Policy Responses to Cope with COVID-19 in Viet Nam: An Empirical Stock-Flow-Consistent Approach

ADBIWorkingPaperSeries POLICYRESPONSESTOCOPEWITHCOVID-19INVIETNAM: ANEMPIRICALSTOCK-FLOW-CONSISTENTAPPROACH ThiThuHaNguyen, EtienneEspagne,LuisReyes,andThiAnh-DaoTran No.1359 February2023 AsianDevelopmentBankInstitute ThiThuHaNguyenisaPhDcandidateineconomicsattheUniversityofRouenNormandy,France.EtienneEspagneisaseniorclimateeconomistattheWorldBank.LuisReyesisanassistantprofessoratKedgeBusinessSchool.ThiAnh-DaoTranisanassociateprofessorattheUniversityofRouenNormandy. TheviewsexpressedinthispaperaretheviewsoftheauthoranddonotnecessarilyreflecttheviewsorpoliciesofADBI,ADB,itsBoardofDirectors,orthegovernmentstheyrepresent.ADBIdoesnotguaranteetheaccuracyofthedataincludedinthispaperandacceptsnoresponsibilityforanyconsequencesoftheiruse.TerminologyusedmaynotnecessarilybeconsistentwithADBofficialterms. Discussionpapersaresubjecttoformalrevisionandcorrectionbeforetheyarefinalizedandconsideredpublished. TheWorkingPaperseriesisacontinuationoftheformerlynamedDiscussionPaperseries;thenumberingofthepaperscontinuedwithoutinterruptionorchange.ADBI’sworkingpapersreflectinitialideasonatopicandarepostedonlinefordiscussion.Someworkingpapersmaydevelopintootherformsofpublication. Suggestedcitation: Nguyen,T.T.H.,E.Espagne,L.Reyes,andT.A.-D.Tran.2023.PolicyResponsestoCopewithCOVID-19inVietNam:AnEmpiricalStock-Flow-ConsistentApproach.ADBIWorkingPaper1359.Tokyo:AsianDevelopmentBankInstitute.Available:https://doi.org/10.56506/OZKN9365 Pleasecontacttheauthorsforinformationaboutthispaper. Email:hanguyencerdi@gmail.com,eespagne@worldbank.org,luis.reyes@kedgebs.com,thianh-dao.tran@univ-rouen.fr AsianDevelopmentBankInstituteKasumigasekiBuilding,8thFloor3-2-5Kasumigaseki,Chiyoda-ku Tokyo100-6008,Japan Tel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.orgE-mail:info@adbi.org ©2023AsianDevelopmentBankInstitute Abstract TheCOVID-19pandemichashadsystemicmacroeconomicimpactsduetothedifferentlockdownsandtheinducedshockstobothsupplyanddemand.Aglobalrecessionofamagnitudeprobablyworsethanthe2008globalfinancialcrisisisalreadyunderway.Likeeverycountryintheworld,theVietnameseGovernmenthastakenseveralmeasurestocompensatefortheeconomicdamageoftheCOVID-19crisisandpromotetheeconomicrecovery.However,publicinterventionintheformoffiscalandmonetarypoliciesraisesacrucialquestionaboutpublicdebtandfiscalsustainabilitychallenges.Hence,thisstudyaimstoanalyzethedifferentconsequencesofthispublicinterventionnotonlyontherealsideoftheeconomybutalsoonthefinancialside. Weuseaconsistentempiricalstock-flowmodelfortheVietnameseeconomy,integratingitsrealandfinancialaspects.Wefindthatstimuluspackagescanbeeffectiveintheshortrun,eveniftheyincreasethegovernmentdeficitandpublicdebt.Intheshortterm,themainsourceoffinancingisborrowing.However,inthemediumtolongterm,policymakersneedtothinkmoreabouttaxationtoraisegovernmentrevenuesandspendingpoliciesafterrecoverytopromoteresilientandinclusiveeconomicgrowthandtosupportfiscalsustainability. Keywords:fiscalpolicy,monetarypolicy,post-Keynesianeconomics,stock-flow-consistentmodeling JELClassification:E62,E12,E17 Contents 1.INTRODUCTION1 2.COVID-19PANDEMICANDITSECONOMICIMPACTS2 2.1COVID-19PandemicinVietNam2 2.2COVID-19’sEconomicImpactsontheEconomy3 3.GOVERNMENTRESPONSESANDPUBLICFINANCE7 3.1VietnameseGovernment’sResponsestothePandemic7 3.2PublicDebtandFiscalSustainability13 4.MODELANDSIMULATION16 4.1Model16 4.2Simulation25 5.FINDINGSANDDISCUSSION26 REFERENCES31 APPENDIXES32 A.AccountingStructure32 B.DataSources33 C.EstimationResults34 1.INTRODUCTION VietNamhasbeendeeplyaffectedbytheCOVID-19pandemicandisfacingunprecedentedchallenges.AsofApril2022,theMinistryofHealthconfirmedaround 10.45millioncasesandmorethan42,000deaths.TheCOVID-19pandemichashadsignificantmultidimensionalimpactsonthecountry.NotonlyisitapublichealthcrisisbutalsothereareseveralsubstantialeconomicconsequencesresultingfrombusinessclosurestocontrolthespreadofCOVID-19.Thesuddenclosureofbusinessesaroundtheworldinterruptedproductionandshockedthesupply,butitcausedanevenbiggershocktothedemandsideandtheglobalfinancialmarket.Arecessionofthesamemagnitudeasorworsethantheglobalfinancialcrisisisexpected(IMF2021).In2020,VietNamwasoneofthefewcountriestoexperienceGDPgrowthwhenthepandemichit.TheVietnamesegrowthratewaswellabovetheaverageoftheASEANregionandtheworldduetotheeffectivenessofthefightagainstCOVID-19.However,accordingtotheGeneralStatisticsOffice(GSO),VietNam’srealGDPgrewby2.91%in2020,thelowestgrowthrateinthelastdecade.Moreimportantly,in2021,duetothewaveofCOVID-19infections,whichwasmuchmoreseverethanbefore,theGDPwasexpectedtogrowbyonly2.58%,thatis,fourpercentagepointslowerthantheestimatedworldgrowthrate.Inaddition,theunemploymentratehasincreasedsince2020andreached3.72%inthethirdquarterof2021,thehighestvalueinthreedecades. TomitigatethenegativeimpactoftheCOVID-19pandemiconbusinessesandhouseholdsandpromoteeconomicrecoveryafterthepandemic,thegovernmenttookseveralmeasures.Thetargeteddiscretionaryfiscalstimulussupportedthehealthcaresectorandaffectedworkers.Businessesreceivedsupportfro