Covid-19 Substantially Reduces Incomes of Households, Businesses

10:16:54 AM | 8/5/2020

The purposive sampling of more than 900 vulnerable households and 900 vulnerable household businesses (including micro, small and medium-sized enterprises) in 58 out of 63 provinces across Vietnam shows that the Covid-19 pandemic had a disproportionate impact on vulnerable households and businesses, especially households of ethnic minority people, migrant and informal workers. As a result, there has been a surge in transient income poverty, especially among ethnic minority households.

According to the “Covid-19 Socioeconomic Impact on Vulnerable Households and Enterprises: A Gender Sensitive Assessment” jointly conducted by the United Nations Development Program (UNDP), the United Nations Entity for Gender Equality and the Empowerment of Women (UN Women) and the Center for Analysis and Forecast (CAF) under the Vietnam Academy of Social Sciences (VASS), the average income of surveyed households in April 2020 was only around 29.7% that of the December 2019. In May 2020, this number increased to 51.1%.

The assessment confirmed that Covid-19 substantially reduced revenue for both household businesses and micro, small and medium enterprises (MSMEs), forcing most MSMEs to cut back business operations and reduce numbers of workers, due to the serious decrease in their output demand and supply disruptions.

According to the National Center for Information and Forecast under the Ministry of Planning and Investment (NCIF), the Covid-19 pandemic had immediate, strong and negative impact on the global and Vietnam’s economy, with the worst economic recession in many decades. Economic growth declined faster than during the 2008-2009 financial crisis period. Economic activities were suddenly disrupted, trade and investment reduced. The world’s financial market is unstable. Many new geographical, political and economic trends were formed and forecast to become the essential trends in the coming time, especially the supply chain reestablishing trend. It is difficult to control the pandemic around the world, while many countries are facing the risk of outbreaks due to early reopening of the economy.

NCIF President Luu Quang Khanh informed that the room for economic growth in the second half of the year would be considerably narrowed. As Covid-19 has affected many social and economic aspects and groups, “expanding the market”, “promoting investment”, and “stimulating consumption” are the motivation for growth. It is crucial that in the long term, breakthrough solutions are found to bring back the economy to the new normal. In the short term, it is important to speed up policy implementation in order to stabilize the economy for further development.

UNDP Resident Representative in Vietnam Caitlin Wiesen stressed the importance of early, anticipatory, adaptive and agile actions of the Government, combined with innovation of the people as key to the country’s initial success in containing the Covid-19 pandemic and limiting its negative socioeconomic impacts. Anticipatory governance responses and innovations will also play a critical role in helping Vietnamese enterprises and people achieve a bold, sustainable, resilient and gender sensitive recovery.

Ms. Elisa Fernandez Saenz, UN Women Representative in Vietnam, noted: “The consequences of the health and socioeconomic crisis caused by Covid-19, if not addressed adequately, are likely to result in serious setbacks in gender equality and put the gains achieved on women’s empowerment in recent decades at risk.”

The NCIF joint assessment makes recommendations for the Government to refine the response actions to protect livelihoods of vulnerable households, support MSMEs in recovering their operations and ensuring continued employment for workers.

Remarking on socioeconomic trends in the last six months, Dr. Tran Toan Thang, Head of Economic Sector and Enterprise Forecast, NCIF, said, macroeconomic background is basically stable and inflation is in a downtrend. Meanwhile, low credit growth is ground for expansionary fiscal and monetary policies, and a broad room for fiscal and monetary policies is an opportunity for increasing aggregate demand.

Besides, it is necessary to boost domestic consumption and investment, he said. To do so, it is important to consider reducing VAT rates in 2020-2022 as it will promote consumption which has been contracted due to Covid-19. Furthermore, we need to lower ceiling interest rates on short-term deposits; extend the roadmap of lowering the rate of short-term loans to medium and long-term loans; and accelerate the salary reform roadmap for public employees in the fourth quarter of 2020 and early 2021.

At the same time, Vietnam needs to allocate capital to fast-disbursed projects. According to the disbursement scenario for 2020 (VND470.6 trillion), if 80% of public investment is spent, it could generate 0.6% of GDP in the fourth quarter. If this scenario plus VND225.2 trillion transferred from 2019 is counted, it can create 1% of GDP.

Reportedly, the Ministry of Planning and Investment has been assigned to prepare economic stimulus-like programs in 2021 with the purpose of further counterattacking bad impacts and preparing for economic recovery and structural reforms to follow on the world's shift in investment consumption and digital transformation.

By Quynh Anh, Vietnam Business Forum