A hi-tech nursery in Lam Dong province (Photo: VNA) Hanoi (VNA/VNS) – Vo Tri Thanh, a senior economist at the CentralInstitute for Economic Management (CIEM) and a member of the National Financialand Monetary Policy Advisory Council, has given his analyses of the way toachieve the 2017 GDP target.
Hesaid late last week, the General Statistics Office of Vietnam announced thatthe country’s Gross Domestic Product (GDP) growth in the first half of the yearreached 5.73 percent.
Given that this is the second highest H1 growth rate since 2011, one wouldthink that it is a good sign for the economy.
However, when compared with the annual growth target of 6.7 percent, the H1growth seems to fall far short. It is estimated that our GDP must leapfrog by7.4 percent in the second half of the year to meet the ambitious annual growthtarget.
Historically, Vietnam has never seen an H2 GDP increase of 7.4 percent. Thegrowth rate in the first quarter of this year was 5.1 percent, the lowest inthe last three years. It is worth noting that the country also missed the 6.7percent growth target last year, reaching only 6.21 percent.
That this target is taken very seriously is evident from the fact that theGovernment issued a resolution on the very first day of this year (because thetarget was approved by the National Assembly late 2016) in which a series oftasks and solutions were mapped out for ministries and agencies to improvetheir management and deal more effectively with existing problems of the economy.
Never before has GDP growth received so much attention and never before has theGovernment been so determined and peremptory that it did not lower the targetdespite several economists’ saying that it was not feasible.
As late as June 02, the Prime Minister Nguyen Xuan Phuc issued Directive No24/CT-TTg to remind ministries and agencies to focus on taking both short andlong-term measures to make the target achievable.
Why is GDP a big deal?
Generally, the GDP is one of the primary indicators used to gauge the health ofan economy. It represents the total value of goods and services produced withina country’s borders within a specific period of time – monthly, quarterly orannually. In economics, income, expenditure and production are equal to each other,meaning that one individual’s spending is another’s income.
So a higher GDP shows an increase in production value added and a rise in theincome of people, which would translate into higher living standards, becausewith higher disposable income, people can spend more on quality goods andservices like education and health care.
For developing and lower-middle-income countries like Vietnam, a high GDPgrowth is indispensable for catching up with developed and high-incomecountries.
Furthermore, GDP growth carries greater import this year because 2017 is animportant transitional year in implementing the 2016-2020 socio-economicdevelopment plan, which sets average growth for the period at 6.5-7 per centper year. A failure to reach this year’s target would put much greaterpressure on the remaining years.
In addition, over the past year, the current administration has shown itsdetermination and efforts to build a constructive, trustworthy Government.
Thus, it is understandable that the Government wants its efforts to achievespecific, positive and practical results.
However, GDP is not a target that can be achieved merely on a Government’saspirations. It depends on business and investment decisions of households andenterprises in both State-owned and private sectors, foreign and domestic.These decisions, in turn, depend on internal and external economic factors thatare to some significant extent beyond the State’s control.
In other words, the Government’s management cannot directly yield an increasein GDP, though it is undeniable that its economic policies have impact onpromoting growth.
Not if, but how
With this rationale in mind, there is no point in debating whether or not theyear’s target of 6.7 per cent is too high, as it has happened recently.Instead, it is worthwhile discussing how this goal can be achieved.
As mentioned above, the Government has mapped out several short-term solutions.Now, let’s see whether they suit the long-term plans, targets and directionsthat Vietnam wants to follow to ensure sustainable, inclusivegrowth.
One of the measures is to increase the output of crude oil beyond the planoriginally assigned by the Prime Minister. This is expected to be the fastestway to shorten the distance to the 6.7 percent goal.
The Ministry of Industry and Trade has calculated that if an extra milliontonnes of oil were exploited, it would contribute an additional 0.25 percentagepoints to the GDP growth rate.
However, this measure is inconsistent with a growth model that is lessdependent on natural resource exploitation, a long-term plan that theGovernment wants to realise.
It also does not create more jobs. It would probably have a negative impact onthe environment. Especially important, with the current low global oil prices,selling crude oil abroad would not earn much profit.
The second measure is to boost credit growth. Some studies have suggested thatas core inflation is still far below 2 percent, the Government has more room toincrease money supply without causing high inflation. But this would send awrong message to the market.
Loosening monetary policies could trigger macro-economic instability in thefuture, particularly when bad debt is still a lingering obstacle.
Thirdly, the Government wants to increase the public investment. But this isnot an easy assignment because of the budget deficit and high rate of publicdebt. So it is necessary to have specific plans and studies to choose whicharea/sector would be prioritised for public investment, given the limited StateBudget capacity. More importantly, supervision of public investment projectsmust be strengthened. Otherwise, the money would be used inefficiently,deepening the budget deficit, causing more wastefulness, and hiking public debtfurther.
Clearly, short-term administrative interventions, if not carried outthoroughly, might be counter to long-term efforts of the Government tostabilise and restructure the macro-economy, and might end up diminishingstakeholders’ confidence in policy messages.
Of course, there are some jobs that the Government is doing well to promotegrowth, like improving the investment environment, encouraging privateinvestment, opening export markets based on free trade agreements.
But focussing too much on short-term targets and taking measures that areinconsistent with long-term goals can hurt market confidence and might make theeconomy suffer in the long run.
Economist Milton Friedman, who won a Nobel Prize in 1976, famously said: “Oneof the great mistakes is to judge policies and programmes by their intentionsrather than their results.”
🦋 The Government should avoid this mistake by focusing on measures to stabilisethe macro-economy and to be consistent with long-term goal of more sustainable,inclusive growth, rather than just on yearly GDP figures.-VNA
