.

Mr. Khuong said, in essence, businesses generally focus on profit. But at the stage of the Covid-19 epidemic, they will have their own difficulties, depending on the industries they are involved in and each difficulty requires appropriate solutions instead of a general remedy. Therefore, this reality requires the need for separate government advisory boards to address each sector appropriately. For example, importers and exporters need to resolve procedural issues, exchange rates and foreign currency trading; or public transport firms will encounter problems arising on gasoline prices and passengers.

“Tax reductions may have positive effects on profitable businesses, not for loss-making ones. The economic stimulus only really plays its role when it helps businesses to grow to pay taxes and maintain their ‘resistance’. When Covid-19 is over, repercussions of this contagion and the ‘resistance’ that enables them to resume development are the main stories,” he analyzed.

Mr. Vo Tri Thanh also said that Directive 11 only really works well after the Covid-19 epidemic is suppressed. The Government must take measures to help businesses to get through the current difficulty. Their problems with taxes and borrowing interests are necessarily delayed, postponed, frozen, and extended for them. On the other hand, main measures are to remove difficulties for businesses, not to stimulate demand. If they do not have the demand for development, they will not need the money. Further lowering interest rates will not work because they do not have a need for loans. Rescheduling medium and long-term loans are suitable for them for the time being.

By Huong Ly, Vietnam Business Forum