COVID-19 POLICY RESPONSE NOTES #2 Vietnam: Potential policies responses to the COVID-19 epidemic MARCH 2020 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Vietnam: Potential policies responses to the 1 COVID-19 epidemic Because of the growing economic costs associated with the coronavirus epidemic, many Governments announced a set of new policy measures aimed at mitigating the potential impacts. This note aims to support the Vietnamese Government in its effort to design and implement the most cost-effective package of policy responses. Based on lessons from international experience and on our existing dialogue with the authorities, the recommendation is to adopt a three-step strategy. The first step would focus on supporting the most affected sectors through the combination of targeted tax and financial measures as well as assistance to the most vulnerable firms and employees. The second step would complement the above measures through the accelerated implementation of the public investment program, which will become more effective on the aggregate demand when most restrictions on people’s mobility will have been removed. The third step is to take opportunity of the current crisis, by encouraging priority reforms in the development of a digital economy and the further integration of the Vietnamese economy in global value chains by taking advantage of the diversification needs by multinationals that may want to go away from China. 1. Background The economic costs associated with In one recent note (dated February 14, the corona epidemic are projected to 2020), we demonstrate the indirect be large worldwide. After almost two costs arising from the projected months since the outbreak became decline in economic growth in China public in the center of China, the and, increasingly in other countries, magnitude of the epidemic appears to as well as from restrictive mobility have declined in China but increased in measures adopted by the Government other countries, pushing many that are expected to impact governments to adopt measures aimed significantly on Vietnam’s GDP at restricting the mobility of persons growth in the coming both domestically and internationally. months. Estimates vary greatly Since early February, the number of depending on the length of the crisis and infected people has remained relatively the magnitude of the expected recovery, stable in Vietnam, but the Government but recent simulations carried out by the has banned visitors from China and World Bank, the IMF and the suspended major transport gateways Government suggest a decline in the between these two countries. More annual growth rate of around 1 percent recently, restrictions on visitors from the of GDP during 2020. The rule of thumb Republic of Korea, Italy, and Iran have is that the economy will lose about 0.5 been applied, while most schools have percentage of GDP growth for every been closed since the outbreak month of crisis, but this loss could intensified. increase if the current crisis spreads to the 1. This note is a continuation of the one prepared on February 14, 2020 that was providing a preliminary analysis of the impact associated to the corona virus outbreak on the Vietnamese economy. It has been prepared by Jacques Morisset with inputs from the Human Development team (led by Keiko Inoue), the FSD Finance, Competitiveness & Innovation team (co-led by Waleed 1 Alwaleed Alatabani and Brian Mtonya); the Governance team (led by Huong Lan Tran) and by the Macroeconomics, Trade & Investment team (led by the Viet Anh Nguyen and Quang Hong Doan). The note was prepared under guidance of Ousmane Dione and Deepak Mishra. Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic the global economy as projected by countries including Hong Kong SAR, recent developments. At this stage, it is Cambodia and Malaysia (See Annex A forecasted that Vietnam’s GDP growth for a summary). In all these response could be in the range of 5.5-6.0 percent packages, the focus has been on the – the lowest point since the 2008 supply side of the economy, mostly to financial crisis -with a sharp decline in support cash-constrained firms in most the short run that will be followed by a vulnerable sectors such as hospitality recovery as experienced in other health and transport through a combination of crisis episodes. The costs are also actions aimed at easing their payments expected to be concentrated in a few including lower debt service and tax vulnerable sectors, including tourism, obligations (see Annex A.2 and A.3 for a transport and increasingly electronics summary of actions in China and and textile/garment exposed to possible Cambodia). At this stage, however, the disruptions in global value chains. Vietnamese Government has not yet announced such an action plan, while To mitigate the economic costs the costs associated to the coronavirus associated with the current epidemic are not expected to be marginal. The crisis, several governments have Government has focused its attention on already adopted a series of policy controlling the potential expansion of the measures. The most visible package epidemic, with apparent success, by has been the one designed by the stepping up controls and monitoring (for Chinese Government, but other more details, see note of February 14). countries including 2. A sequencing strategy for Vietnam The objective of this short note is to and so consume and invest less. support the Government in its effort to minimize the economic costs The proposed sequenced approach associated with the coronavirus can be separated into three epidemic. While the design of policy steps. The first is to support the most measures should be done with the goal affected sectors through a combination to support both the supply and demand of tax break or deferrals, credit easing, sides of the economy, the initial focus and safety nets. The second step would should be on the supply side (the most be to implement a series of measures affected sectors) because measures that will stimulate the aggregate aimed at stimulating the demand would demand, especially through accelerating remain greatly ineffective as long as disbursement of the public investment people and goods are constrained to program. The third and last step is to move freely. For this reason, we focus on structural reforms that will both advocate for a sequenced strategy that reduce the country’s vulnerability to would limit the fiscal costs of the such shocks and help it to accelerate its proposed measures over time. While transition toward an upper middle and the Government appears to have some high-income economy over the next few fiscal space (after the successful fiscal decades. consolidation realized since 2016), excessive spending or untargeted tax Step 1: Short term measures on most breaks would send the wrong signals to affected sectors the private sector that may react by adopting an even more prudent behavior Tax policy: a lief 2 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic As the ongoing coronavirus outbreak Recommendation : From the is threatening to stall economic assessment above, given the budget growth, countries are taking actions constraints, it is suggested that Vietnam to soften the impact on their can consider introducing deferrals of tax economies, including tax reliefs to and social contributions payments for affected industries and businesses affected businesses and reducing the (see Annex A for details). The turnovers of the affected household following table provides a quick businesses under the presumptive tax assessment of potential tax instruments regime. The advantage of these that the Government could consider to measures is that they can be relief the most affected sectors. implemented immediately and would have little impact on revenue collection. Table 1: A typology of tax related instruments to relief most affected sectors Likelihood of positive impact Tax measures Pros Cons on businesses 2 Low: as export sectors are already Reduce the pressure on Break the integrity of the VAT zero-rated2 subject to VAT zero-rated. cash flow for businesses. VAT net, and making it For travel, hotel, restaurant sectors, harder for tax low demand is due to travel administration; restrictions, not because of high Negative impact on revenue prices. collection. CIT exemption Low: as for the services sector, the The legislative process to or rebates main issue is the health concerns that grant CIT exemptions or reduce demand; for manufacturing rebates takes time. industries, the main problem is the disruptions in the value chain. Besides, as affected businesses do not generate much profit or even make losses during this period, they won't be able to benefit from the CIT exemptions. Deferrals of tax High: affected businesses are now Relatively easy to Temporary cash flow issue payments, struggling to maintain operations while implement. for government budget. including social not generating much revenue. At the Legal provision is already in security same time, and the payment due date place to allow tax authorities contributions for 2019 CIT is coming up soon. Cash to take this action flow is a crucial concern. immediately. Reassessment High: under the presumptive tax Legal provision is already in Negative impact on revenue of the regime, household businesses pay place to allow tax authorities collection. However, the presumptive tax turnover-based taxes, which were to review and reassess the actual impact will be obligations for determined by tax authorities in Dec deemed turnovers of the minimal, given the total tax small 2019, before the outbreak happened. affected businesses.The revenue contribution from businesses Affected household businesses are number of household the presumptive taxpayer affected currently paying more taxes than they businesses is high. The segment is around 3 should have. reduction of the deemed percent of total tax revenue turnovers (and subsequently only.More workload for tax the tax obligation) this group authorities.Opportunities for of taxpayers could boost the wrongdoings/negotiations "moral" of the small business community. 2. This refers to VAT zero rated instead of VAT exemption. In the case of VAT exemption, final consumers do not pay VAT on the goods and services purchased. However, businesses will not be able to deduct input VAT, and hence end up bearing all the VAT 3 burden. With the VAT zero rated, final consumers do not pay VAT on purchases, but businesses are able to deduct input VAT. Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Financial policies Recommendation : The banking regulator, SBV, has been proactive in Beyond taxes, a variety of measures supporting Vietnamese businesses or can be used to reduce credit individuals in a timely manner from the repayment or reduce the cost of economic effects of COVID-19. Further temporary credit to most affected measures such as specialized lines of firms/sectors. In close coordination credit, targeting impacted sectors (such with commercial banks, the State Bank as SME’s) in the event of a prolonged of Vietnam (SBV) has already taken a COVID-19 epidemic, can be considered. series of actions to implement It will be important though, that SBV Resolution 11/NQ-CP assigning the SBV continues to monitor the impact to to “guide credit institutions to financial intermediation and ensure that restructure loans, reduce lending rates, that the initiative is well targeted so that maintain the same risk category for the support reaches the most affected. restructured loans, grant new loans in order to support businesses and Social assistance policies individuals in coping with COVID- 19”. On February 24, 2020 the SBV To mitigate the potential detrimental issued Decision 1117/NHNN-TD guiding impacts, some neighboring credit institutions in more detail governments have implemented regarding these measures. Specifically, policies to assist affected individuals. the credit institutions are expected to These policies include proactive proactively monitor and assess the employment support, social insurance possible losses and impact on existing measures to stabilize employment, and borrowers as a result of COVID-19 in social assistance support to the poor order to appropriately restructure loans, and vulnerable to mitigate the shocks reduce/waive lending rates while caused by such disruptions. The temporarily maintaining the same risk instruments can vary from direct cash category for restructured loans for the support to affected beneficiaries to loans with repayment due in the period increasing benefit level of existing SA January 23– March 31, 2020. The policies by: i) exempting or deferring Decision stresses that such initiatives social insurance contributions (including should be subject to requests from unemployment insurance (UI) schemes) borrowers and the credit institutions’ for a period; ii) easing conditions to own assessment of the losses and receive UI benefits and/or simplify impact, as well as the credit worthiness benefit processing steps for those of the borrowers following such affected or have lost their jobs; iii) using support. The credit institutions are to UI funds to provide wage and job report to the SBV on the results of the subsidies to enterprises to stabilize initiatives on 15 and 31 March 2020 employment, with a focus on SMEs; and respectively. iv) using UI funds to provide public employment and online learning and Credit institutions have taken the training services (see Box 1). guidance from the SBV seriously, as shown by the widespread reduction in Recommendation: Vietnam has an lending rates, typically in the range of 1- unemployment insurance scheme in 5 percent, targeting borrowers in fragile place that could potentially be used in sectors since early February 2020. Many soften employment-related shocks banks announced specific lending associated with the COVID-19 outbreak. programs for businesses/individuals However, measures will need to be put impacted by COVID-19. in place to overcome the scheme's drawbacks such as 4 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic drawbacks such as limited coverage, include UI fund surpluses. Table 2 lengthy application procedures, and low provides potential options based on take-up of vocational training. On the international experience. other hand, the strengths of the scheme inclu Box 1: Social programs to reduce the impact of the Coronavirus by selected sample of East Asian countries In China, the government extended the coverage of Dibaoand temporary assistance programs, simplified the application and approval process, and increased the benefit level to cover families who were affected by the epidemic. In Indonesia, the government has proposed to increase the benefit of the food assistance program by 33 percent (from Rs 150,000 to Rs 200,000) for 6 months starting in March in anticipation of the impact of COVID-19 on the economy. The aim is to stimulate consumption of the poorest 20-30 percent of the population. Considering the negative impact on the tourism industry, the Malaysian Government is set to give a one-off payment of RM600 (US$144) each to taxi drivers, tourist bus drivers, tourist guides, and registered trishaw drivers. As a sign of appreciation to those in the frontline of efforts to curb the spread of COVID-19, medical doctors and other medical personnel in public institutions who are directly involved in the containment efforts will be eligible for a monthly critical allowance of RM400 (US$96), while immigration and related staff will receive RM200 (US$48) retroactively from February 2020 until the end of the outbreak. Hong Kong SAR (China) will hand out cash to adult permanent residents, to help boost spending and ease the financial burden. As part of the annual budget, $10,000 HK dollars ($1,280) will be provided to about seven million people over the age of 18, with the aim to boost local consumption and relieve people's financial burden. Authorities will also lower public housing rent and there will be rebates for salary and property taxes. Table 2: Some potential options for using Unemployment insurance (UI) scheme in Vietnam Vietnam Potential Options Potential Impact General Employees Expand eligibility Wider UI coverage Coverage Self-employed Not covered Make eligible Wider UI coverage Minimum employment 12 months in last 24; Reduce minimum Wider UI coverage Conditions 12 in last 36 for seasonal employment requirement workers Worker 1% Relax contribution Transfer to all employees (depends on compliance) Financing Employer 1% Relax contribution Stimulate demand (depends on compliance) Government 1% Replacement rate Increase replacement Larger transfer (% of wage) rate; provide one-time payment Benefits Duration 3-12 months Increase duration Longer transfer Other benefits Health insurance, vocational Ramp up other benefits Increased employment training support, job search support 5 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Step 2: Stimulate aggregate demand investment budget (through MPI) to line ministries and provinces. The allocation Several countries have introduced can be adjusted within the year, with fiscal measures to compensate for the having the resources for the baseline of negative effects of the coronavirus on-going projects allocated first (instead crisis on their aggregate demand, of waiting for the full allocation to be which appears more effective than cleared). This could accelerate the monetary policy in the short implementation of project in key run. While the magnitude of the fiscal spending ministries that a large number package has varied significantly across of existing projects (such as the MOT). countries (see Annex A for a description), it should account for the 2. Reviewing as early as possible the existing fiscal space as an unexpected spending plans of line ministries and big increase in the fiscal risk could be provinces and making timely decisions counterproductive and could encourage about reallocation of resources from consumers and investors to spend less slow- to fast-disbursed projects as a precautionary measure. For this reason, we suggest that the Vietnamese 3. Allowing advance procurement for authorities focus on implementing their new projects to accelerate existing investment program faster implementation. rather than spending more in new projects. 4. Considering the exclusion of big investment projects funded by Recommendation: For Vietnam, the Government bonds from the application accelerated execution of the investment of Resolution 89 (2016). budget would be an effective policy instrument to stimulate the economy due Special attention should be placed on to its weight in the Vietnamese ODA disbursements, which have been economy, equivalent to about 8 percent very slow in recent years. While recent of GDP, and the current low execution reforms, especially the adoption of the rate reported in recent years (around 65 Public Investment Law in June 2019, percent). have helped address some the existing bottlenecks, significant room for further To illustrate, if the Government was able improvement remains by ensuring to spend approximately 75 percent of consistency and clarity of roles and the approved budget over the course of responsibilities of various agencies the year, the public investment rate involved on ODA management through would jump to 9.5 percent of GDP with a relevant revisions to Decree 16/132. The subsequent large impact on GDP growth simplification and standardization of the through the existence of the simple annual budget allocation procedures Keynesian multiplier. This impact could would represent an important step be high enough to compensate for the forward by making the annual budget potential loss of one percent of GDP, allocation (including all ODA fund and which is currently estimated on the counterpart fund) available at the Vietnamese economy in 2020. beginning of each fiscal year. We also Implementing the investment program recommend that MOF conducts the faster would nonetheless require appraisal processes for on-lending specific actions from the Government, activities only once during the project including: preparation. Finally, MOF can fully utilize e-disbursement, including the 1. Accelerating the allocation of capital acceptance of e-supporting documents year for most application 6 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic for most application reviews. generate efficiency gains across the economy but would also reduce the The Government can consider the country’s vulnerability to restrictions on adoption of programs aimed at the mobility of persons and goods. Such supporting employment to an effort would include: complement the accelerated execution of public investment Investing more in systematic e- programs. Higher and better learning and education. The employment will secure labor income, government of Vietnam has been able which is the most direct way to influence to contain the COVID-19 outbreak consumption behavior of households in quite effectively by closing schools the medium term. Based on recent nation-wide in order to minimize international experience, the authorities large-scale contacts and possible can (i) support firms to retain their spread of the virus. At the same time, existing employees or finding new this has led to discontinuity in employees by reducing the associated learning in the whole country. Social labor charges or hiring procedures communications platforms, such as (Cambodia, Malaysia, China); (ii) Zalo and Viber, have been used by encourage employment opportunities parents and teachers so homework through information and/or labor could still be assigned to students. intensive projects such as in Yet, these platforms have been used construction (China); and (iii) incentivize mostly in urban settings with better firms to provide training opportunities connectivity and availability of smart for workers on vulnerable sectors devices, and much less in rural areas. (Cambodia and Malaysia). More critically, they are not designed to be learning platforms for teachers Step 3: Structural reforms and students. Thus, the reality is that students have homework but without The current crisis has exacerbated being able to interact with their the structural weaknesses of the teachers to learn new things or Vietnamese economy. These can be revising their homework. This is an addressed by accelerating the pace of opportunity for the government to reforms that have already been make strategic investments for identified by the authorities in their systematic e-learning and education development strategy. In other words, in public schools, with platforms and by providing a sense of urgency, the innovative methods, to enable more current crisis creates an opportunity to online learning and teaching. reduce Vietnam vulnerability to external Effective e-learning and education shocks and strengthen its transformation would improve the method of teaching toward a higher middle-income in the current circumstances and form economy. As an illustration, the one critical building block for Vietnam emphasis is on the digitization of the to get dividends from a digital economy and the integration of economy that it is striving for. Vietnam into global value chains. Encouraging e-commerce and e- 1. Encouraging the development of payments to compensate growing the digital economy: Vietnam will risk barriers on physical mobility. This lagging countries in the region in its would help ensure that households effort to become a digital economy. The and businesses continue to receive development of virtual activities would food supplies, medicine and other not only reduce transactions costs and goods and services. E-commerce is the growing 7 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic growing in Vietnam and is expected to delivered to minimize disruptions. grow from US$ 2.8 billion in 2018 to Similarly, good interoperable US$ 15 billion by 2025 (Google and information systems with time-stamps Tamasek, 2018). As has been can also point to where the bottle- recently demonstrated in the case of necks are in the whole decision- China, where schools and offices making processes, be they in public were closed and people were required investment, disbursement, or public to stay in their homes, e-commerce sector personnel management, etc. has been vital, especially in the large Up-to-date and reliable data can urban areas such as Beijing to ensure enable credible reforms that would that households and businesses have unleash potentials to spur further access to deliveries of vital goods and growth in Vietnam, at times of crisis services while minimizing human to or not. It is of utmost urgency that the human contact. For e-commerce to government bring data into the heart function in such a situation, the use of of its business model. cash (which requires access to physical ATMs or banks) would be 2. Promoting FDI and integration in limited and transactions would have global value chains through potential to be through e-payments due to the reallocation from China: The ongoing need to limit human to human contact US-China trade tension has presented and the obvious limited access to an opportunity for Vietnam to attract cash through ATMs and banks (both foreign firms that want to move their of which would either be inaccessible operations from China to countries such or run out of money). Most e- as Vietnam to access the US and global commerce transactions in Vietnam are market. Anecdotal evidence suggests in cash (90%) as compared to 51% for that a number of foreign firms have Indonesia and 48% for Malaysia. already started to move in this direction, Vietnam should accelerate the especially in the area of electronics promotion and use of e-payments in manufacturing. FDI into Vietnam e-commerce through regulatory continues to grow, including equity reforms and encouraging innovation. investment in local firms. FDI from Recent advancements in e-wallets China, especially that which is newly and Fintech are encouraging but the committed, appears to be growing. adoption of e-payment platforms needs to be accelerated and The current Coronavirus outbreak has promoted. exposed the growing reliance of global trade on supply chains that The development of a digital economy provide inputs from China. Being one would need to be grounded by a data- of the most open economies in the world enabled digital government: Better and very integrated into GVCs, Vietnam data and information systems will stands to be one of the most vulnerable enable government to issue timely countries that would be affected from and responsive decisions in times of supply chain disruptions. Given that outbreaks like this. Good data and several firms involved in Global Value information sharing will guide the Chains (GVCs) keep “just- in- time” government to where the pain-points inventory and that Vietnam is an are in the production chains, which economy that “imports to export”, the sectors are being most affected by current crisis will be of concern in the the outbreak and would need short-run. Data from the OECD’s Inter- immediate government support, and Country Input-Output (ICIO) tables, how this support can best be which shows import content of exports delivered to abcdef as 8 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic as a percent of total exports, indicates added manufacturing. In order to that Vietnam has the highest percentage achieve this, Vietnam needs to address of imported inputs in the region (mostly a number of key constrains: from China) at 44.6%. The most input dependent sectors in Vietnam are Promote availability of skilled labor, textiles and apparel, fabricated metals especially vocational (welders, and autos. machinists etc.) levels through improved tertiary education; In the short term, the current disruption in the supply chain of Encourage and provide incentives for inputs from China represents a threat greater levels of technology adoption, to Vietnam’s economy due the especially by SME’s. reduced availability of inputs in factories. In the medium to longer term, Continue to improve the business this could be an opportunity for Vietnam environment. to encourage GVCs to reduce and manage the risk of having their supply Promote greater “servicification” in chains dependent on factories in China manufacturing. Application of services by positioning Vietnam as a competing (research and development, design FDI location for such input suppliers. and embedded services, logistics) This would require Vietnam to move increasingly matter for manufacturing from the present low skill assembly competitiveness and account for much manufacturing to higher skilled value- of the value added in a product. added manufacturing. Table 3: Import content of exports as a percent of total exports Country 2005 2015 (latest available year) Vietnam 36.2 44.6 Thailand 38.6 33.7 Malaysia 45.3 37.1 Indonesia 18.5 13.0 China (Peoples Republic of) 25.7 17.4 Source: OECD ICIO tables 3. Summary  and next steps At the time when the coronavirus Following a number of countries, outbreak is extending to the world, especially in East Asia, the the economic costs for the Government is considering policy Vietnamese economy have been options to mitigate the economic growing over time. While forecasts are costs of the current health crisis. difficult, the GDP growth rate expected This note has proposed a menu of to be achieved in 2020 has already been options based on a three-step cut by 0.5-1 percentage point by most sequencing approach: (i) observers. Not only could the economy targeted support to most affected firms expand at its lowest rate since the 2008 and people in the short term through the financial crisis but specific sectors are combination of tax, financial and social feeling the pain, including tourism and assistance measures; (ii) the transport and increasingly accelerated execution of the public manufacturing. investment program through the streamlining of abc 9 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic approval processes as a way to Next step would be for the authorities compensate for the decline in aggregate to develop an action plan based on demand in the medium-term; and the sequencing approach advocated (iii) increasing the pace of structural above . There would be a need to cost reforms aimed at promoting the the proposed actions, notably their development of the digital economy and impact of the budget. Special attention at positioning better Vietnam in global should be given to the initial measures value chains. on the most affected firms/people that should be targeted by sectors and The authorities should closely locations. Greater attention should also monitor the evolution of the economic be given to small and medium firms that consequences of the epidemic in do not have the resources to absorb the other countries. GDP growth rates have shock. Ultimately, there would be a need already been cut all over the world, in for the Government to find the right the magnitude of 0.5 percentage point balance between the need to stimulate globally, but the situation remains the expansion of the economy and to extremely fluid. Channels of maintain the fiscal deficit to a transmission, though trade flows and sustainable level. financial markets volatility, are also likely to affect the stability in emerging economies. The Government should therefore remain ready to adjust its policy options over time. sequen 10 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic ANNEX A:  POLICY PACKAGES IN SELECTED EAST ASIAN COUNTRIES A.1. HONGKONG Hong Kong announced its 2020/2021 up to a cap of HKD20k. fiscal budget deficit at an estimated Continue measures to help operations HKD139.1bn, or 4.8% of GDP, largest including subsidies for 75% of since 2002. The budget included a mix electricity charges (up to HKD5k per of short term and long-term measures month) for four more months and 75% for households and enterprises to help waiver of water and sewage charges the economy weather the multiple for four more months. headwinds it currently faces. The most Waivers of government fees including eye-catching announcement was the business registration fees, company HKD10,000 cash hand out for all adult annual returns and rates for non- permanent residents which will cost domestic properties for 2020/2021. roughly HKD71bn. The hand out aims to Continue rental subsidies or rent spur consumption for the retail sectors reductions of 50% for certain which have been hard hit by COVID-19 businesses and for some government and local social incidents last year. With properties for six months. still ample fiscal reserves of over Additional support for hard hit HKD1.1trn, the government has policy industries such as construction space to implement these (subsidies for contractors), countercyclical fiscal measures to help transportation (pilot subsidy scheme, provide a cushion for growth. profits tax exemption for ship lessors) and tourism (increase fund for HK Key measures of the budget: For Tourism Board by HKD700mn). Households and Individuals Other key measures: HKD10,000 cash hand out for permanent residents over 18 years Increase housing and land supply by old. implementing the Land Sharing Pilot Personal income tax cut of 100% for Scheme, rezoning land for public 2019/2020, up to a cap of HKD20k. housing projects, assessing Provide additional funding for brownfield sites, etc. retraining and employment programs. Introduce pilot scheme for fixed rate Waivers of government rates for mortgage loans with interest rates of residential properties for 2020/2021. 2.75%, 2.85%, and 2.95% for 10, 15 Additional allowance for social and 20 year loans. security recipients and one-month Waive stamp duties on stock transfers rental waiver for public housing rental for ETFs created and redeemed in tenants. Hong Kong. Waiver of high school examination Health Authority recurrent funding fee. increased to HKD75bn to support health care services and population For Enterprises growth. Continue to diversify the economy by Provide 100% government guarantee supporting innovation and technology for loans for SMEs up to HKD2mn. by increase funding for Innovation Profit tax cut of 100% for 2019/2020, and Technology Fund as well as up Science abc 11 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Science and Technology parks of microfinance institutions) that lend to HKD2bn each. SMEs to improve access to finance Support environmental goals such as for domestic firms. by encouraging use and transition to Additional measures (to be introduced electrical vehicles through subsiding in April) include measures to improve EV infrastructure development. competitiveness and productivity, trade facilitation, and ease of doing business, addressing actual A.2. CAMBODIA challenges in key sectors and sub- sectors for the medium term such as An initial phase of policy priorities under agriculture, agroindustry, tourism and the 2020 budget’s 3 percent of GDP SMEs. fiscal stimulus covers: Short-term policy priorities A.3. CHINA Measures supporting the hardest hit Short-term policy priorities industries (tourism, garment and footwear) with tax relief and While fighting the virus remains the exemption from contributing to social priority, the policy focus has shifted security funds, providing laid-off toward relieving the economic impact workers with unemployment benefits of the outbreak and resuming (60 percent of salary) plus retraining production. and upskilling programs as well as A differentiated approach to disease job-finding services. control: Promote domestic tourism by - High-risk regions will continue to launching campaigns to organize focus on virus control. Hubei will activities and events in Siem Reap block transportation until the end of Province, extend the validity of each March. ticket to Ankgor Wat complex, and - Other regions are resuming improve international passenger transportation and production. routes Frontloaded policy stimulus, including Property registration tax exempt for accommodative monetary policy and purchase of a property below fiscal support, to arrest the economic US$70,000. slowdown. Measures to improve trade facilitation Ensuring employment and consumer with an expansion of “the green lane” price stability and the livelihood of and post audit clearance which will low-income households. reduce trade costs and underpinning more advanced logistics enhance the Medium-term policy priorities longer-term competitiveness. President Xi reiterates the need to Medium-term policy priorities reach the annual economic targets. Policy actions to enhance resilience Additional capital injection for the against similar health shocks, Rural Development Bank introduced including enhanced food safety, to support agroprocessing firms. health surveillance and response and The establishment of a new (state public communication systems. owned) SME Bank designed to support SMEs. The bank also Fiscal policies provides co-financing and risk sharing with commercial banks (and Targeted fiscal support to contain the microfinance abc spread of the virus (~0.1 percent of percent 12 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic spread of the virus (~0.1 percent of Strategy II: Spurring Rakyat centric GDP). economic growth; and Increased local government bond Strategy III: Promoting quality issuance planned in 2020 Q1 (0.6 investments. percent GDP higher than 2019 Q1). Planned infrastructure investment in Strategy I: Mitigating Impact of areas including medical equipment, COVID-19 5G, and industrial internet. Tax breaks and subsidies and The most immediate economic impact of deferrals including cut in social COVID-19 has been the sharp decline in insurance payment to ease near-term tourist arrivals throughout the region. cashflow problems in the enterprise Hotels, airlines, travel companies and sector (significant but hard to quantify more broadly the tourism-dependent now): retail industry have been badly - Suppliers of major medical affected. supplies for virus prevention and control enjoy pre-tax deductions when To mitigate the impact, the Government purchasing equipment to expand the will implement a three-pronged approach scale of production; – first, to ease the cash flow of affected - Enterprises working in the businesses, second, to assist affected transportation, life service and daily individuals, and third, to stimulate necessities delivery service sectors demand for travel and tourism. exempted from the value-added tax; - MOF introduced an interest Easing Cashflow. To assist businesses subsidy scheme for new loans to most adversely affected, the companies that produce medical Government proposes for a period of 6 supplies which are earmarked for months beginning from April until fighting the coronavirus September 2020: - Companies partly exempted from the payment of pension, First: To allow deferment of monthly unemployment and work injury income tax instalment payments for insurance businesses in the tourism sector. In addition, companies affected by the Monetary policies COVID-19 to be allowed to revise their profit estimates for 2020 with Sizeable liquidity injection through the respect to monthly income tax repo market (~1.7 percent of GDP). instalment payments without penalty; A on-lending fund (0.3 percent of Second: To provide 15% discount in GDP) to support key manufacturers of monthly electricity bills to hotels, medical supplies and daily travel agencies, airlines, shopping necessities. malls, conventions and exhibitions Cut (both interbank and lending) centres; policy rates (mostly by 10bps). Third: To exempt Human Resource Development Fund (HRDF) levies for A.4. MALAYSIA hotels and travel related companies; and The stimulus package valued at RM20 Fourth: To exempt the 6% service tax billion is anchored on three strategies as for hotels. However, this exemption follows: will be made effective earlier, that is from March to August 2020. Strategy I: Mitigating impact of COVID-19; economic 13 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic The Government will also provide As a sign of appreciation to those in the financing facilities for affected front line protecting Malaysia from the companies, as follows: contagion, Government staff directly involved in the containment efforts will First: Bank Negara Malaysia (BNM) be eligible for a special monthly critical will provide a Special Relief facility allowance of RM400 for medical doctors worth RM2 worth RM2 billion, and other medical personnel, as well as particularly in the form of working RM200 for immigration and related front capital for Small Medium Enterprises line staff commencing February 2020 (SMEs) at an interest rate of 3.75%; until the end of pandemic. and Second: Bank Simpanan Nasional To date, the Ministry of Health has (BSN) will allocate a RM200 million in committed RM150 million to purchase microcredit facility offering an interest the relevant equipment, medicine and rate of 4% to affected businesses. In consumables in the effort to contain addition, the approval process for COVID-19 outbreak. The Government existing loan funds will be further will provide the necessary resources to streamlined such as Bank ensure COVID-19 disease is well Pembangunan’s Tourism managed. Infrastructure Fund of RM1.5 billion. Human Capital Development. The All banks are required to provide Government encourages employers to financial relief in the form of payment further invest in raising the productivity moratorium comprising restructuring and of human capital during this economic rescheduling loans for affected slowdown period. Towards this, the businesses and individuals. BNM is Government will provide double tasked to ensure that all financial deduction on expenses incurred on institutions will assist all companies in approved tourism-related training. The need without exception. Government will also provide up to RM100 million on a matching grant basis In the spirit of shared responsibility to to HRDF to fund an additional 40,000 overcome current challenges, the employees from the tourism and other Government calls on industry players to affected sectors. play their part – for hotels to offer discounts and shopping malls to reduce The Government will also provide RM50 rentals to their tenants. million to subsidise short courses in digital skills and highly skilled courses. Malaysia Airport Holdings Berhad This incentive is expected to benefit (MAHB) will provide rebates on rental 100,000 Malaysians. for premises at the airport as well as landing and parking charges. The Malaysian workers retrenched can rely on the Employment Insurance Assistance for Affected Individuals. System (EIS) with a current fund of The Government acknowledges lower RM1.1 billion. Furthermore, EIS will tourist arrivals has negatively impacted increase the claimable training cost from those reliant on tourism. The RM4,000 to RM6,000 for the affected Government will give a one-off payment sectors. A daily training allowance of of RM600 each to taxi drivers, tourist RM30 per day will also be provided to bus drivers, tourist guides and trainees under EIS. registered trishaw drivers. 14 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Stimulate Tourism Sector. To stimulate scheduled for May 2020 will be tourism industry, the Government will brought forward to March 2020. introduce initiatives as follows: Third: an additional RM100 will be paid into the bank accounts of all BSH First: personal income tax relief of up recipients in May 2020. Subsequently, to RM1,000 on expenditure related to an additional RM50 will be channelled domestic tourism; in the form of e-tunai. Second: Malaysian will be eligible to digital vouchers for domestic tourism To enhance the income of rakyat and of up to RM100 per person for reduce cost of living, the Government domestic flights, rails and hotel will undertake the following initiatives: accommodations for all Malaysians. Additional matching grants for tourism First: Agrofood facility of RM1 billion will promotion will be provided. An be provided by BNM at an interest cost allocation of RM500 million is of 3.75% to promote food production provided for the vouchers and tourism activities to meet domestic and export promotion; and demand. Third: Relaxation of existing Second: M10 million allocation to FAMA guidelines limiting use of hotels by to provide food storage facilities to help Government agencies as part of reduce food prices. mitigating the reduced demand. Third: Grants of RM1,000 to 10,000 local entrepreneurs to promote sale of their Strategy II: Catalysing Rakyat Centric products on e-commerce platforms. Economic Growth Fourth: Allocation of RM20 million to Malaysian Digital Economy Corporation Rakyat’s Assistance. The effects of (MDEC) for Perkhidmatan e-Dagang COVID-19 reverberate beyond the Setempat (PeDAS) programme to tourism industry. Malaysian businesses, transform Pusat Internet Desa into e- especially exporters are affected by commerce hubs. supply chain disruptions involving factories and ports in China. Rural Stimulus. The Government will allocate an additional RM2 billion for the Therefore, the Government will carry out immediate implementation of small immediate measures to boost local infrastructure repair and upgrading consumption growth to cushion the projects nationwide especially in rural effect of negative external factors, while areas. To ensure that the projects are protecting local Malaysian jobs. These effectively implemented for the benefit measures include: of the rakyat, the allocations will be channelled in partnership with State First: the minimum Employees Governments, local authorities, NGOs Provident Fund (EPF) contribution by and local communities. employees will be reduced by 4% from 11% to 7%, with effect from 1 The projects need to be implemented April 2020 to 31 December 2020. This expeditiously in order to give positive will potentially unlock up to RM10 impacts in stimulating economy. To billion worth of private consumption. expedite the implementation of all Malaysian workers have the option to projects, the Ministry of Finance (MoF) opt out from the scheme and maintain will provide special relaxation on their contribution rate. financial procedures for the year 2020 Second: a payment of RM200 to all as follows: Bantuan Sara Hidup (BSH) recipients sch 15 Potential policies responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic First: Increase procurement threshold To enhance greater national value for balloting from RM50,000 to competitiveness, the Government will RM100,000 and for quotations from promote higher value-added private RM500,000 to RM800,000; sector investments through: Second: Ensure Ministries channel sufficient allocations to respective First: A Co-Investment fund of RM500 implementing agencies by first quarter million to be co-invested and matched of 2020. MoF will oversee the by private investors on a ratio of at compliancecompliance to procurement least 1 to 3 which will make the total schedule to ensure projects are funds amount to RM2 billion for undertaken on a timely basis. investment in early-stage and growth- stage Malaysian companies; Strategy III: Promoting Quality Second: waiving of the listing fees by Investments Securities Commission and Bursa Malaysia for one year, for companies To bolster business confidence, the seeking listing on Leading Government is committed to sustaining Entrepreneur Accelerator Platform public investments and in particular, (LEAP) or Access, Certainty, expedite in 2020, the tenders and Efficiency (ACE) markets, as well as implementation of development companies with market capitalisation expenditure projects. of less than RM500 million seeking listing on the Main Market; In addition, agencies and Government Third: BNM will provide an SME linked companies (GLCs) will also Automation & Digitalization Facility of accelerate planned investment projects RM300 million at an interest cost of for 2020, including: 3.75%; Fourth: The Government will provide First: Ministry of Energy, Science, accelerated capital allowances over a Technology, Environment and Climate two-year period on expenses incurred Change (MESTECC) will open for bids on machinery and equipment quota of 1,400MW for solar power including ICT; generation. This is expected to Fifth: The government will provide a involve RM5 billion of private tax deduction of up to RM300,000 on investments and generate 25,000 renovation and refurbishment cost; jobs; and Second: Malaysian Communications Sixth: Import duty and sales tax and Multimedia Commission (MCMC) exemption on importation or local will implement up to RM3 billion on purchase of machinery and equipment works related to the National used in port operations for 3 years Fiberisation and Connectivity Plan commencing 1 April 2020. (NFCP); and Third: GLCs such as TNB will invest RM13 billion in 2020, including accelerating projects such as LED street lights, transmission lines and rooftop solar installations. 16