Economic costs associated to COVID-19 POLICY RESPONSE NOTES the coronavirus epidemic for Vietnam COVID-19 POLICY RESPONSE NOTES FOR VIETNAM JUNE 2020 1 COVID-19 POLICY RESPONSE NOTES FOR VIETNAM JUNE 2020 VIETNAM COVID-19 POLICY RESPONSE NOTES @2020 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: http://www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations and conclusions expressed in this work do not necessarily reflect the views of The World Bank and its Board of Executive Directors. The World Bank do not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington DC 20433, USA; fax: 202-522-2625; email: pubrights@ worldbank.org. Cover design: My Thi Huyen Pham/The World Bank in Vietnam. COVID-19 POLICY RESPONSE NOTES VIETNAM Preface “You can count on your trusted friends in difficult time”. This saying symbolizes Vietnam and the World Bank Group’s long-lasting partnership over the past 25 years, which grows even stronger during difficult times in Vietnam or in the global economy. This has been verified once more during the COVID-19 crisis. Today, Vietnam’s timely and evidence-based response has led to tremendous success in containing the COVID-19 outbreak, with just over 300 positive cases and no deaths. The enviable success story has been applauded across the globe, and the country’s experience has been recently shared by Prime Minister Nguyen Xuan Phuc at the 73rd World Health Assembly organized on May 18-19, 2020. Vietnam’s successful management of COVID-19 has also been extended to the economy – so much that Vietnam is now projected to be one of the few world’s fastest growing countries in 2020. Since the beginning of the COVID-19 pandemic, the World Bank has shared a series of five policy notes with Vietnamese policymakers. These just-in-time notes have supported the Government in its efforts to monitor the current crisis and helped it sequentially to formulate policy responses from the health crisis management through stimulating the recovery of the economy. These notes built on expertise from around the globe, including Hanoi, Washington, DC and beyond. The diagnostics and recommendations stem from the deep dialogue that our experts have fostered with government officials and other stakeholders in Vietnam over the years. They also benefited from expertise based on successes and lessons learned in other countries. I am pleased to share the five policy notes in this booklet, which gives an overall picture of the World Bank’s analysis of the impacts of COVID-19 on Vietnam. You will find that the sequencing of the notes follows the evolution of the pandemic crisis. The first note proposes an early assessment of the pandemic on the economy, while the second develops a comprehensive strategy to cope with the crisis over time. The third note focuses on the fiscal package that was announced in early April, with the ambition to alleviate the financial burden of the crisis on the most vulnerable businesses and people. The fourth and fifth notes include suggestions on how to jumpstart the economy in the post-COVID-19 period, as well as ideas to take advantage of the epidemic to reshape the economy through “no-regret” policies. While the future is hard to predict, I believe that the world will look very different in the post- COVID-19 era. Yet, I am convinced that Vietnam will be able to leverage the emerging opportunities that are the silver lining of the crisis, and thereby being stronger and more determined in its ambition to become a high-income economy in the future. The country has already engaged in a number of reforms that should help it to increase its footprint in the global economy, to develop further a digital economy, and to improve its resilience to future pandemics, climate change and other related shocks. I hope that the success of Vietnam in moving ahead of the curve can inspire other countries that are now struggling under the COVID-19 crisis. Ousmane Dione Country Director, the World Bank in Vietnam VIETNAM COVID-19 POLICY RESPONSE NOTES Table of content Economic costs associated to the coronavirus epidemic for Vietnam...............2 1. The magnitude of the outbreak and government’s policy responses.................................2 2. An assessment of the economic impact of the outbreak on Vietnam.................................3 3. Conclusion, risks and further actions.................................................................................7 Vietnam: Potential policy responses to the COVID-19 epidemic.......................10 1. Background......................................................................................................................10 2. A sequencing strategy for Vietnam................................................................................... 11 3. Summary and next steps.................................................................................................. 19 Stronger headwinds bring new challenges for the government........................22 1. Stronger headwinds will reduce growth and require additional financing.........................22 2. Fiscal package: what we know so far............................................................................... 25 3. Special focus: The impact of COVID-19 on the financial sector.......................................31 4. Conclusion and next steps...............................................................................................33 How to jumpstart the economy.............................................................................38 1. Area 1: Optimizing the use of public investment as a fiscal stimulus...............................42 2. Area 2: Making the most of the digital agenda.................................................................44 3. Area 3: Protecting and creating jobs and boosting human capital................................... 46 Area 4: Supporting private sector activities with a focus on most affected sectors by 4.  COVID-19.........................................................................................................................48 5. Next steps and World Bank support................................................................................. 52 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies.................................................................................................56 1. What mega-trends are emerging from the COVID-19 pandemic?................................... 58 2. How can Vietnam take advantage of these mega-trends?............................................... 60 Annex......................................................................................................................77 A...........................................................................................................................................77 B...........................................................................................................................................83 COVID-19 POLICY RESPONSE NOTES VIETNAM List of tables Table 1.1: Share of China in Vietnam trade, % of total........................................................... 4 Table 1.2: Bilateral trade between Vietnam and China, top ten products, 2019..................... 6 Table 2.1: A typology of tax related instruments to relief most affected sectors................... 12  ome potential options for using Unemployment Insurance (UI) scheme in Table 2.2: S Vietnam................................................................................................................ 14 Table 2.3: Import content of exports as a percent of total exports........................................ 18 Table 3.1: Summary of main economic indicators, 2018-2022............................................. 23 Table 3.2: Labor market in Vietnam, 2018 (%).................................................................... 29 Table 4.1: Summary of main recommendations................................................................... 40 Table 5.1: Summary of no-regret opportunities.................................................................... 61 Table 5.2: Recommended actions to enhance trade and FDI.............................................. 64 Table 5.3: Recommended actions to promote digital payments........................................... 66 Table 5.4: Recommended actions to promote telemedicine................................................. 69 Table 5.5: Recommended actions to enhance information sharing...................................... 71 Table 5.6: Recommended actions to ‘flatten the carbon curve’............................................ 75 Table B1: Main economic indicator, 2016-2022................................................................... 83 Table B2: Main channels of transmission on vulnerable groups.......................................... 84 Table B3: List of social protection measures........................................................................ 85 Table B4: List of tax measures............................................................................................. 86 List of figures Figure 1.1: One third of foreign tourists visiting Vietnam are from China............................... 4  lobal mix of COVID-19 SP response programs and adaptations as of Figure 3.1: G early April........................................................................................................... 28  redit, Deposit and Total money supply (M2) growth in the first 3 months, Figure 3.2: C 2017-2020.......................................................................................................... 33 Figure 3.3: Loan balance (VNDtrn) and YTD growth (%) as of 20 Mar 2020....................... 33 Figure 5.1: COVID-19 safety rankings can be used to select trade partners....................... 63 Economic costs associated to COVID-19 POLICY RESPONSE NOTES the coronavirus epidemic for Vietnam COVID-19 POLICY RESPONSE NOTE #1 Economic costs associated to the coronavirus epidemic for Vietnam February 2020 1 Economic costs associated to the coronavirus epidemic for Vietnam COVID-19 POLICY RESPONSE NOTES A preliminary note on the economic costs associated to the coronavirus epidemic for Vietnam1 The short-term impact of coronavirus outbreak (i.e., 2019-nCov) on Vietnam’s economy could be significant, as high 6-10 percent of monthly output, but short-lived if the outbreak is rapidly contained. While the recent measures by the Government to limit the mobility of people, goods, and services with China will help to prevent the outbreak from spreading to Vietnam, they come with some economic costs. Tourism and electronics trade are the most vulnerable, with one-third of foreign tourists are from China and with over $3 billion per month of bilateral trade between the two countries. The direct costs to contain the epidemic remains relatively small but could increase rapidly if the outbreak spreads within Vietnam, restrictions on mobility are sustained over time and if people behavior amplifies the initial negative impacts. Lessons from experience of recent pandemic show that while the negative costs could be high, the economy tends to recover rapidly once the outbreak is contained. The estimates presented here are highly dependent on assumptions regarding the magnitude and the duration of the epidemic and should be considered as preliminary. The magnitude of the outbreak and government’s policy 1.  responses The Government of Vietnam has acted Vietnam has taken several preventive quickly to the announcement of the steps to stop the outbreak from reaching coronavirus outbreak in China.1The its border. The civil aviation authority has Prime Minister has declared the outbreak an suspended all flights to mainland China from epidemic in Vietnam and established a nCoV February 1. It has stopped issuing visas for National Steering Committee chaired by a Chinese tourists and foreigners who have Deputy Prime Minister. As of February 11, been in China in the past 14 days. Several 2020, Vietnam has confirmed that 15 people border gates between Vietnam and China have been infected and 547 people are under in the northern province of Lang Son were quarantine (no death)2. The government has initially closed but then reopened to trade. ordered the health ministry to supervise Similarly, the aviation authorities imposed and detect infection early, monitor border and then lifted the ban for travelers from crossings, airports, and seaports, particularly Hong Kong, Macau and Taiwan after one for passengers coming from affected areas. day. The Ministry of Labor, Invalids, and Vietnam’s airports have been ordered to Social Affairs has discouraged businesses deploy additional personnel and coordinate not to bring back Chinese and other foreign with local health agencies to deploy body workers who have traveled to coronavirus- temperature scanning equipment as well as affected locations. Meanwhile, 61 out of 63 a screening of passengers. provinces have closed schools and colleges/ universities until the end of February 9. These include institutions in main urban centers such as Hanoi, Ho Chi Minh City, Da Nang and Can Tho. 1 This note was prepared by Jacques Morisset under the guidance of Deepak Mitra, with inputs from Keiko Inoue, Duc Minh Pham, Viet Tuan Dinh; Quang Hong Doan; Brian G. Mtonya, Anh Thuy Nguyen; Ngan Hong Nguyen; Caryn Bredenkamp; Dilip Parajuli; Netsanet Walelign; Mukesh Chawla; Rocio Schmuni; and Anh Thi Quynh. 2 The statistics were reported by MoH as of February 11, 2020 and will be updated with arrival of new information. 2 Economic costs associated to COVID-19 POLICY RESPONSE NOTES the coronavirus epidemic for Vietnam  n assessment of the economic impact of the outbreak on 2. A Vietnam The economic impact of the coronavirus the expected decline in GDP growth in outbreak remains highly tentative. The 2020 would only be a 0.13-X percentage magnitude of the impact of the 2019- nCoV points even in the worst-case scenario on the Vietnamese economy will depend on envisioned by the WBG team in China. the duration and severity of the outbreak as Vietnam shares a border of more than 1,200 well as the Government’s policy response. km with China, where the epidemic originated. As in previous episodes, it will also be greatly One can therefore expect spillovers from influenced by behavioral responses from China onto Vietnam due to the numerous households and firms, which could intensify and diversified linkages between these two the short-term economic impacts. Given the economies. The impact of a slowdown in uncertainty, our baseline scenario assumes China’s GDP growth on Vietnam economic that the outbreak will be contained in China growth can be roughly quantified by using the by the end of March, with limited contagion recent cross-regional elasticities calculated in Vietnam. This scenario corresponds to by the IMF,4 and by assuming that China’s the current one adopted by the Vietnamese GDP growth could decline between 0.2-1 authorities (the so-called scenario 2, as percentage points depending on the gravity defined by the Ministry of Health) even if, of the crisis in 2020.5 Accordingly, everything at this point in time, one cannot discard a else equal, a 1 percent growth slowdown in faster containment of the outbreak in China China would lead to a decline in Vietnam’s or, alternatively, a longer propagation in economic activity by 0.13-X percentage Vietnam (scenarios 3, 4 for the Ministry of points. The impact of the current outbreak Health).3 should therefore remain relatively limited in Vietnam even in the scenario where the The economic costs associated to the Chinese authorities would be slow to contain coronavirus outbreak are classified the outbreak. into two groups. First, they arise from the preventive measures taken by the However, the above estimates do not Vietnamese authorities to restrict the mobility account for the preventive measures of people, goods and services with China. adopted by the Vietnamese authorities Second, they are linked to the management to restrict the mobility of persons, goods of the epidemic outbreak on the home front and services with China. 6 Because China and the associated measures to contain it. accounts for approximately one-third of tourism revenue (Figure 1.1) and almost a 2.1 The costs associated with the quarter of Vietnam trade flows (Table 1.1), measures to contain the contagious the recently announced ban on all visitors effects from China coming from China and the suspension of several transport routes (notably by air) will A slowdown in China due to coronavirus have effects over and above the direct effect outbreak is expected to have a marginal of a slowdown in China’s economy. impact on the Vietnamese economy, as 3 The MoH has adopted the following scenario 1 - there is (are) imported case(s); scenario 2 - there is secondary infected case; scenario 3 - there are more than 20 infected cases in the country and scenario 4 - there is widespread infection in the community with over 1,000 cases. 4 https://www.imf.org/external/pubs/ft/wp/2016/wp16214.pdf 5 World Bank, Coronavirus Outbreak: Recent Developments, Economic Impacts, and Policy Options for China, February 4. 6 Such approach was followed by the Financial Times is often cited article, Coronavirus will hit global growth. 3 Economic costs associated to the coronavirus epidemic for Vietnam COVID-19 POLICY RESPONSE NOTES Table 1.1: Share of China in Vietnam Figure 1.1: One third of foreign tourists trade, % of total visiting Vietnam are from China 2016 2017 2018 2019e Number of tourists from Top 5 origins Exports by destination (thousand people) China 12.4 16.5 16.9 15.7 5,806 Japan 8.3 7.8 7.7 7.7 6,000 USA 21.8 19.3 19.5 23.2 Korea 6.5 6.9 7.5 7.5 5,000 4,291 EU 19.3 17.8 17.2 15.7 4,000 ASEAN 9.9 10.1 10.2 9.5 ROW 21.9 21.6 20.9 20.7 3,000 Imports from origin China 28.7 27.3 27.6 29.8 2,000 Japan 8.6 7.8 8 7.7 927 952 USA 5 4.3 5.4 5.7 1,000 746 Korea 6.3 5.6 5.8 5.8 EU 13.7 13.2 13.4 12.7 0 ASEAN 25.7 28.7 26.3 25.1 China Korea Taiwan Japan USA (China) ROW 12 13.1 13.5 13.2 The most direct and immediate negative rated would reduce trade flows by almost impact is on tourism, which accounts $10 billion per month. According to the for approximately $30 billion revenue Vietnamese authorities, a fifty percent per year for Vietnam. To illustrate, if the reduction in bilateral trade for a 2-month 5.8 million Chinese tourists are prohibited period could impact the national GDP by to enter the country (assuming that without about 0.8 percent of GDP. a visa, nobody can enter the country) for a month, this could represent a loss Official trade statistics from the General of approximately $750 million. A back to Department of Vietnam Customs envelop calculation indicates that this cost indicate that the decline in bilateral might increase to $1 billion per month if the trade between China and Vietnam will number of other visitors will decline by 10 be concentrated in a few products, percent (many tour operators have already mainly electronics and to a lesser extent suspended part of the operations in East textile apparels and food. Table 1.2 Asia). The loss would jump up to $1.6 billion indicates that the main export items to China per month by considering the multiplier effect are computers, phone, vegetables, and associated to a decline in tourism activity on textile, while the main imports products are other economic sectors. machinery, computers, fabrics and phones. The most exposed sectors are electronics Beyond tourism, other goods will be and textile (fabrics) due to their integration negatively affected by the (temporary) in regional and global value chains. For closing of transport corridors between example, the risk of disruption appears high China and Vietnam. To illustrate the for the 3C electronics industry that depends magnitude of the possible impact, a decline heavily on parts imported from China by air by 50 percent in both merchandise exports and report limited inventories as the industry and imports between the two countries could is built to respond to just-in-time variations in reduce Vietnam’s trade by approximately $5 demand. The textile apparels sector is also billion per month. A full stop of all bilateral vulnerable due to its high dependence on 4 Economic costs associated to COVID-19 POLICY RESPONSE NOTES the coronavirus epidemic for Vietnam imported input from China, estimated close employ Chinese employees, who might be to 50 percent by a recent study in Vietnam.7 unable to come back to Vietnam after the While the share of agriculture products end-of-new year holidays. By contrast, over remains relatively small, it still represents the long run, several foreign investors could about 10 percent of Vietnam’s exports toward be encouraged to move their production China. This figure can underestimate the from China to Vietnam - reinforcing the trend magnitude of the trade as a large fraction of observed over the past few years, to avoid these exchanges are not reported in official future disruption as China has been the figures.8 A decline in these exports could epicenter of several epidemic over the past disproportionally affect farmers in bordering few years.9 regions. The restrictions on return of Chinese Sustained mobility restrictions could workers to Vietnam could also negatively also affect FDI flows between the two impact economic activities. According to countries. By the end of 2019, total official figures, there were 91,500 Chinese committed Chinese FDI was estimated at nationals who had permission to work in the around US$16.3 billion and accounts for 4.6 country before Tet even if this number could percent of total accumulated FDI to Vietnam be far from reality as many of Chinese are (20 percent if Hong Kong SAR, China, employed in non-registered businesses. The and Taiwan, China, are added). Chinese port city of Haiphong, a rising manufacturing contractors are also heavily involved in civil hub in northeastern Vietnam, has already works in several important infrastructure acted shortly by asking companies to stop projects in Vietnam, mainly in power and thousands of workers from China possibly transport sector. The travel ban could returning from the Spring Festival holiday.10 reduce the activity of these firms as they 7 For more details, see Capital economics, the supply-chain disruption from the coronavirus, 5 February 2020. 8 For more details, see the website of the General Department of Vietnam Customs. 9 Savills Vietnam published its white paper on Vietnam’s industrial real estate for the first half of 2019, listing large corporations moving from China to Vietnam, including aerospace manufacturer Hanwha Aero Engines Co., Ltd. from South Korea, automotive components manufacturer Yokowo from Japan and garment and textile producer Huafu Industrial Co., Ltd.from Hong Kong. Besides, two other groups have moved, namely AirPods manufacturer Goertek (to a factory in Bac Ninh), and electronics – TV manufacturer TCL (moved to Binh Duong). The official number of Vietnamese workers in China is very small, only 194 are reported in mainland China. 10  Figures are also low in Macau (401) and Hong Kong: 100 (2 female). The only exception is Taiwan (54,480 people). 5 Economic costs associated to the coronavirus epidemic for Vietnam COVID-19 POLICY RESPONSE NOTES Table 1.2: Bilateral trade between Vietnam and China, top ten products, 2019 Billion Billion Exports to China % Imports from China % $ $ Total 41.4 100% Total 75.4 100% 1 Computer and electronic 9.5 23% Machinery and equipment 14.9 20% products 2 Phone and parts 8.3 20% Computer and electronics 12.1 16% parts 3 Vegetable 2.4 6% Fabrics 7.7 10% 4 Fiber and yarns 2.4 6% Phones, parts and 7.6 10% accessories 5 Footwear 1.8 4% Other imports 4.0 5% 6 Garment and clothing 1.6 4% Iron and steel 3.3 4% 7 Machinery and equipment 1.6 4% Plastic products 2.7 4% 8 Rubber 1.5 4% Garment and leather 2.5 3% material 9 Cameras 1.5 4% Steel products 1.9 3% 10 Seafood 1.2 3% Other ordinary metal 1.6 2% The negative spillover effect through MoH, but other costs could emerge. As an the financial market contagion can be outbreak grows, new facilities may need to be significant as well. In China, the Hang constructed to manage additional infectious Seng equity index has declined by about cases; this, along with increasing demand 8 percent since January 20, with the travel for consumables (medical supplies, personal and entertainment stocks hit the hardest, protective equipment, and drugs) can greatly mirroring the expected economic impact of increase health system expenditures. The the outbreak. Other equity markets in East cost of upgrading existing facilities could Asia have weakened as well, including in reach about VND 748 billion (US$32 million) Vietnam with the HCMC stock index down in case of 20 -1000 infected cases in Vietnam by almost 10 percent since January 31. (scenario 3) and VND1,110 billion ($43 billion) in case of a major outbreak (over 2.2 The costs associated to the 1000 thousand infected cases). As a result, management of the epidemic on the the MOH has already requested additional home front budget for an amount VND 597.7 billion to Two categories of economic costs can supplement its available resources. These be considered on the home front. The estimates do not include additional expenses first one is associated to the treatment of that could arise at the provincial level and infected patients, while the second includes from other Ministries such as the police and the prevention measures to reduce the risk the militaries. At peak of severe pandemic, of contagion within the country. the existing health system could become under pressure as health care workers Regarding the first category, the costs might be increasingly unable to report for appear limited as there are only a limited duty because they are ill themselves, need number of reported cases in Vietnam to care for ill family members, need to care but could increase rapidly if the infected for children because of school closures, or cases rise over time. The cost of treatment are afraid (Falcone and Detty 2015;  U.S. is estimated at around VND40 million by the Homeland Security Council 2006). 6 Economic costs associated to COVID-19 POLICY RESPONSE NOTES the coronavirus epidemic for Vietnam The economic costs associated to behavioral responses to the outbreak which preventive measures within the country reduced aggregate demand and disrupted can vary greatly. At a minimum, they include supply (Brahmblatt and Dutta, 2008). The early -phase public health efforts to contain slowdown was relatively broad-based but or limit outbreaks (such as tracing contacts, most pronounced in services, particularly implementing quarantines, and isolating transport, accommodation and catering. infectious cases) entail significant human Services involving face-to-face interaction resource and staffing costs (Achonu, Laporte, are most heavily affected by the demand and Gardam 2005). Fear induced behavioral shock. Along these lines, the temporary changes reduce labor force participation over closure of most schools in Vietnam could lead and above the pandemic’s direct morbidity to productivity losses through absenteeism and mortality effects and constrict local and among caretakers of school-age children. regional trade. Measures that decreased A recent study on the cost of absenteeism person-to-person contact, including social in the UK due to school closure estimated distancing, quarantine, and school closures, that the labor productivity loss could reach, had the greatest cost because they cause with a greater impact in sectors such as the largest amount of economic disruption. education and health where the number of During the SARS’ outbreak, the economic female workers is relatively elevated.11 impact was largely transmitted through 3. Conclusion, risks and further actions The economic costs associated to the To mitigate these costs, the Government outbreak could be high for Vietnam. of Vietnam needs to take a number of Our preliminary analysis suggests that actions. The Government response these costs could reach 6-10 percent of to the outbreak has been timely and monthly output, which would be in line evidence-based. It has already accelerated with experience from pandemic episodes the implementation of prevention measures (e.g. 2003 SARS) in the region. These using existing health security funds that were costs would be the combination from the available in case of epidemic outbreaks. expected loss in revenues from tourism The Ministry of Health has requested an (around 5-6 percent), from the decline in additional budget allocation of around traded goods (about 1-2 percent), and the $25 million. The MPI is preparing a policy costs associated to curative and preventive package, including the consideration of measures within the country (about 2 a fiscal stimulus (including interest rate percent). These costs would be short lived subsidy and tax breaks) to support the SMEs as the economy recovers relatively quickly affected by the outbreak and protect the once the outbreak is contained in couple most exposed sectors, including tourism and of months. For this reason, assuming that electronics, following the recent example the outbreak will be limited in Vietnam and of South Korea.12 It has also opened cross globally contained by end of March, the total borders roads to merchandise trade after two effect on the Vietnamese economy should or three days of uncertainty. Over the longer- not exceed 0.5-1 percent of GDP during the run, Vietnam should act to improve its level year 2020 in line with the simulations shared of national-level epidemic preparedness, lately by the MPI.11 which suffers from major weaknesses, 11 Smith and others 2009. 12 Korean Local reports that Government pledges 400 billion won ($334 million) to support exporters potentially facing troubles due to the outbreak of the new coronavirus in China. 7 Economic costs associated to the coronavirus epidemic for Vietnam COVID-19 POLICY RESPONSE NOTES including: (i) limitation to effectively plan and and tourism; limited understanding at allocate funding; (ii) lack of integration of central level of the actual workload and disease surveillance by geographical area; budget in subordinate units.13 Importantly (iii) limited information on coordination, – private sector involvement should be funding sources, and outcomes; (iv) failure encouraged, both in terms of financing and to consider other sectors such as agriculture implementation. 13 13 For more details, see World Bank’s Health Security Financing Assessment, 2019. 8 COVID-19 POLICY RESPONSE NOTES COVID-19 POLICY RESPONSE NOTE #2 Vietnam: Potential policy responses to the COVID-19 epidemic March 2020 9 Vietnam: Potential policy responses to the COVID-19 epidemic COVID-19 POLICY RESPONSE NOTES Vietnam: Potential policy responses to the COVID-19 epidemic14 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. costs arising from the projected decline 1. Background in economic growth in China and, The economic costs associated with the increasingly in other countries, as well corona epidemic are projected to be large as from restrictive mobility measures worldwide. After almost two months since adopted by the Government that are the outbreak became public in the center expected to impact significantly on of China, the magnitude of the epidemic Vietnam’s GDP growth in the coming appears to have declined in China but months. Estimates vary greatly depending increased in other countries, pushing many on the length of the crisis and the magnitude governments to adopt measures aimed of the expected recovery, but recent at restricting the mobility of persons both simulations carried out by the World Bank, domestically and internationally. Since early the IMF and the Government suggest a February, the number of infected people has decline in the annual growth rate of around remained relatively stable in Vietnam, but the 1 percent of GDP during 2020. The rule of Government has banned visitors from China thumb is that the economy will lose about 0.5 and suspended major transport gateways percentage of GDP growth for every month between these two countries. More recently, of crisis, but this loss could increase if the restrictions on visitors from the Republic of current crisis spreads to the global economy Korea, Italy, and Iran have been applied, as projected by recent developments. At while most schools have been closed since this stage, it is forecasted that Vietnam’s the outbreak intensified. GDP growth could be in the range of 5.5- 6.0 percent – the lowest point since the 2008 In one recent note (dated February financial crisis -with a sharp decline in the 14, 2020), we demonstrate the indirect short run that will be followed by a recovery 14 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 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. 10 Vietnam: Potential policy responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic as experienced in other health crisis on the supply side of the economy, mostly episodes. The costs are also expected to to support cash-constrained firms in most be concentrated in a few vulnerable sectors, vulnerable sectors such as hospitality and including tourism, transport and increasingly transport through a combination of actions electronics and textile/garment exposed to aimed at easing their payments including possible disruptions in global value chains. lower debt service and tax obligations (see Annex A.2 and A.3 for a summary of actions To mitigate the economic costs in China and Cambodia). At this stage, associated with the current epidemic however, the Vietnamese Government has crisis, several governments have already not yet announced such an action plan, while adopted a series of policy measures. the costs associated to the coronavirus are The most visible package has been the not expected to be marginal. The Government one designed by the Chinese Government, has focused its attention on controlling the but other countries have followed including potential expansion of the epidemic, with Hong Kong SAR, Cambodia and Malaysia apparent success, by stepping up controls (See Annex A for a summary). In all these and monitoring (for more details, see note of response packages, the focus has been February 14). 2. A sequencing strategy for Vietnam The objective of this short note is to a combination of tax break or deferrals, support the Government in its effort to credit easing, and safety nets. The second minimize the economic costs associated step would be to implement a series of with the coronavirus epidemic. While measures that will stimulate the aggregate the design of policy measures should be demand, especially through accelerating done with the goal to support both the disbursement of the public investment supply and demand sides of the economy, program. The third and last step is to focus the initial focus should be on the supply on structural reforms that will both reduce side (the most affected sectors) because the country’s vulnerability to such shocks measures aimed at stimulating the demand and help it to accelerate its transition toward would remain greatly ineffective as long as an upper middle and high-income economy people and goods are constrained to move over the next few decades. freely. For this reason, we advocate for a sequenced strategy that would limit the Step 1: Short term measures on most fiscal costs of the proposed measures over affected sectors time. While the Government appears to have some fiscal space (after the successful Tax policy: fiscal consolidation realized since 2016), As the ongoing coronavirus outbreak excessive spending or untargeted tax is threatening to stall economic growth, breaks would send the wrong signals to the countries are taking actions to soften private sector that may react by adopting the impact on their economies, including an even more prudent behavior and so tax reliefs to affected industries and consume and invest less. businesses (see Annex A for details). The proposed sequenced approach can The following table provides a quick be separated into three steps. The first is assessment of potential tax instruments that to support the most affected sectors through the Government could consider to relief the most affected sectors. 11 Vietnam: Potential policy responses to the COVID-19 epidemic COVID-19 POLICY RESPONSE NOTES Table 2.1: A typology of tax related instruments to relief most affected sectors Tax measures Likelihood of positive impact Pros Cons on businesses VAT zero- Low: as export sectors are Reduce the pressure on Break the integrity rated15 already subject to VAT zero- cash flow for businesses of the VAT net, and rated. making it harder for tax For travel, hotel, restaurant administration; sectors, low demand is due to Negative impact on travel restrictions, not because revenue collection of high prices CIT exemption Low: as for the services The legislative or rebates sector, the main issue is the process to grant CIT health concerns that reduce exemptions or rebates demand; for manufacturing 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 High: affected businesses Relatively easy to Temporary cash flow tax payments, are now struggling to implement. issue for government including maintain operations while not Legal provision is budget social security generating much revenue. already in place to allow contributions At the same time, and the tax authorities to take payment due date for 2019 CIT this action immediately. is coming up soon. Cash flow is a crucial concern. Reassessment High: under the presumptive Legal provision is already Negative impact on of the tax regime, household in place to allow tax revenue collection. presumptive businesses pay turnover- authorities to review and However, the actual tax obligations based taxes, which were reassess the deemed impact will be minimal, for small determined by tax authorities turnovers of the affected given the total tax businesses in Dec 2019, before the businesses. revenue contribution affected outbreak happened. Affected The number of from the presumptive household businesses are household businesses taxpayer segment is currently paying more taxes is high. The reduction of around 3 percent of than they should have. the deemed turnovers total tax revenue only. (and subsequently the More workload for tax tax obligation) this group authorities. of taxpayers could boost Opportunities for wrong the “moral” of the small doings/negotiations. business community. 15 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 burden. With the VAT zero rated, final consumers do not pay VAT on purchases, but businesses are able to deduct input VAT. 12 Vietnam: Potential policy responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Recommendation: From the assessment Credit institutions have taken the guidance above, given the budget constraints, it from the SBV seriously, as shown by the is suggested that Vietnam can consider widespread reduction in lending rates, introducing deferrals of tax and social typically in the range of 1-5 percent, targeting contributions payments for affected borrowers in fragile sectors since early businesses and reducing the turnovers of February 2020. Many banks announced the affected household businesses under specific lending programs for businesses/ the presumptive tax regime. The advantage individuals impacted by COVID-19. of these measures is that they can be implemented immediately and would have Recommendation: The banking regulator, little impact on revenue collection. SBV, has been proactive in supporting Vietnamese businesses/individuals in a Financial policies timely manner from the economic effects of COVID-19. Further measures such as Beyond taxes, a variety of measures specialized lines of credit, targeting impacted can be used to reduce credit repayment sectors (such as SME’s) in the event of a or reduce the cost of temporary credit prolonged COVID-19 epidemic, can be to most affected firms/sectors. In close considered. It will be important though, coordination with commercial banks, the that SBV continues to monitor the impact State Bank of Vietnam (SBV) has already to financial intermediation and ensure that taken a series of actions to implement that the initiative is well targeted so that the Resolution 11/NQ-CP assigning the SBV to support reaches the most affected. “guide credit institutions to restructure loans, reduce lending rates, maintain the same risk Social assistance policies category for restructured loans, grant new loans in order to support businesses and To mitigate the potential detrimental individuals in coping with COVID-19”. On impacts, some neighboring governments February 24, 2020 the SBV issued Decision have implemented policies to assist 1117/NHNN-TD guiding credit institutions affected individuals. These policies in more detail regarding these measures. include proactive employment support, Specifically, the credit institutions are social insurance measures to stabilize expected to proactively monitor and assess employment, and social assistance support the possible losses and impact on existing to the poor and vulnerable to mitigate the borrowers as a result of COVID-19 in order to shocks caused by such disruptions. The appropriately restructure loans, reduce/waive instruments can vary from direct cash support lending rates while temporarily maintaining to affected beneficiaries to increasing benefit the same risk category for restructured loans level of existing SA policies by: i) exempting for the loans with repayment due in the or deferring social insurance contributions period January 23– March 31, 2020. The (including unemployment insurance (UI) Decision stresses that such initiatives should schemes) for a period; ii) easing conditions be subject to requests from borrowers and to receive UI benefits and/or simplify benefit the credit institutions’ own assessment of processing steps for those affected or have the losses and impact, as well as the credit lost their jobs; iii) using UI funds to provide worthiness of the borrowers following such wage and job subsidies to enterprises support. The credit institutions are to report to stabilize employment, with a focus on to the SBV on the results of the initiatives on SMEs;  and iv) using UI funds to provide 15 and 31 March 2020 respectively. public employment and online learning and training services (see Box 2.1). 13 Vietnam: Potential policy responses to the COVID-19 epidemic COVID-19 POLICY RESPONSE NOTES Box 2.1: Social programs to reduce the impact of the Coronavirus by selected sample of East Asian countries In China, the government extended the coverage of Dibao and 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. Recommendation: Vietnam has an as limited coverage, lengthy application unemployment insurance scheme in place procedures, and low take-up of vocational that could potentially be used in soften training. On the other hand, the strengths employment-related shocks associated of the scheme include UI fund surpluses. with the COVID-19 outbreak. However, Table 2.2 provides potential options based measures will need to be put in place to on international experience. overcome the scheme’s drawbacks such Table 2.2. Some potential options for using Unemployment Insurance (UI) scheme in Vietnam Vietnam Potential options Potential impact Coverage General Employees Expand eligibility Wider UI coverage Self-employed Not covered Make eligible Wider UI coverage Conditions Minimum 12 months in last Reduce minimum Wider UI coverage employment 24; 12 in last 36 for employment seasonal workers requirement Financing Worker 1% Relax contribution Transfer to all employees (depends on compliance) Employer 1% Relax contribution Stimulate demand (depends on compliance) Government 1%   14 Vietnam: Potential policy responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic Vietnam Potential options Potential impact Benefits Replacement 60% Increase replacement Larger transfer rate (% of rate; provide one-time wage) payment Duration 3-12 months Increase duration Longer transfer Other benefits Health insurance, Ramp up other benefits Increased vocational training employment support, job search support Step 2: Stimulate aggregate demand This impact could be high enough to compensate for the potential loss of one Several countries have introduced fiscal percent of GDP, which is currently estimated measures to compensate for the negative on the Vietnamese economy in 2020. effects of the coronavirus crisis on their Implementing the investment program faster aggregate demand, which appears more would nonetheless require specific actions effective than monetary policy in the from the Government, including: short run. While the magnitude of the fiscal package has varied significantly across 1. Accelerating the allocation of capital countries (see Annex A for a description), it investment budget (through MPI) to line should account for the existing fiscal space ministries and provinces. The allocation as an unexpected big increase in the fiscal can be adjusted within the year, with risk could be counterproductive and could having the resources for the baseline encourage consumers and investors to of on-going projects allocated first spend less as a precautionary measure. For (instead of waiting for the full allocation this reason, we suggest that the Vietnamese to be cleared). This could accelerate the authorities focus on implementing their implementation of project in key spending existing investment program faster rather ministries that a large number of existing than spending more in new projects. projects (such as the MOT). Recommendation: For Vietnam, the 2. Reviewing as early as possible the accelerated execution of the investment spending plans of line ministries and budget would be an effective policy provinces and making timely decisions instrument to stimulate the economy due about reallocation of resources from to its weight in the Vietnamese economy, slow- to fast-disbursed projects. equivalent to about 8 percent of GDP, and 3. Allowing advance procurement for new the current low execution rate reported in projects to accelerate implementation. recent years (around 65 percent). 4. Considering the exclusion of big To illustrate, if the Government was able investment projects funded by to spend approximately 75 percent of the Government bonds from the application approved budget over the course of the of Resolution 89 (2016). year, the public investment rate would jump to 9.5 percent of GDP with a subsequent Special attention should be placed on large impact on GDP growth through the ODA disbursements, which have been existence of the simple Keynesian multiplier. very slow in recent years. While recent reforms, especially the adoption of the Public 15 Vietnam: Potential policy responses to the COVID-19 epidemic COVID-19 POLICY RESPONSE NOTES Investment Law in June 2019, have helped already been identified by the authorities in address some the existing bottlenecks, their development strategy. In other words, significant room for further improvement by providing a sense of urgency, the current remains by ensuring consistency and clarity crisis creates an opportunity to reduce of roles and responsibilities of various Vietnam vulnerability to external shocks agencies involved on ODA management and strengthen its transformation toward a through relevant revisions to Decree 16/132. higher middle-income economy. The simplification and standardization of the annual budget allocation procedures As an illustration, the emphasis is on the would represent an important step forward digitization of the economy and the by making the annual budget allocation integration of Vietnam into global value (including all ODA fund and counterpart chains. fund) available at the beginning of each fiscal year. We also recommend that MOF (i) Encouraging the development of conducts the appraisal processes for on- the digital economy: Vietnam will risk lending activities only once during the project lagging countries in the region in its preparation. Finally, MOF can fully utilize effort to become a digital economy. The e-disbursement, including the acceptance of development of virtual activities would e-supporting documents for most application not only reduce transactions costs and 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 complement an effort would include: the accelerated execution of public • Investing more in systematic e-learning investment programs. Higher and better and education. The government of employment will secure labor income, Vietnam has been able to contain the which is the most direct way to influence COVID-19 outbreak quite effectively consumption behavior of households in the by closing schools nation-wide in medium term. Based on recent international order to minimize large-scale contacts experience, the authorities can (i) support and possible spread of the virus. At the firms to retain their existing employees same time, this has led to discontinuity or finding new employees by reducing in learning in the whole country. Social the associated labor charges or hiring communications platforms, such as procedures (Cambodia, Malaysia, China); Zalo and Viber, have been used by (ii) encourage employment opportunities parents and teachers so homework through information and/or labor intensive could still be assigned to students. projects such as in construction (China); Yet, these platforms have been used and (iii) incentivize firms to provide training mostly in urban settings with better opportunities for workers on vulnerable connectivity and availability of smart sectors (Cambodia and Malaysia). devices, and much less in rural areas. More critically, they are not designed Step 3: Structural reforms to be learning platforms for teachers The current crisis has exacerbated the and students. Thus, the reality is structural weaknesses of the Vietnamese that students have homework but economy. These can be addressed by without being able to interact with their accelerating the pace of reforms that have teachers to learn new things or revising 16 Vietnam: Potential policy responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic their homework. This is an opportunity promotion and use of e-payments for the government to make strategic in e-commerce through regulatory investments for systematic e-learning reforms and encouraging innovation. and education in public schools, with Recent advancements in e-wallets platforms and innovative methods, and Fintech are encouraging but the to enable more online learning and adoption of e-payment platforms needs teaching. Effective e-learning and to be accelerated and promoted. education would improve the method of • The development of a digital economy teaching in the current circumstances would need to be grounded by a data- and form one critical building block for enabled digital government: Better Vietnam to get dividends from a digital data and information systems will economy that it is striving for. enable government to issue timely • Encouraging e-commerce and and responsive decisions in times of e-payments to compensate growing outbreaks like this. Good data and barriers on physical mobility. This information sharing will guide the would help ensure that households government to where the pain-points and businesses ontinue to receive are in the production chains, which food supplies, medicine and other sectors are being most affected by the goods and services. E-commerce is outbreak and would need immediate growing in Vietnam and is expected government support, and how this to grow from US$ 2.8 billion in 2018 support can best be delivered to to US$ 15 billion by 2025 (Google minimize disruptions. Similarly, good and Tamasek, 2018). As has been interoperable information systems with recently demonstrated in the case time-stamps can also point to where of China, where schools and offices the bottle-necks are in the whole were closed and people were required decision-making processes, be they to stay in their homes, e-commerce in public investment, disbursement, or has been vital, especially in the large public sector personnel management, urban areas such as Beijing to ensure etc. Up-to-date and reliable data can that households and businesses have enable credible reforms that would access to deliveries of vital goods unleash potentials to spur further and services while minimizing human growth in Vietnam, at times of crisis to human contact. For e-commerce or not. It is of utmost urgency that the to function in such a situation, the government bring data into the heart use of cash (which requires access of its business model. to physical ATMs or banks) would be limited and transactions would have (ii) Promoting FDI and integration in to be through e-payments due to the global value chains through potential need to limit human to human contact reallocation from China: The ongoing and the obvious limited access to cash US-China trade tension has presented an through ATMs and banks (both of opportunity for Vietnam to attract foreign which would either be inaccessible or firms that want to move their operations run out of money). Most e-commerce from China to countries such as Vietnam transactions in Vietnam are in cash to access the US and global market. (90%) as compared to 51% for Anecdotal evidence suggests that a Indonesia and 48% for Malaysia. number of foreign firms have already Vietnam should accelerate the started to move in this direction, especially 17 Vietnam: Potential policy responses to the COVID-19 epidemic COVID-19 POLICY RESPONSE NOTES in the area of electronics manufacturing. Given that several firms involved in Global FDI into Vietnam continues to grow, Value Chains (GVCs) keep “just- in- time” including equity investment in local firms. inventory and that Vietnam is an economy FDI from China, especially that which is that “imports to export”, the current crisis will newly committed, appears to be growing. be of concern in the short-run. Data from the OECD’s Inter-Country Input-Output (ICIO) The current Coronavirus outbreak has tables, which shows import content of exports exposed the growing reliance of global as a percent of total exports, indicates that trade on supply chains that provide inputs Vietnam has the highest percentage of from China. Being one of the most open imported inputs in the region (mostly from economies in the world and very integrated China) at 44.6%. The most input dependent into GVCs, Vietnam stands to be one of sectors in Vietnam are textiles and apparel, the most vulnerable countries that would fabricated metals and autos. be affected from supply chain disruptions. Table 2.3: 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 (People’s Republic of) 25.7 17.4 Source: OECD ICIO tables. In the short term, the current disruption (a) Promote availability of skilled labor, in the supply chain of inputs from China especially vocational (welders, represents a threat to Vietnam’s economy machinists etc.) levels through improved due the reduced availability of inputs in tertiary education; factories. In the medium to longer term, (b) Encourage and provide incentives for this could be an opportunity for Vietnam to greater levels of technology adoption, encourage GVCs to reduce and manage the especially by SME’s. risk of having their supply chains dependent on factories in China by positioning Vietnam (c) Continue to improve the business as a competing FDI location for such input environment. suppliers. This would require Vietnam to (d) Promote greater “servicification” in move from the present low skill assembly manufacturing. Application of services manufacturing to higher skilled value-added (research and development, design manufacturing. In order to achieve this, and embedded services, logistics) Vietnam needs to address a number of key increasingly matter for manufacturing constraints: competitiveness and account for much of the value added in a product. 18 Vietnam: Potential policy responses COVID-19 POLICY RESPONSE NOTES to the COVID-19 epidemic 3. Summary and next steps At the time when the coronavirus The authorities should closely outbreak is extending to the world, the monitor the evolution of the economic economic costs for the Vietnamese consequences of the epidemic in other economy have been growing over time. countries. GDP growth rates have already While forecasts are difficult, the GDP growth been cut all over the world, in the magnitude rate expected to be achieved in 2020 has of 0.5 percentage point globally, but the already been cut by 0.5-1 percentage point situation remains extremely fluid. Channels by most observers. Not only could the of transmission, though trade flows and economy expand at its lowest rate since financial markets volatility, are also likely to the 2008 financial crisis but specific sectors affect the stability in emerging economies. are feeling the pain, including tourism and The Government should therefore remain transport and increasingly manufacturing. ready to adjust its policy options over time. Following a number of countries, Next step would be for the authorities especially in East Asia, the Government to develop an action plan based on the is considering policy options to mitigate sequencing approach advocated above. the economic costs of the current There would be a need to cost the proposed health crisis. This note has proposed actions, notably their impact of the budget. a menu of options based on a three- Special attention should be given to the step sequencing approach: (i) targeted initial measures on the most affected firms/ support to most affected firms and people people that should be targeted by sectors in the short term through the combination and locations. Greater attention should also of tax, financial and social assistance be given to small and medium firms that measures; (ii) the accelerated execution do not have the resources to absorb the of the public investment program through shock. Ultimately, there would be a need the streamlining of approval processes for the Government to find the right balance as a way to compensate for the decline in between the need to stimulate the expansion aggregate demand in the medium-term; and of the economy and to maintain the fiscal (iii) increasing the pace of structural reforms deficit to a sustainable level. aimed at promoting the development of the digital economy and at positioning better Vietnam in global value chains. 19 COVID-19 POLICY RESPONSE NOTE #3 Stronger headwinds bring new challenges for the government April 2020 21 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES Stronger headwinds bring new challenges for the government16   • With rising global health and economic concerns, Vietnam economy is expected to be significantly affected, even though the COVID-19 health crisis has been so far contained, with only 240 cases of infected people and no registered death as of early April. • The World Bank’s GDP growth forecast for Vietnam has been cut by half compared to pre-crisis projections, with new forecast at 3.0 percent in 2020. • Both the fiscal and external accounts are expected to deteriorate, creating a fiscal financing gap of approximately $5 billion that will require new borrowings. • The Government’s fiscal response-a combination of tax and social protection measures—is expected to attenuate the short-term economic costs associated to the COVID-19 pandemic, but the key challenges will be the rapid and effective implementation of the above measures and preparing the economy for the expected rebound when the health crisis is contained. • Easing monetary and credit policies creates a welcome buffer to the affected businesses, but close monitoring is required as banks become increasingly exposed to the economic slowdown, affecting their asset quality, liability, and profitability over time. • Potential areas for collaboration between the Government and the World Bank could include (i) macro and fiscal monitoring; (ii) implementation of social protection measures; and (iii) reforms to be implemented for optimizing the rebound of the economy. Stronger headwinds will reduce growth and require additional 1.  financing  COVID-19 is a gigantic shock, devastating needed technical advice and financing. the society and the economy across the world often in mutually reinforcing ways. Against this backdrop, the economic Most countries are entering into recession projections for Vietnam have been and a recovery is not expected before the revised downward significantly. The end of the third quarter of 2020, which COVID-19 outbreak has so far been should hopefully intensify over the course contained in Vietnam through the of 2021. Uncertainties are so large that both combination of smart preventive the health and financial consequences of measures and controls. GDP growth is the global outbreak are proving difficult to projected to be only 3.0 percent in 2020, predict. All over the world, economists have which is good by regional and international been continuously revising their economic standards but the lowest expansion rate projections to better reflect the growing since 1986. Our new projection is lower negative impact of the global pandemic, and than the 4.9 percent growth rate that was the World Bank Group has been playing a projected in the recently published the East critical role in this effort by providing much Asian Economic Update.17 We still expect 16 This note was prepared by Jacques Morisset with inputs from Alwaleed Alatabani, Nga Nguyet Nguyen, Viet Tuan Dinh, Obert Pimhidzai, Steffi Stallmeister, Dung Viet Do, and Viet Anh Nguyen; and under guidance from Ousmane Dione, Deepak Mishra, and Rinku Murgai. 22 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government that the Vietnamese economy will recover out by June/July 2020, followed by a gradual relatively quickly and report a GDP growth resumption in external demand in the rate of 6.8 percent in 2021. This assumes country’s main trading partners. that the global health crisis will start phasing Table 3.1: Summary of main economic indicators, 2018-2022   2018 2019e 2020f 2021f 2022f GDP Growth 7.1 7.0 3.0 6.8 6.5 Consumer price index (% change, annual 3.5 2.8 3.5 3.6 3.5 average) Fiscal balance* (% GDP) -4.4 -4.0 -5.8 -4.7 -4.0 Public and publicly guaranteed debt* (% 55.7 54.1 55.8 55.0 54.2 GDP) Foreign direct investment (Inflows, $US 15.0 19.9 10.3 15.5 17.3 billion) Current account balance (% GDP) 2.3 4.9 0.1 1.0 1.2 Reserves, including gold ($US billion) 55.5 78.5 78.2 87.0 97.4 Credit to the economy (% change, period- 12.7 12.9 7.0 12.0 12.0 end) Memo: GDP (nominal, trillion dong) 5,542 6,037 6,430 7,096 7,805 Source: GSO, MOF, SBV and World Bank projections The reason for the downward adjustment (GEP), with contractions in all regions of in the growth rate is the stronger the world except East and South Asia. This headwinds in both the global and local global downturn will sharply reduce foreign economies. By now, it is a foregone demand for Vietnamese exports during this conclusion that the global economy will slip period. It could also disrupt global value into a recession in 2020. The Conference chains in industries such as electronics Board consensus estimates from March and textile that account for about 2/3 of the 25 suggest a decline of US GDP in 2020 of country’s total exports. The tourism sector is 1.6-6 percent, with the odds rapidly moving at standstill with no foreign visitors allowed to a worse scenario.18 The PMI for the and heavy restrictions on international and Eurozone dropped from 51.6 in February domestic passenger travel. Concurrently, the to 31.4 in March – the largest decline since local economy is being hit by more restrictive comparable data were first compiled in July measures on the mobility of people, affecting 1998. The World Bank projects growth in the businesses and households, lowering developing regions to slow to 0.9 percent in domestic consumption, especially since a 2020, down from a forecast of 4.1 percent State of Emergency was declared by the in the January Global Economic Prospects Prime Minister at end of March. 17 The World Bank, East Asian Economic Update: East Asia and Pacific in the Time of COVID-19, March 31, 2020. 18 https://www.conference-board.org/data/usforecast.cfm 23 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES The first quarter results, just released, of international reserves in 2020, which at confirm the slowdown in the rate of $78 billion represents a strong buffer against expansion of the Vietnamese economy. growing pressure on the country’s external Although the outbreak was only reported in accounts. China by mid-January and Vietnam started to implement restrictive measures in early The Government’s fiscal consolidation February, the quarterly GDP growth rate drive would be temporarily interrupted was only 3.8 percent - the lowest expansion by the COVID-19 crisis. The overall fiscal since 2009. While several sectors performed deficit is expected to jump from 4.4 percent in relatively well (such as manufacturing 2019 to approximately 5.8 percent of GDP in and construction), the service sector was 2020, mainly as the result of lower revenues severely hit, especially tourism and transport from the expected slowdown in economic activities. The growth of retail commerce (a activity. We estimate, extrapolating from proxy for households’ consumption) was a recent study from the IMF on a large set almost flat (up 1.5 percent in real term) of countries, that a substantial decline in compared to a 9.3 percent expansion during economic activities due to a shock such the first quarter of 2019. Total investment as the current pandemic could reduce tax was also slightly down because of lower revenue by a factor of two – meaning that a private investment (including FDI) even 3.5 percent decline in GDP growth could lead though it was only partly offset by higher to a 7 percent decrease in tax revenue or the public investment. Net exports, after a good equivalent of about 1.2 percent of GDP19,20 performance in January and February, fell This loss in revenue, should be added to abruptly in March mainly as the result of the cost associated with the fiscal package lower earnings from tourism and transports under consideration by the authorities. We (down by over 30 percent). Similarly, FDI expect that the Government will return to its commitment declined by almost 21 percent prudent fiscal policy in the aftermath of the in the first quarter compared to a year ago. global crisis, explaining why the overall fiscal deficit will decline to 4.7 and 4.0 percent of The decline in the GDP growth rate will GDP in 2021 and 2022 respectively. be accompanied by a deterioration in the fiscal and external accounts. On the The projected increase in the fiscal external front, the balance of payments will deficit will create a fiscal financing gap of suffer as a result of lower (net) exports, about $5 billion in 2020. Compared to the in particular services, and a decline in pre-crisis projections, the Government will remittances as well as of FDI inflows. As a need to secure an additional 1.8 percent of result, the current account surplus is likely to GDP in new funding, leading to an increase decline be approximately 5 percentage point in the public debt to GDP ratio from 54.1 to of GDP—from 4.5 percent in 2019 to 0.1 55.8 between 2019 and 2020. Because the percent in 2020 (Table 3.1). However, the Government will resume its consolidation resulting impact on the balance of payments effort in 2021, the debt trajectory should should be limited with a marginal depletion remain sustainable over the medium term. 19 While fiscal data is still incomplete for Q1 2020, preliminary results are that the collection effort was good in January and February but fell significantly in March due to lower domestic activities and declining imports. 20 P. Dudine and J. T. Jalles, How Buoyant is the Tax System? New Evidence from a Large Heterogeneous Panel, IMF working paper, WP/17/4, 2017. 24 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government 2. Fiscal package: what we know so far To mitigate the significant health and previous policy update, it is essential that the economic shocks to the economy, Government acts on a sequencing strategy the Government has taken a series of to support most affected businesses and actions. Under crisis conditions, aggregate people in the short term and prepare early health, economic, and financial indictors enough to reactivate the economy when the race away from the pre-crisis normal to a heath crisis is phased out, hopefully in the peak level of distress, and then begin to ebb next few months.21 Measures to accelerate before slowly getting back to normal (which the implementation of the existing public need not match the pre-crisis normal). What investment program and structural reforms matters for policymakers is the peak of the to make the best use of digital technologies half-cycle and its duration. The deeper the as well as to strengthen the level of resilience crisis (the taller the peak of the half-cycle), and preparedness of the health system for the more damaging it is from a long-term future pandemics could help to quicken the perspective. Clearly in the case of health, pace of recovery. flattening the pandemic curve is important because it saves lives. For this reason, the So far, the Government has prepared a Government has focused its initial effort on series of fiscal measures to mitigate the controlling the health dimension of the crisis impact on most affected businesses and by scaling up testing and controlling mobility. people. – the first step of what should the Over time, increased preventive measures comprehensive economic response. As were taken from the closure of schools in presented in Annex B (Table B2), COVID-19 early February to the declaration of State can affect wellbeing of citizens through three of emergency by the Prime Minister at the different channels: (i) health preventive and end of March. Today, almost all international remedial measures; (ii) measures to restrict passenger flights have been cancelled and mobility; and (iii) trade disruptive measures. domestic mobility severely restricted. Due The resulting impact of these channels to Vietnam’s early action (including contact could be a combination of reduced output tracing) and extensive measures, it has been and higher prices. The WBG team has internationally recognized for the adequacy been interacting with the authorities on the of its response that has translated into a content and the magnitude of their fiscal limited number of infected cases (around package to mitigate the impact of these 240 as of April 4) and no registered deaths. channels. However, our assessment is based on information collected in early April, A deep and prolonged economic recognizing upfront that the policy response recession, to the extent possible, must should evolve rapidly to adjust to changing be avoided, as it can cause lasting conditions. damage. Economic cycles are a regular occurrence even in market economies. If The initial mitigating measures have the peak of the cycle is not excessively focused on two type of instruments: tax high, things get back to normal when the payment and social insurance deferrals, economy returns to its long-term trend. But and direct financial assistance to deeper and more prolonged recessions employees and vulnerable households have the potential to erode human capital (see Tables B3 and B4 in Annex B for a full and weaken institutions. As argued in our description). These instruments are well 21 The World Bank: Vietnam: Potential policies responses to the COVID-19 epidemic, March 4, 2020. 25 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES aligned with international practices as they can lead to both better economic outcomes aim at relaxing the cashflow constraint on and lower mortality rates.22 most affected businesses and people. As discussed below, our preliminary assessment The size of the fiscal package by the is that the proposed package is ambitious Vietnamese authorities would be on the as it covers most formal firms operating in low- side compared to other East Asian Vietnam by postponing their tax payments and developing countries. It would be and uses various existing social programs within the range of the fiscal package recently to distribute extra cash to approximately 26 adopted by Indonesia (0.8 percent of GDP), million vulnerable people and households’ Myanmar (1 percent) as well as Argentina (1 businesses. It is also affordable, with an percent), and higher than the ones adopted estimated cost of about one percent of GDP, in South Africa (0.2 percent) and Japan (0.1 that should remain within the boundaries percent). However, it would be lower than the of the fiscal framework discussed earlier, ones reported in Philippines (1.7 percent) However, further improvements could be and Thailand (3 percent) and distant to the considered to better cover the informal ones announced in Brazil (over 2 percent sector. A major challenge will be to identify of GDP) and far below the recently adopted businesses and employees in the informal packages in OCED countries such as USA sector and to transfer them the extra money and Australia (close to 10 percent of GDP). when most of them have no bank accounts The authorities have proportioned their initial and their mobility is restricted. response to the size of the shock and to their available fiscal space but, as discussed later, Relatively big package but affordable should be ready to adjust their response in view of the evolving conditions in the future. When designing their response, governments are facing a trade-off The bulk of the fiscal costs of the between helping the most affected Vietnamese program will be linked to the groups and respecting existing fiscal measures of direct financial assistance rules. We believe that the Government of to vulnerable firms and people (see Table Vietnam has found the right balance with B3 in Annex B). The total cost is estimated the set of proposed measures that are at around VND61.4 trillion or almost one estimated to cost around one percent of percent of GDP. Around ¾ of this amount GDP. This cost will contribute to an increase will be funded directly from the State budget in the fiscal deficit but should be affordable (and accumulated reserves from the Un- using a combination of contingent allocation employment Fund), while the remainder will and funds from the budget of central and be financed by the combination of social local governments and additional borrowing. security payments deferrals and loans Most importantly, authoritative research to affected households’ businesses. The on the 1918 pandemic suggests that budgetary responsibilities between central regions that intervened earlier and with and local governments have already been more determination experienced a relative defined following a set of rules that mainly increase in real economic activity after the depends on the financial capacity of each pandemic subsided. Pandemics have large Province. costs, but non-pharmaceutical interventions 22 Correa, Sergio, S. Luck, E. Verner. 2020. “Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu”. MIT and The Federal Reserve Board. https://papers.ssrn.com/sol3/Papers. cfm?abstract_id=3561560 26 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government The fiscal cost associated with tax By definition, all tax related measures are measures (described in Table B4) is directed to enterprises and people that limited even though the State Treasury pay their financial obligations. These relief may face liquidity challenges in the short measures will be offered to almost all sectors term. Since most actions consist of the of activities, but the notable exceptions are deferral of tax payments over the next few the telecommunication and construction months, tax administration will recover their sectors (See table B4). Qualified taxpayers revenue before the end of the year. Under will benefit from a combination of temporary these conditions, the fiscal cost is simply the tax relief on VAT, CIT, PIT and other smaller delay in payments that can be estimated in obligations such as land rental charges. the range of around VND 3.6 trillion (US$ While social security contributions are not 190 m) assuming a discount rate of 3.6 per se taxes, their deferral will also alleviate percent (which is the interest rate on T-bonds cash flow pressures of beneficiaries. today). However, because of the magnitude This measure will also reduce the cost of of deferrals, the Government will face a formal labor and so, hopefully, reduce the shortage of liquidity in the short term that will incentives for employers to lay-off their reach approximately VND 241.8 trillion (US$ workers. Altogether, these measures will 10.3 bn).This temporary gap will need to be reduce the payment of tax obligations in the filled by the use of contingent funds set aside magnitude of VND 210,000 billion, alleviating in the budget every year (equivalent to 5 temporarily the cash flows constraints of percent of the State budget) and, most likely most firms in the country. In the longer term, complemented by short term borrowing. to the extent that these obligations will be paid by the firms at the end of the grace Broad coverage despite the challenge of period, their savings could be estimated the informal sector around VND 15,000 billion (if they would have borrowed this money at a lending rate The proposed package is ambitious as it of 12 percent). will cover almost all formal businesses operating in Vietnam and a relatively On top of tax and social insurance large number of vulnerable groups. It is deferrals, the Government has designed estimated that the direct financial program social protection measures by using will reach 26 million people or almost (i) special support (including wage 30 percent of the country’s population. subsidies) to registered firms to retain Measures include the standard actions to their workers; (ii) top-up financial defer filing and payment of taxes and cut into support to beneficiaries of existing social social contributions by formal employees programs; and (iii) monthly allowances and employers. They also provide no- or low- to informal employees. The government’s interest loans to firms and targeted transfers response is well aligned to the one used by to firms as well as pay a share of private most countries to mitigate the short- term wages directly to workers, with the objective impact of the COVID-19 on most affected to limit long term lay-offs. To broaden the groups (Figure 3.1). The measures are coverage to vulnerable groups and informal briefly described below. workers, direct financial assistance will be offered over a three-month period. 27 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES Figure 3.1: Global mix of COVID-19 SP response programs and adaptations (n=418), as of early April Other labor Wage markets, 6.0% subsidies, 8.6% Other insurance, Cash-based 18.9% transfers, 35.6% Paid sick leave, 8.9% Other social assistance, 22.0% Source: World Bank Registered firms will receive special Beyond formal businesses and workers, financial support to retain their workers. about 16.7 million vulnerable people will Proposed measures include partial receive direct financial support through payments of wages to temporary lay- participation in existing assistance off workers, deferral of SI contributions, programs by providing additional benefits training, and subsidized loans to employees (‘top-ups’) on a temporary basis.24 The (measures # 7-10 in Table B3). According to proposal will provide support to the poor, the Government, the combination of these near-poor households, social assistance measures is expected to reach about 4-5 beneficiaries, and “merit” people. Most of million beneficiaries or less than 10 percent these are currently beneficiaries of different of the total labor force as most workers assistance programs. Each poor household have no contract or are in self-employment. will get a monthly allowance of VND1 The total amount of financial support per million (USD 43), near-poor households worker (equivalent to about VND 1.7 million get VND 500,000 (USD 21) per month, (or $80) per month is also relatively low while social protection beneficiaries and as it would represent only 40 percent of those with meritorious services would the median salary in the manufacturing receive VND500,000 (USD 21) per sector.23 Retaining workers, even on a part month. Approximately 760,000 registered time basis, will not only help maintain their household businesses (who have annual income during the crisis but it will also help revenue below VND100 million) will receive a to speed up the reactivation of production monthly allowance of VND 500,000 ($21.5). when the demand will increase again. These allowances would be provided over at least three months (until June). 23 This figure does not include the benefits associated to training and SI deferrals. 24 We assume that the median size of household is 4.6 members. 28 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government In a deliberate effort to broaden the calculated the number of beneficiaries in the coverage to the informal sector, the range of 5 million people as no clear eligibility Government has included a monthly criteria has been yet shared. This figure is direct support to five million non- also unlikely to cover all informal workers registered employees for at least a three affected by COVID-19 crisis. For example, months period. The total monthly allowance the distress of the hotel sector could mean would be of VND 1.8 million ($51) per that 90 percent of its labor force could be person. Such a measure is justified by the temporary unemployed, including possibly up high-level of informality in sectors which are to 3.7 million informal employees. If the lay- the most vulnerable to the COVID19 such as offs include half of the informal labor force in tourism, transport and retail trade (see Table the logistics sector and retail commerce, the 3.2). Many of these informal workers are total number of affected workers will jump by also unlikely to receive support though the an additional 7 million. In addition to the size existing programs mentioned above as their of the informal sector beneficiaries, our most databases are rather incomplete. However, important concern is how to implement this it remains unclear how the Government measure as discussed below. Table 3.2: Labor market in Vietnam, 2018 (%) Wage, contract Wage no Self- Sector with SI social employment employment insurance Share Agriculture 0.3 4.1 35.3 39.7 Electronics 1.3 0.3 0.0 1.5 Textile and garments 4.5 1.4 0.8 6.6 Construction 0.5 7.0 0.4 8.0 Other industries 3.4 3.6 2.9 10.0 ICT, Finance, Real Es 1.2 0.3 0.5 2.0 Hotels and catering 0.4 1.2 2.8 4.3 Logistics 0.7 1.1 1.3 3.0 Health and education 3.7 0.8 0.2 4.7 Wholesale and retail 1.5 2.8 8.9 13.2 Public admin & secure 2.6 0.8 0.1 3.5 Other services 0.8 1.5 1.2 3.5 Vietnam 20.7 24.9 54.4 100.0 Source: WB Staff Estimates A general concern is that the or no income, but they are also extremely Government’s program may omit a few exposed to the COVID-19 pandemic. The potential vulnerable groups. Among them number of people 65 years and older in are the elderly people who might not belong Vietnam is estimated to be at around 11 to any of the groups of beneficiaries identified million in 2019. Some specific professions by the authorities (a rough estimate is about (tour operators, taxi drivers, etc.) will be half of total people aged over 65 years old). more affected than others, which could Not only aged people report generally low benefit from special attention. For example, 29 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES in Singapore, taxi drivers and private-hire find alternative solutions, including by using car drivers will receive relief payments of existing databases such as MOLISA, VSS, S$300 (USD210) per vehicle per month until and citizen ID databases as well as from the end of September. mobile operators as currently experimented in other countries. The extension of pilot Implementation would be challenging programs using mobile payments could especially for the informal sector also be accelerated. As done recently by Indonesia, Thailand, Philippines, and The Government aimed at minimizing Argentina, voluntary e-registration programs the transactions costs associated with can be launched through which the informal the implementation of the different workers can registered themselves.26 assistance programs. All related tax The authorities have then to check if measures should be relatively easy to the registered persons are not already implement as deferral mechanisms are well included in other databases from the tax known by the tax administration. Similarly, administration, social security or registered the allocation of direct payments to several households’ businesses to avoid duplication groups will be realized through existing of assistance. As a result of this screening programs that have proved their relative process, in the Philippines, out of 18 million efficacy through the network of government people who submitted on-line applications, agencies in the country over the past few two-third were automatedly eliminated years. However, specific attention should through checking across government be on monitoring and evaluation to reduce databases. the risks of delays and leakages during the implementation of these programs under One common challenge to existing special circumstances as transactions are and new programs is to proceed with often on manual basis and it is hard to timely payments to beneficiaries when follow social distancing requirement during people cannot freely move because of pandemic period. containment measures. As only 1 out of 3 Vietnamese own a bank account, the The main challenge will be to provide banking system is not a practical solution financial assistance to millions of or can be considered only an incomplete informal employees, including possibly solution. Today most transactions include street vendors and small farmers, who manual cash payment that are both not are currently not registered under any transparent, inefficient, and not following existing program. The authorities are facing social distancing principle during pandemics. a double problem that is, first, to identify/ Given the magnitude of targeted beneficiaries register them and, second, to transfer the (approximately 15 million), it would be cash to them. Many countries can rely on important to avoid congestion in banks and a comprehensive ID system and the use of government offices as recently experienced digital payments through mobile phones. in the streets of Argentina when thousands Unfortunately, Vietnam is lagging in these of pensioners and citizens who receive two areas.25 The Government will have to government welfare lined up outside banks 25 While Vietnam has well developed social programs for the extreme poor, there is relatively little assistance offered to other vulnerable groups, such as informal urban workers that are the most impacted by the COVID 19. It is therefore difficult to top up existing programs to reach them. 26 The Thai authorities in their second package have provided for a THB 5,000 (USD152) monthly payment for three months for around nine million workers not covered by the Social Security Fund. This involved rapid registration of millions of informal workers, which was achieved using a banking app, and leveraging Thailand’s strong national ID system. 30 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government to get their monthly payments. The long lines on the electricity bill for households. The underscored some of the strains created by government of Indonesia announced full the coronavirus pandemic in countries in electricity subsidies for households using which less than half of the population has 450 Volt-Ampere (VA) connections and a bank account and e-payments through a 50 percent subsidy for those on 900VA mobile phones are not yet possible.27 connections between April and June. In the case of Vietnam, subsidizing the electricity Because of the challenge to distribute bills of poor households might not be efficient monthly allowance to new beneficiaries as those account for an insignificant share of under the current circumstances, some their monthly expenses (on average only 2 governments have opted to reduce the percent). However, such a measure could utility bills of poor customers. For example, be considered for the mobile phone bills, Malaysia is providing a 15 to 50 percent which account for a larger share of their discount, depending on consumption, expenses. 3. Special focus: The impact of COVID-19 on the financial sector Contrary to the 2009 global crisis, the credit demand from both corporate and retail current turmoil does not find its origin segments. On the consumer side, credit in the excesses of the financial sector. demand has also decreased in line with The global pandemic has affected the real slower growth of retail sales of consumer economy, both the supply and demand goods and services that only increased by sides, and financial policies have been seen 4.7 percent YoY in the first two months and as part of the solution than the source of grew much slower than the same period in current problems. In almost all countries, 2019 (at 12.1 percent). including in Vietnam, Central Banks have eased monetary and credit policies to rescue Deposit growth (fund mobilization) of affected business and households. However, banks also increased slowly. Deposit the financial sector is not immune to the growth and total money supply (M2) growth current COVID-19 crisis as deterioration expanded for only 0.51 percent and 1.55 of business performance and household percent respectively (last year increased consumption will eventually hit the banking 1.72 percent and 2.54 percent) (Figure 3.2). sector and the capital markets.27 Due to declining revenues, many businesses have resorted to withdrawing their bank As of today, the outstanding credit to the deposits to cover operation costs. Consumer economy is currently about VND8,251trn deposits are likely to decline because of (US$350 bn), of which 54 percent is lower monthly individual incomes when their for businesses. Since the outbreak of employment is threatened and/or uncertain. COVID-19, outstanding loans decreased in most sectors of which the most significant These negative trends occurred despite were in services, trading, tourism and the supportive policy measures the State transportation. In the first 3 months, credit Bank of Vietnam (SBV) has issued. In to the economy only increased by 0.68 March 2020, the SBV cut its benchmark percent, the lowest growth rate in the last rates by 50-100 points and reduced short- 5 years. Credit growth in many commercial term deposit rates cap by 25-30 bps, and banks either stood still or declined due to low the short-term lending rates cap for priority 27 https://www.reuters.com/article/us-health-coronavirus-argentina/ridiculous-block-long-lines-at-banks-greet- argentine-pensioners-at-high-risk-for-coronavirus-idUSKBN21L2Y6 31 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES sectors by 50 bps; raised their remuneration issuance of treasury bills (SBV net withdrew rates on required VND reserves. The VND94.96trn/US$3.98bn in February). authorities announced a credit package Liquidity is expected to remain stable in Q2 totaling VND 250 trillion (about 4 percent of due to low credit demand since the Lunar 2019 GDP) for the banking sector designed New Year and the abundant cash circulating to support affected firms and households in the banking system before the COVID-19 through restructuring loans of affected broke out. By the end of 2019, deposits businesses and a reduction or waivers of grew in parallel with credit (13.6 percent) interest rates and fees. These supportive and total money supply (M2) grew faster policies have and will contribute to reduce (14.2 percent). temporary difficulties of firms facing cash flow issues and debt repayment challenges. For the monetary authorities, it would They are mainly targeted to the formal be prudent and essential to plan for a sector, most notably large enterprises, as the situation where the economic effects of credit allocation to small and medium firms the pandemic continue beyond Q2. This has been marginal, albeit increasing, over may require continued and potentially more the years. However, their implementation direct support to the banking sector. The by banks will increase the pressure on their longer this pandemic prevails, the more net interest margins (NIM) and, ultimately, likely is the risk for the banking sector to reduce their overall profitability. be severely impacted and broader fiscal options would need to be considered. To the extent that the COVID-19 crisis Structural weaknesses in the banking is expected to last over the next few sector limit the available options for the months, both credit and deposit growth SBV. For instance, relaxing banks’ capital are expected to expand at a slower pace buffers to improve liquidity, as has been in Q2 with the continued stagnation done in several other countries, is not an of business activities in most sectors. option in Vietnam. Moreover, SBV will While most commercial banks appear well need to continue monitoring the liquidity equipped to resist a temporary economic situation and may have to pursue further slowdown, they may start to face a decline expansionary monetary policies through in assets’ quality through higher non- lowering interest rates at least once more, performing loans in their portfolios if the reducing net withdrawals of VND from the crisis last longer. In addition, some might market or consider liquidity injections to the be more fragile due to their relatively high economy to support banking system liquidity exposure to tourism and real estate that have if the credit situation lasts longer and leads to considerably affected by the crisis. Some a liquidity crisis for banks. Liquidity injections banks are also undercapitalized, therefore can include targeted interventions to support liming their resilience. the banking sector such as policy loans, emergency loans and the implementation of An ongoing concern is to ensure a banks’ supporting credit packages. degree of financial safety net for small businesses in affected sectors to Finally, it will be important to assess avoid situations of illiquidity leading the impact of the pandemic and the to insolvency of businesses. Liquidity economic slowdown on businesses in the banking system in Q1 remained that have issued corporate bonds in the stable due to slow credit growth, low corporate bond market over the past 2 interest rate levels in the interbank market years. The potential effect on their revenues and SBV’s net withdrawal via OMO or the and capacity to honor coupon payments. 32 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government Figure 3.2: Credit, Deposit and Total Figure 3.3: Loan balance (VNDtrn) and money supply (M2) growth in the first 3 YTD growth (%) as of 20 Mar 2020 months, 2017-2020 4% 46% retail 0.68% loans 9.500 8 51 3% 54% corporate 7.500 loans 2% 1.90% 1.55% 5.500 0.68% 8.195 8.203 8.200 8.251 1% 3.500 0.51% 0% 1.500 20 Mar 17 20 Mar 18 20 Mar 19 20 Mar 20 (3.09) Credit growth (500) Deposit growth 2019 1-20 2-20 3-20 Money supply (M2) Outstanding loan balance New loans Note: Total money supply include corporate and Sources: SBV, GSO individual deposits PLUS the value of issued valuable The most significant declines in outstanding loans papers purchased by credit institutions came from Services, Trading, Tourism & Transportation Sources: SBV, GSO 4. Conclusion and next steps The COVID-19 pandemic has already identified nor easy to reach though standard shaken Vietnam’s traditional resilience manual payment procedures. to external shocks. In 2020, the economy could see its expansion cut by half The financial sector offers a solution to compared to pre-crisis projections, with alleviate the cash flows problems faced increasing pressure on its external and fiscal by many businesses. Yet, close monitoring balances. While the economic fundamentals is required as banks will also likely suffer remain strong, the government might have from lower profitability and higher exposure to find about $5 billion to finance its fiscal to delinquent loans if the crisis last longer gap due to declining revenues and the than expected. implementation of a fiscal program that is • The WBG stands ready to help the required to attenuate the negative impact on Government in its effort to mitigate businesses and households. the short-term impact of the COVID-19 crisis on the economy. Our team can The proposed fiscal package under share international best practices and preparation by the authorities is organize technical assistance on specific ambitious, but affordable within the topics to tackle and shorten the crisis as existing fiscal framework. This package well to enhance Vietnam’s preparedness will combine tax and financial support for future shocks upon request of the measures to both the formal and informal authorities. This collaboration could take sectors. The emphasis is however mainly place in at least four areas that are briefly on formal businesses and workers. The described below. main challenge that remains is how to cover informal employees, mainly street vendors • The first area of collaboration would be and small farmers, who are neither well on economic monitoring as the country’s macroeconomic and fiscal projections will 33 Stronger headwinds bring new challenges for the government COVID-19 POLICY RESPONSE NOTES need to be regularly updated to the frequent We could help update MOLISA’s registry changes in both the domestic and global of poor and near poor households, that is arena. The WBG team can share timely still incomplete despite of recent efforts. information on other countries as well as Finally, we could provide technical support on mega-trends emerging in trade, capital in the monitoring of the programs to gather flows, and financial markets. The Bank social sentiments from beneficiaries could also collaborate in the task to collect and communities as well as their timely and high frequency information. coping strategies by using social media The COVID-19 has placed limitations on platforms through the Data Collaboratives traditional face-to-face methods of data agreements between the WBG and collection. The use of technology such several social media/internet companies as mobile and internet to gather data has (e.g. using Facebook mobility data, been used in settings where traditional Google, or Grab app data. The Iterative survey methods cannot be implemented. beneficiary monitoring (IBM) could be Our team has developed tools, some valuable tool to be used as part of project of which could be applied in Vietnam, supervision/program monitoring activities such as rapid mobile surveys of firms/ as it helps generate real-time feedback households and online -based tracking loops on implementation progress and information that could include satellite potential implementation bottlenecks. It is data (e.g. nightlights), digital data (hotel already under use in over 80 projects at bookings, mobility and transport data) and the World Bank.). high-frequency administrative data (e.g. • The third area of collaboration would be aviation data) to track economic activity, on the reforms that will be necessary to as well as prices of key commodities. optimize the response of the economy Furthermore, we could support the tax when the health crisis will start to phase out administration to prepare and implement in the next few months. As emphasized in a compliance strategy that helps to fight our last policy note, these could include against the increase in non-compliance support to the government in its effort to behaviors resulted from the crisis, such as simulate the aggregate domestic demand late/none filing, late/none payment, and through an acceleration of the existing increased tax arrears. public investment programs.28 The • The second area would be on the proposed actions aim at accelerating the implementation of the proposed measures execution of capital expenditures through to protect the most affected groups. Our the digitalization of procedures and faster team could collaborate on the challenge approval processes for priority spending. to provide direct support to the informal Because public works programs can sector by sharing experiences currently generate temporary jobs and provide under implementation in other countries, income support, existing public works can including, in the region, such as Thailand, be adapted or new ones can be deployed Indonesia, and Philippines that are facing and so stimulate the economy at the the similar challenges. We could also community level. Specific actions could explore how to expand the e-payment be designed to enhance the response of pilot of SA benefits in Cao Bang to other customers in distressed sectors such as areas as currently envisioned by MOLISA. tourism and transport (using the specific For fuller details, see our second policy note: Vietnam: Potential policies responses to the COVID-19 epidemic, 28  March 4, 2020; and our proposed framework for a potential Development Policy Operations that was shared with Minister of Finance and SBV Governor in letters from our Country Director in late March 2020. 34 Stronger headwinds bring new COVID-19 POLICY RESPONSE NOTES challenges for the government expertise of IFC in these industries). on its financing capacities. They clearly Concurrently, there is an opportunity to cannot last indefinitely. If needed, the WBG expand the digital agenda by enhancing can provide financial assistance to the reforms to promote e-payments, government. Beyond technical support in e-learning, and e-governments. Indeed, the above-mentioned areas, and in financing this could be an opportunity for government emergency heath related actions, we can to implement faster the recently approved provide budget support through a series of Financial Inclusion Strategy. Another line Development Policy Operations (DPOs) for of actions could be to support actions to an amount that would be jointly determined further strengthen the preparedness and but could exceed US$500 million for each resilience of the health system to future operation. Such series will not only alleviate epidemics. the possible budget pressure in the short to medium term but also provide foreign Up to the moment, the Government’s currency when the country’s balance of response has rightly focused on policies payment is expected to deteriorate and allow that are targeted to flatten the health, and Vietnam to diversify sources of funding. corporate and financial distress curves. Given the recent decline in interest rates They are crisis mitigation policies. How long on international markets, we believe that a country can sustain these policies – at the cost of our lending will be competitive, great fiscal and economic cost – depends especially in comparison to the issuances of on each country’s initial conditions, its bonds on the domestic market. capacity, buffers, the level of infection, and 35 COVID-19 POLICY RESPONSE NOTE #4 How to jumpstart the economy April 2020 37 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy29   Guiding principles for jumpstarting the economy • Better to do too much rather than too little, while prioritizing the vulnerable. The cost of doing too much is the time value of money, which right now is negative given the low or even negative real interest rates. The cost of doing too little could potentially be enormous both in terms of immediate human suffering and a prolonged economic crisis that exceeds the one in the wake of the global financial crisis. In the context of doing more rather than less, the Government should err on the side of addressing the needs of vulnerable populations including the poor, women, people with disabilities, and youth. Another example is people in the Mekong region who are facing the worst saline intrusion in a decade, in addition to negative impacts of the pandemic. • The whole is bigger than the parts. The combination of multiple interventions is likely to have the largest impact through the development of synergies. For example, public works could help provide income to local communities, provide necessary infrastructure and services, and boost aggregate demand simultaneously. Some of these programs could aim at restoring or cleaning tourism locations, contributing to the recovery of this sector. • Low-hanging fruits and fiscal responsibility. The initial focus should be on reforms that can be most easily achieved as restoring trust will create a virtuous circle through which early positive results will reinforce the drive for reforms over time. At the same time, attention should be on reforms that are not fiscally expensive but likely to produce great benefits such as the development of digital payments that mainly requires changes in existing regulations. COVID-19 has caused an unprecedented affected people and businesses through shock to the global economy. While the easing of monetary and credit policies Vietnam has shown resilience, the pandemic as well as the implementation of a series of has resulted in a supply shock as regular fiscal measures. work and supply chains are disrupted. It has also caused a demand shock as people Hopefully the economy will withhold and cut back their consumption of several start to rebound gradually. But it won’t services and commodities, not only for be easy to restart a modern interconnected restaurants and travel, but throughout the global economy while the world awaits economy given their extreme uncertainties the arrival of a vaccine that has yet to be about their economic future. So far, the discovered. Recovery will begin when Government has been very effective in health officials can assure people that the containing the pandemic with a limited new coronavirus has been contained and number of cases and no registered deaths. the mainstream availability of test kits, both The Government has also been active in to identify the infected and people with providing immediate support to the most antibodies. 29 This note was co-written by Keiko Inoue and Jacques Morisset, with inputs from Ahmed Eiweida, Rahul Kitchlu, Steffi Stallmeister, Alwaleed Alatabani, Huong Thi Lan Tran, Lien Anh Pham, Viet Anh Nguyen, Brian Mtonya, Duc Minh Pham, Helle Buchhave, Harry Moroz, Nga Thi Nguyen, Indhira Santos, Achim Schmillen, Michael Weber, Hardwick Tchale, Lan Thi Thu Nguyen, Diji Behr, Binh Thang Cao, Anna Wielogorska, Cung Van Pham, Quang Hong Doan, Dung Viet Do, and Shigeyuki Sakaki. It benefitted from the guidance of Ousmane Dione and Kyle Kelhofer. The note is based on a series of background papers on: (i) government procedures, (ii) public investments, (iii) digital agenda, (iv) jobs and human capital, (v) tourism, (vi) agriculture and aquaculture, and (vii) transport. The background papers provide deeper analysis on each topic and are available upon request. 38 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy The good news is that the right response takes times to organize a coordinated effort from the government, businesses, and across government agencies and between individuals can contribute to a sharper, the central and local governments as well as stronger, and more sustainable recovery. with the private sector. Some reforms might Ideally, this phase will target sectors and require legal changes that will have to be activities that create jobs and improve processed through the National Assembly. longer-term productivity and growth, such There are also many complementarities as infrastructure, innovation, health, and between current measures used to contain education. There will inevitably be tough the health crisis and those that will help the decisions to make about whom to target for recovery of the economy. And at same support, why, and how. time, in this post COVID-19 outbreak global economy, there may be new or accelerating Recovering normal staffing levels, trends that Vietnam can leverage, including inventory, supply chains, revenues, the reconfiguration of value chains by and financing options will likely take various multinationals that will be seeking to companies time after weeks or even reduce their dependence on China and the months of inactivity. So will implementing development of new markets for food and and harmonizing government policies manufacturing products that remain in high designed to get the global economy humming demand across the world while other supplier again. The Government should start defining countries suffer from major disruption. These the fiscal stimulus package now and prepare emerging opportunities will be discussed in a roadmap for the recovery phase since it the Policy note #5. Concerted response is needed from the Government The priority should be first and foremost to demonstrate fiscal responsibility and to bring people back to work even if the leadership. While more spending might be Government has so far been active in required, the authorities should do so in a way protecting jobs through a series of targeted that will not compromise future generations measures. According to the Vietnam by excessive borrowing. Decision makers Chamber of Commerce and Industry will also need to explain trade-offs, notably (VCCI), approximately 25 percent of its through a smart communication strategy, to members have reduced their labor force adequately manage expectations. or cut salaries, while about 60 percent adopted flexible or reduced hours and/ Within this context, this policy note proposes or training for their employees. Securing a menu of policy actions that the Government jobs is essential for economic and social could consider for jumpstarting the recovery reasons. Economically, it will stimulate both of the economy in the next few months.30 aggregate supply and demand. Socially, it This menu covers four main areas, which will ensure cohesiveness and solidarity. To are by order of presentation: (i) optimizing achieve this objective the government has the use of public investment as a fiscal several instruments at hand but will need stimulus; (ii) making the most of the digital 30 Our recommendations are partly based on the analytical framework proposed by the World Bank that advocates for the inclusion of short but also long-term objectives in the recovery effort. The short-term objectives focus on job creation, economy impact and timeliness, while the longer-term ones emphasize resilience, greening and sustainable growth. https://blogs.worldbank.org/climatechange/planning-economic- recovery-covid-19-coronavirus-sustainability-checklist-policymakers?cid=ECR_E_newsletterweekly_EN_ EXT_SM2020&deliveryName=DM60534. 39 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES agenda by reducing transactions costs for sector activities with a focus on sectors most both the government and businesses; (iii) affected by COVID-19. The summary of our protecting and creating jobs and boosting main recommendations is presented in the human capital; and (iv) supporting private table below. Table 4.1: Summary of main recommendations Intervention Objective Key considerations Examples Area 1: Optimizing the use of public investment as a fiscal stimulus Republic of Korea Accelerate and improve devoted nearly 80% of development impact of large its post 2008-09 crises Create direct infrastructure projects in response stimulus to and indirect transport, energy, telecom, and clean energy and climate Facilitate both water change jobs and large and small- improve Deploy “shovel ready” public Indonesia, the scale community infrastructure works programs that target the Philippines, Thailand, projects and service unemployed or underemployed and Vietnam all allocated delivery within vulnerable populations significant funds to small Provide soft skills and digital skills infrastructure programs in training to low-skilled workers reaction to the 2008-2009 global economic crisis The EU, Colombia, Canada issued several flexibilities under the Accelerate implementation of PIM public procurement Enhance law framework fiscal Expedite funds transfer and Reform public OECD countries created sustainability procurement processes investment coordinated frameworks and management cycle Enhance capacity of local to develop public allocative efficiency governments investment strategy and Streamline ODA disbursement establish e-gov platforms for transparent project selection, appraisal, and implementation Area 2: Making the most of the digital agenda African/Asian countries Scale up mobile phone simplified e-KYC e-payment to achieve financial Reduce requirements inclusion transaction China, EU use Enhance digital trade and Accelerate costs while technology to improve tax logistics operationalization enhancing filing and management of digital agenda efficiency Streamline business processes UAE and UK use digital and with digital platforms authentication processes transparency Improve government COVID-19 Credentials effectiveness through digital Initiative proposes an platforms and ID databases “immunity passport” 40 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy Intervention Objective Key considerations Examples Area 3: Protecting and creating jobs and boosting human capital Protect vulnerable households Republic of Korea through safety nets in the short is providing retention run; also protect and create subsidies of 66-90% of jobs and minimize income loss wages for 3 months through wage subsidies Protect and China is providing create jobs Deploy employment services transportation and and minimize and reskilling and upskilling employment services to Support targeted programs to reconnect vulnerable human internal migrants, using jobs retention and unemployed workers to jobs capital loss, unemployment insurance recovery especially for Stimulate employment demand in funds to provide online vulnerable hard-hit sectors through support training and expanding populations to firms online recruitment and Enhance resilience of health and jobs guidance education service delivery Both countries have also Target policies to the poor, established guidelines for disabled, women, and youth re-opening schools Area 4: Supporting private sector with a focus on most affected sectors Focus first on reviving domestic travel, then international Singapore is providing Build a strong foundation through public financing or improved public health measures supplies to enhance Stimulate and real-time data of the sector health measures of hotels demand Improve quality of a selected Georgia focused on for tourism tourism destinations in high sustainable tourism, services demand through strategic cultural heritage, and investments urban regeneration during Enhance capacity of tourism its economic recovery Develop proactive operators to adjust to dynamic after 2008-09 strategy for context reviving tourism Identify and then provide a and transport comprehensive package of sectors support to operators that are most affected while also likely to Enhance rebound The UK announced a resiliency of Reassure users by establishing series of financial support the transport public health and safety protocols instruments for transport sector while Leverage digital technologies to companies during the improving enhance efficiency ongoing pandemic connectivity Continue to focus on investments that are responsive to climate change, energy efficiency, and disasters 41 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES 1. Area 1: Optimizing the use of public investment as a fiscal stimulus The textbook response for boosting an growth, gender equality, etc. as part of the economic recovery is for the Government core design. to use a fiscal stimulus package to spend more, notably on capital investment The main recommendation is to use a projects. Not only can the authorities combination of large and small-scale directly choose the projects that they want public works and community projects. to implement but an increase in construction The big projects present the advantages of creates the typical Keynesian multiplier that creating direct and indirect jobs, and they will is needed for the economy. In Vietnam, it is demonstrate the Government’s commitment estimated that a 10 percent increase in the to a broad audience. Ideally, the authorities disbursement of public investment leads to a should focus on big projects that address the 0.6 percent increase in GDP growth. challenge of national backbone connectivity as well as multi-modal transport network The effectiveness of public works that will be at center of the post-COVID-19 investment is magnified when the agenda. authorities do it in a way that guarantees fiscal sustainability and improves both Public investments in large infrastructure allocative and financial efficiency. The projects such as the North-South Government aims to accelerate the execution Expressway and national highway of the approved Medium-Term Investment development, the Ho Chi Minh City and Plan (MTIP) for 2016-20 and its accompanied Hanoi airports expansion, metro railways annual budget, which has been low in recent in Hanoi and Ho Chi Minh City and public years, rather than launching new projects. transport/connectivity improvement This prudent approach should keep the around large ports such as Cai Mep- fiscal deficit within the limit of the budgetary Thi Vai and Lach Huyen can have a envelop approved by the National Assembly, multiplier effect and provide direct and therefore reassuring the markets while not indirect jobs, enhance the fundamental crowding out a potential effort by the private connectivity, and stimulate demand for sector to enhance private investment. local contractors and get the factories producing again. The overall effect would The focus should be therefore on be to counterbalance the multiple social and allocative efficiency of public investment economic impacts resulting from COVID-19. or making sure that the resources will be This would also entail providing appropriate used on projects that will contribute the investment support for upgrading the most to the economic recovery and job backbone IT/telecommunications network creation. In addition, the distribution of public capabilities (scaling-up 4G/5G technologies) investments should account for the urban- as well as expansion of network coverage at rural divide and prioritize the most affected increased broadband speeds across lagging locations such as the Mekong region, the parts of the country. Over time, of course, poorest provinces, and the urban areas with attention will have to be given to energy and high density populations. A new era of public water/sanitation sectors through SOEs and investments provides an opportunity to partnership with the private sector (through incorporate principles of sustainable growth, the new Public Private Partnerships (PPP) such as climate resilience, more inclusive Law under preparation) to address growing 42 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy concerns in terms of production, distribution, investment programs are identified, and sustainability on the environment. it will be critical to ensure that they Projects could be designed to be sensitive to receive sufficient and timely funding for social distancing requirements. expedited implementation. In other words, disbursement of public investment must The development of small-scale and be accelerated substantially to assure community level projects, mostly development impacts in the recovery period. through public works, should also be a Our recommendations span the public priority for local authorities. Those have investment management cycle and include: proved their usefulness in upgrading and maintaining infrastructure at the local level, • Implement faster and more effectively the especially given that local governments are revised Public Investment Law, starting responsible for almost 75 percent of public with the preparation of the next MTIP for investments in Vietnam. These projects 2021-25 with priority given to both national will improve the living conditions of citizens, and sub-national projects referenced productivity of micro and small enterprises, above. A systematic and agile mechanism and also contribute to the tourism sector to update the MTIP on an annual basis development and social protection agendas, should be developed by the Government. as they will provide jobs to unemployed or The updating mechanism should allow for underemployed workers, including those identifying and then cutting back funding affected by the COVID-19 crisis. for low performing/slow implementing projects, while giving allocations to high Two elements are important to get performers as well as new impactful right: good program design and early investments that will have been approved identification of “shovel-ready” public for inclusion in the MTIP. works. These public works could include: (i) spatial restoration, soil conservation, • Facilitate quicker transfer of funds to erosion reduction and climate mitigation/ priority projects through streamlined adaptation programs particularly in the budget reallocation and additional Mekong Delta region, (ii) public health- allocation to reflect project disbursement focused service delivery at grassroot levels needs. The reallocation of capital budget including increased access to COVID-19 both within and across level-1 spending testing so workers can confidently return units (ministries, provincial authorities) to their jobs, (iii) disinfection of schools should be initiated as early as possible and health surveillance as students return to give sufficient time for implementing to school, and (iv) targeted investment agencies to disburse additional allocations in municipal and resilience infrastructure within the fiscal year. and livability improvement which can also • Accelerate procurement by allowing for help improve tourist attraction (sanitation the undertaking of advanced procurement facilities, parks, public buildings). Training activities. This would allow executing programs in soft skills and digital skills can agencies to prepare detailed bidding be incorporated into public works projects documents before final project approval to improve employability during recovery. and/or budget allocation. Projects that Again, projects could be designed to be are already included in the MTIP should sensitive to social distancing requirements. be eligible for accelerated procurement activities and should receive timely Concurrently, there is space for improving and sufficient budget to carry out financial efficiency. As targeted public 43 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES such preparatory activities. Advanced involved, and significantly streamlining procurement prior to loan approvals/ and reducing the number of approval signing are particularly important for steps through delegation to lower levels accelerating ODA-funded projects. A clear of government to the extent possible. guideline on advanced procurement will Electronic processing of disbursement be needed. procedures (including withdrawal applications) should be enhanced for • For ODA funds that are on-lent, provide improving efficiency. upfront guidance to local governments on the on-lending appraisal processes. It is • Put in place a platform to monitor also helpful to allow individual provinces closely implementation/disbursement participating in an ODA project to move performance of public investment projects ahead with on-lending procedures and to at both central and local levels to enhance start disbursement should they become accountability. Close performance ready. monitoring, together with efficient budget reallocation mechanism based on • Streamline ODA disbursements by performance, would also help incentivize ensuring consistency and clarity of roles fast disbursing projects, while identifying and responsibilities of various agencies problem projects for mitigation. 2. Area 2: Making the most of the digital agenda The recovery effort should minimize faster and more transparent services transaction costs and bureaucratic using e-Government platforms, which procedures. As other countries have improve efficiency and reduce corruption done in response to the COVID-19 crisis, opportunities. the Government could leverage the opportunity to modernize its information and While the Government has put the communication systems, leading to more digitalization agenda at the center of coordinated decision making and rapid its development strategy, progress implementation. It can build on its excellent has been unequal. The COVID-19 crisis management of the health crisis when the offers a unique opportunity to accelerate its country has put its high penetration of mobile implementation as the associated benefits phones and internet to great use, alert are even greater than before. The health notifications and reminders are regularly crisis has demonstrated the importance for circulated by text messages, and there are businesses to provide their employees with mobile applications for universal declaration computing and video technology for both at and to keep tabs on the pandemic’s office and home-based work arrangements. development. Video conferences are replacing shuttling back and forth between North and South Recent international experience in Vietnam, with enormous time savings has demonstrated that transactions and huge cutbacks in air pollution from jet costs could be effectively reduced by engines. At the same time, educators at digitalization. Digital tools not only contribute nearly every level are scrambling to replace to the reduction of delays for businesses, classroom instruction with distance learning but they also increase good governance, alternatives including online modalities. accountability and transparency by limiting The Government has been constrained face to face interactions with government in its ambition to support affected informal officials. Governments can also provide businesses and households because of the 44 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy absence of e-payment mechanisms through higher performing traders and logistical mobile phones. companies on recent trends and information when rules and regulations Digital technologies have already are changing rapidly in both Vietnam and demonstrated themselves to be game its trading partners under the COVID-19 changers in crises, supporting the health context. response (e.g. telemedicine); allowing firms to adapt to mobility restrictions (e.g. • Streamline procedures faced by home-based work, mobile payments); businesses through an online platform that helping SMEs survive the downturn (e.g. allow for e-registration and e-payments FinTech); delivering agricultural inputs over time. An immediate step would be to (e.g. e-vouchers); providing more effective allow for a single combined registration of operation of social safety net programs (via employees with the Department of Labor mobile payments); and sustaining education and the Social Insurance Fund through efforts (e.g. education apps, online content). effective information exchange between Mainstreaming and developing these digital the two agencies. Another is to link all technologies will in turn help boost the agencies involved in starting a business recovery while creating lasting efficiencies through a single window, with a pilot in for both businesses and the government. HCMC. Other measures could include streamlining the process for building An effective set of actions mainly require permits and property registration through strong commitment rather than financing the use of integrated data platform and from the Government as most of the IT extend e-services (e-registration, e-filing, infrastructure is already in place in Vietnam. and e-payment) to household businesses Mobile operators already own most of the and individual taxpayers. necessary technology that will allow Vietnam • Improve Government effectiveness to leapfrog into the future. With strong through online platforms and digital Government commitment, Vietnam can: ID4D databases. One priority should be • Achieve financial inclusion through a close to complete the national citizen registry collaboration with mobile phone operators by quickly digitizing the registrations of and commercial banks to identify and the whole population, which has been create transactional accounts that will be reportedly been done in almost all 63 three able to receive cash payment. Decisions provinces for some time, and verifying will also need to make clear whom will them. A quick verification process can be authorized to support these payments be done by cross-referencing the citizen and the modality for delivery (e.g. card data with the existing national databases, activation). such as the social insurance database and the passport one, to ensure highest • Enhance trade by the smart use of possible accuracy of the citizen registry. disruptive technologies to streamline Frequent surveys of firms and citizens processes through mobile registration and on specific steps of doing business or life payments and blockchains for certification events of citizens could be conducted with of origin and traceability of commodities. a new platform that would link together Several integrated information databases the National eService Portal and the (e.g., Vietnam Trade Information Portal Government Information & Reporting [VTIP] and Vietnam Logistics Statistical System. System [VLSS]) can be used to inform 45 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES • Deploy digital technology and enhance delivery, including in health and education. partnerships with the private sector to Further details are in the next section. improve continuity and quality of service 3. Area 3: Protecting and creating jobs and boosting human capital The negative impact of the COVID-19 Beyond the immediate impacts on income, outbreak on jobs has led to income loss job loss can have negative consequences for many households putting at risk their in the longer run. Unemployment can lead ability to make ends meet. MPI estimates to lower earnings and worse labor market that the COVID-19 outbreak could result in outcomes in part because people lose skills 1.5-2 million workers being furloughed and when they are out of work. These effects 250,000 becoming unemployed 31, and the can be particularly severe for workers number of people receiving unemployment without access to safety nets who resort to benefits increased 9.1 percent in Q1 2020 more severe strategies to cope with income compared with a year ago32. The impacts loss. In 2018, three-quarters of workers in are widespread, but are particularly deep Vietnam did not have access to benefits in in tourism, transportation/logistics, and the case of job loss. Women are at particular export-oriented sectors where between 70 risk in this jobs environment since they are and 80 percent of firms have scaled back overrepresented in the types of low-paying, operations. These sectors alone make up 15 low-skilled jobs that are most likely to be percent of all employment in Vietnam, and lost due to the impacts of the COVID-19 15 percent of all employed women. outbreak.33 Women already spend two hours more than men on unpaid care, Frictions in labor markets mean that firing which has likely increased due to school workers is easier than hiring them, so closures.34 Male job loss is also associated employment tends not to recover quickly with increased physical violence against after economic shocks. These frictions may women, which may be made even worse by be more severe in cases in which rural- quarantine and mobility restrictions.35 to-urban migrants have moved home as a safety net after job loss and are no longer Income loss is particularly challenging for close to their former jobs or these jobs have households coping with the effects of social disappeared altogether, which may have a distancing. While the Government’s stringent disproportionate impact on women migrants social distancing measures have contained formerly employed in factory jobs. Vietnam’s the pandemic, anecdotal evidence suggests links to the global economy via trading a reduction in health seeking behavior and relationships and global value chains mean food insecurity may result in worsening health that ongoing outbreaks and transmission indicators overall. Vietnam has experienced control measures outside of Vietnam could one of the longest school closures, and the delay recovery of employment in some learning loss is compounded for children industries even as others recover. without sufficient access to technology or 31 http://hanoitimes.vn/vietnam-economy-ministry-estimates-2-3-million-workers-laid-off-in-q2-311650.html 32 https://en.vietnamplus.vn/unemployment-benefit-recipients-up-911-percent-in-q1/170606.vnp 33 World Bank. 2018. Vietnam’s Future Jobs: The Gender Dimension. Washington, D.C.: World Bank. 34 ActionAid. 2016. “Make a House Become a Home.” ActionAid, Hanoi. 35 Bhalotra, Sonia, Uma Kambhampati, Samantha Rawlings, and Zahra Siddique. 2020. “Intimate Partner Violence: The Influence of Job Opportunities for Men and Women.” Policy Research Working Paper 9118, World Bank, Washington D.C. 46 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy a family environment that is able to support services should be provided to connect home schooling. Household financial fragility the vulnerable unemployed with jobs, will likely result in increased instances of e.g. through job matching assistance, child labor and some children may never labor market information, and job search return to school even when they reopen. subsides. Enhanced employment services Therefore, enhancing income opportunities could target migrant workers who need by improving access to jobs, particularly to reconnect with employers in primary for the vulnerable, is a critical step towards and secondary cities. The Government minimizing the human capital loss due to can establish stronger partnerships with COVID-19. private sector providers of employment services, as well as introduce more Actions to protect and create jobs, as well flexibility in the legal framework to, for as to boost human capital, comprise of short example, allow furloughed employees and longer-term measures. In both cases, to work at second employers while the efforts will need to account for megatrends economy recovers. like the growth of the knowledge economy, automation, shifting trade patterns, and • Provide training to develop the in-demand changes in how people work. Targeting skills of vulnerable unemployed workers, policies to vulnerable groups including poor, e.g. by adjusting training to demand in low-skilled, or informal workers, migrants, sectors growing as the economy recovers women, young people, and the disabled and focusing on digital, socioemotional, can enhance their effectiveness. Effective advanced technical, and entrepreneurship policies for promoting jobs and boosting skills. Subsidies in the form of vouchers human capital include: could be provided to finance training and act as a wage subsidy to promote • In the short term, focus on protecting employment of specific groups (e.g. poor, workers and households from income loss low-skilled, informal, migrants, women, and protect jobs from being lost through young, disabled) or start-up support for business closures and downsizing. entrepreneurs. Provide wage subsidies to incentivize • Support to firms to stimulate demand firms to retain and hire vulnerable in hard-hit sectors, e.g. tourism, trade, workers. This support should be provided transport. Liquidity support to firms should in line with the Law on Support to SMEs be targeted to ensure that SMEs are (2018), which calls for preferential support given equal footing for survival. Support to women-owned businesses and/or can also include assistance to develop businesses with female employees, and digital platforms and payment systems or free training to employees from women- to improve health and safety standards. owned businesses on start-up and Finally, microcredit institutions that business administration skills. combine credit with business training could • Once the outbreak is contained, while be leveraged to reach microenterprises continued income support might be and household enterprises. needed, shift to policymaking that • During the crisis period, ensure safe connects the unemployed to jobs and continuity of priority health services, facilitates employment creation in sectors including critical care, vaccinations, and where job growth is recovering more reproductive, maternal and child health. quickly by improving information flows and This includes continued efforts to reduce labor mobility. In particular, employment 47 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES stunting, particularly among ethnic among vulnerable student populations, by minorities. Engaging the private sector to building on small scale rapid assessments expand capacity effectively will be critical, conducted by partners. Also included in the particularly in mobilizing telemedicine crisis response should be engaging with and e-health. In the post-crisis period, the private sector to develop a mapping Vietnam should continue to adopt a One of education technology companies with Health approach and manage zoonotic distance learning delivery capacity, as well transmission from animals to humans, as developing evidence-based guidelines upgrade disaster risk management for a phased-in approach to re-opening/ systems, and adapt urban planning to re-closing schools that prioritize public facilitate disease control in anticipation of health concerns. In the medium term, the future outbreaks. Government should create a foundation for a more agile education system • Provide education remediation support to including enhanced training for school make up for learning loss while building administrators and teachers and provision a more resilient distance learning system of digital infrastructure at institutional across all levels of schooling in the longer (schools, universities, VET) and student- term. The Government should enhance levels, while mitigating against negative data on learning loss resulting from impacts on the most vulnerable students. extended school closures, particularly Area 4: Supporting private sector activities with a focus on most 4.  affected sectors by COVID-19 To avoid persistent negative effects on sector decisions and will increase risk the economy, it is critical to have viable aversion parameters when extending new and dynamic firms. Governments have a credit. variety of tools to choose from to support firms, including financial solutions, grants There are clear synergies between the and fee reductions, and cash transfers. recommended measures discussed As mobility restrictions are eased, policies above and the promotion of private should be refocused towards supporting sector activities during the recovery growth-oriented enterprises, promoting phase. For example, the acceleration of reallocation of resources to more efficient the investment program can benefit local companies, restructuring firms and avoiding firms through direct contracting and job measures that risk propping up zombie firms. creation. The implementation of the digital In the early stages of recovery, many firms, agenda aims to reduce transaction costs of including larger corporations and SMEs, may private firms, especially the smallest ones, be facing the risk of insolvency. Moreover, in their relationship with the Government. the negative effects on credit markets, The development of mobile money would supply chains, and worker productivity will help household businesses and farmers dissipate only gradually. There may be a that do not own a bank account, while the change in consumer behavior, and some protection and creation of jobs will also help firms, especially SMEs, will need support businesses through a reduction of their labor to adjust business models to a different costs. Boosting human capital ensures a economic environment. The deterioration steady supply of productive workers to the of firm’s balance sheets will affect financial private sector. 48 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy Bringing people back to work will require discouraging people from non-essential dynamic firms, especially in labor travel. Reassuring potential travelers by intensive sectors. It is worth underscoring strengthening health measures (e.g., that all sectors have not been equally affected allocate resources to permit sanitary use by COVID-19. Some appear to have been of transport services, including provision relatively immune like the agriculture sector.36 of testing equipment under post-pandemic Unfortunately, others have been harder conditions; strict respect and enforcement of hit, including the tourism and the transport social distancing measures; medical sectors. For this reason, in addition to the certificates) is paramount. Without such cross-cutting measures discussed above, it confidence, most people would be reluctant would be useful to target these two sectors to travel, except for imperative reasons. with a set of specific interventions. It would also not be realistic to expect intertemporal substitution – people making Tourism: thinking recovery in a gradual way up for their missed opportunities to go to hotels/restaurants today by tapping extra The tourism sector was one of the most heavily into the hospitality services industry dynamic in Vietnam before COVID-19, next year. Furthermore, the Government will expanding at a fast rate building on the need to consider the impact on vulnerable country’s natural assets and competitive workers in the tourism sector. Women prices. As a result, this sector was estimated account for 68.3 percent of the workforce to employ about 4 percent of the county’s in hospitality services and while recent labor force in 2018, up from less than one ecotourism trends benefited women and percent a decade ago. This sector was ethnic minority communities in isolated also one of the biggest earners of foreign areas, the contraction in the sector due to currency and accounted for 8 percent of the COVID-19 may reverse such gains. country’s GDP in 2018. However, it has been severely hit by COVID-19 with the number For all these reasons, the Government of foreign visitors falling from 1.9 million in must develop a proactive strategy January 2020 to just over 400,000 in March through which the objective would be to 2020. The occupancy rate in hotels dropped first stimulate the domestic, then global, from 90 to 10 percent during this period. demand for tourism services. At the same Unemployment and financial losses go well time, it will need to ensure that there will be a beyond hotels and tour operators as it also sufficient number of hygienic and financially affects farmers and transport operators due viable accommodations, tour operators, and to backward and forward linkages in the other tourism support service providers to tourism sector. respond to the expected gradual increase in demand. The focus on rebuilding the The economic problems could persist domestic tourism market should initially well after the pandemic is contained. focus on business related trips that are Health concerns may persist for months, likely to rebound first. The restrictions on 36 Overall, the Vietnamese agricultural sector has been insulated from the COVID-19 shock (with the exception of the aquaculture sub-sector with a decline of approximately 15 percent in exports during the first quarter but partly because of salinity damages in the Mekong Delta region). Prices have exhibited remarkable stability on both the local and international markets, suggesting a relatively low risk of value chain breakdowns in the near future, at least as perceived by markets. On the supply side, inventories are generally high due to good recent harvest (notably of rice) and the outlook for 2019/20 is positive with expected record production in paddy of over 45 million tons, equivalent to 28.2 million tons of milled rice. Nevertheless, close attention is warranted because any small disruption in this sector could greatly reverberate into the local economy as approximately four out of 10 Vietnamese are employed in agriculture. 49 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES international trips will remain in place, as with the community public work programs countries will want to protect themselves proposed earlier, the cleaning of tourist from a second wave of infections. Thus, destinations can lead to an improvement in contrary to the SARS crisis, it is not expected the quality of the experience, in line with the that international travel will recover quickly longer-term strategy to promote ecological to its pre-COVID-19 levels (as, for example, tourism and encourage repeat tourists in many multinationals have already informed Vietnam. their staff). Equally important is that the branding For domestic and international tourism and promotion strategy be accompanied to emerge even more robustly, it will be by an effort to ensure that operators essential to improve knowledge of the will have the capacity to deliver their sector by collecting high frequency data services in the new environment. After through pulse surveys and big data. The months of inactivity, many operators COVID-19 crisis has modified the needs (including transport companies) will of travelers and induced many behavioral be bankrupted or close to bankruptcy changes. The authorities will need to with a deterioration of their assets and assess, in close collaboration with private few employees ready to return. The associations, the financial health of the Government should envision support to help sectors. This assessment should account for firms to restructure their debt profiles and regional disparities and the characteristics address their liquidity challenges. This will of each operator (size, domestic/foreign, prevent a surge in insolvency filings, value- public/private, etc.,). Efficient policymaking destroying liquidations, and asset fire-sales, requires updated information on both the while helping to preserve employment. demand and supply of the sector. Lastly, the recovery of the tourism sector will require more than attractive locations and Once these basic first steps are improved services. Potential travelers should completed, a more aggressive approach have easier access to online information can be elaborated to promote tourism and digital booking tools. Travelers could destinations and products. Such an also be incentivized by more flexible policies approach should combine actions to reduce regarding cancellations or changing dates prices, while other will improve quality. On of their bookings. And, of course, their pricing, the government can use standard decisions will be greatly influenced by the instrument such as reduction of taxes. availability and quality of transport services. However, those savings are not always passed on to consumers and would reduce Transport: close and urgent attention government revenues. It could be more needed for distressed operators effective to focus on the quality of products. This can be done through a promotion Transport activities account for about 2.8 program such as the Ministry of Culture, percent of Vietnam’s GDP and employed Sport and Tourism’s “Vietnamese people approximately 3 percent of the labor travel in Vietnam”. Destinations with lower force in 2019. Those relatively low figures density of people, such as remote localities, mask the total contribution of this sector to can be promoted. The Government can the economy as connectivity is an essential also enact guidelines that will ensure social element of the movement of people and distancing in communal transportation, goods. A good transport system generates hotels and restaurants. To build synergies productivity gains for firms and households 50 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy by allowing them to use their resources activities. Support should be provided to more efficiently and allocate those resources alleviate their cash flow constraints through toward the most productive activities. It also tax relief and debt restructuring so they can enables regional linkages within Vietnam pay for salaries and inputs (such as gasoline). and reaching out to global markets. Some countries have been innovative by distributing vouchers to taxi and bus drivers. COVID-19 has severely impacted Storage companies, which are part of the transport activities in Vietnam. The early transport value chain, could benefit from decision to restrict the mobility of persons lower electricity bills. The authorities should across borders, starting with China and direct their support toward operators that then gradually expanding to other countries are encountering difficulties to maintain their while also limiting domestic travel, has assets, such as vehicles). led to a severe adjustment of many firms operating in this sector. Even with relatively New technologies can also be used less stringent restrictions on freight and by transport operators to reduce their logistics, the demand for transportation of costs and to adjust to the new behaviors goods has decreased substantially due to by customers. Transactions costs of the domestic economic slowdown, as well moving merchandise can be cut by the as the disruptions caused in the global value use of e-orders and e-payments as well chains. However, there are some segments, as of navigator systems. Due to remaining such as urban deliveries of packaged food, restrictions on restaurants, the delivery of dairy and personal care items, which have food is expected to be on the rise, justifying seen an increase in their activities. a greater emphasis on these tools that favor just-in-time delivery of goods. The recovery of the sector is expected to be slow and will be influenced by both Resuming transport activities will also be endogenous and exogenous factors. determined by the demand of customers Among the endogenous factors will be that is influenced by exogenous factors. the financial health of many operators The focus should remain in the first after months of declining activities. Yet, as stage on transportation of merchandise. mentioned above, not all segments have For passengers, like in the tourism sector, been affected with the same intensity. For it would be important to reassure them by example, airline companies (98 percent of establishing specific protocols to safeguard aircraft are grounded) and bus compagnies health and safety and providing adequate have been severely hit by restrictions on measures and equipment to check, disinfect, passenger travel. Taxi drivers have been and socially distance users (including at stand still in major urban centers even if effective communication for user awareness) some have reinvented themselves as home and workers at public transport, airports and delivery couriers. By contrast, many logistical seaports, border gates, and warehouses. operators and freight operators have been However, it should be recognized that less impacted as the volume of merchandise the demand for transport is generally the exports has been resilient in Vietnam. by-product of the demand for goods and services by customers. This dependence To revitalize this sector, the first action is best illustrated by the tourism sector, as by the Government should be to identify the demand for transport will increase only the most affected operators and then if people decide to travel. Similarly, if people to ensure that they are in good enough consume less, they will order less products financial health to resume gradually their 51 How to jumpstart the economy COVID-19 POLICY RESPONSE NOTES and so negatively the demand for transport The longer-term agenda of reforms services. should not be forgotten in the effort to jumpstart the sector. The development As discussed earlier, COVID-19 can of new transport infrastructure can be an be an opportunity to accelerate the effective instrument to create jobs in the implementation of the digital agenda short term, but those projects should be and stimulate demand. Centralized implemented with the objective to improve data platforms can support customized the environmental footprint. It would be responses in many ways. If a real time important to ensure that investments in the analysis of big data in the Commercial recovery phase focus are climate change Vehicle Tracking System (CVTS) is enabled, responsive, energy efficient, and disaster the authorities can efficiently monitor and resilient. This would require accelerating react to accidents, traffic jams, and to the investments in public transport systems, continued volatility in demand and supply. waterways, alternative highway routes, Traffic Management Centers (TMCs) in and secondary airports. The emphasis on major cities will allow dynamic adjustment in multi-modal network supporting trade flows managing urban road traffic. A standardized should also remain a priority, in particular Electronic Toll Collection (ETC) System for those which can offer transport solutions to toll roads, and inter-operable electronic fare access international gateways and planning payment systems for Metros, BRT and buses industrial parks and economic zones around would greatly improve user convenience high capacity transport nodes. and management efficiency, while removing human-to-human contact. 5. Next steps and World Bank support Restarting the economy will require a becoming a high-income economy by 2045. concerted effort from the Government, in Three priority agendas can be incentivized close coordination with the private sector within the COVID-19 context: and other stakeholders. Focused attention • The first is to embrace the disruptions in should be given to timing as containment order to incentivize innovations and new and improved testing, and ultimately behaviors to emerge stronger and better. progress towards a vaccine for COVID-19 A good example is the digital agenda, are foundational for the deployment of these particularly in the Government’s efforts general policy tools as part of the second to push for technological solutions to phase of recovery. Most of the actions on include hard-to-reach people in its income aggregate demand are likely to be ineffective support package and therefore enhance if people cannot move or are afraid to go overall financial and safety net inclusion. back to work. Another is the repositioning of Vietnam in the context of shifting global value chains Moving ahead with a strong stimulus agenda while building on its successful efforts to will not only contribute to the economic contain the COVID-19 pandemic to date. recovery but it will also help the Government Vietnam is well positioned to assure shaky to make progress on several important reform investors and multinationals who may be agendas that will determine the country’s weary of weaker responses observed in trajectory toward the longer-term objective of other countries. 52 COVID-19 POLICY RESPONSE NOTES How to jumpstart the economy • The second is to continue to focus on • The third opportunity is to encourage inclusive growth by boosting human capital strategic planning that is both agile and for vulnerable populations. COVID-19 responsive to a dynamic national and is first and foremost a health crisis, and global context. This entails continued the Government’s proactive reaction efforts to lighten bureaucratic burdens demonstrates its relatively high level of and transaction costs for the Government, pandemic preparedness. Yet the stringent the private sector, and end-users. While social distancing measures required to the months ahead remain uncertain and contain the pandemic has compromised the economic recovery may be slow, the other critical health service delivery Government can enhance its coordination and the extended school closures has mechanism, develop a phased-in plan for produced massive learning loss across recovery, and identify short and longer- all levels of education. Poor and ethnic term instruments that can be deployed to minority populations have been hardest jumpstart the economy. hit. Emerging stronger and better means The entire World Bank Group – World Bank, fortifying equitable social service delivery IFC, MIGA – stands ready to help. now in anticipation of the next pandemic or major disruption. 53 COVID-19 POLICY RESPONSE NOTE #5 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies June 2020 55 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies Vietnam has the unique opportunity to take advantage of the COVID-19 crisis. While the future is hard to predict, most would agree that the world will look very different in the post coronavirus era. There will be a notable reshaping of global value chains. Similarly, the development of contact-free services, telemedicine, and e-commerce will accelerate requiring fast adaptation of existing digital systems. Lastly, the importance and value of human life will increase as more governments prioritize the inclusion of the wellbeing of future generation in policy making. The ongoing transformation of the global economy provides the opportunity for Vietnam to take important policy actions and move faster toward its goal of becoming a high-income economy. We recommend five concrete pathways on which Vietnam can build on: 1. Tapping into the new global trading system: Vietnam can consolidate its existing footprint on the global economy by developing strategic alliances with other COVID-19 safe countries to boost its bilateral movements of goods and people. It can also target industries that are considering diversifying their value chains away from neighboring countries by refocusing its promotion efforts. 2. Promoting digital payments for a new business model: COVID-19 has hastened the transition from a cash-based toward an electronic payment system. Such move can be accelerated by the entry of diverse providers into the digital financial services market. Concurrently, new regulations are needed to govern account opening and provision of low value transaction accounts as well as to secure a more evolved role for third party payment service providers to interact with payment systems. 3. Promoting telemedicine: With ongoing momentum and with support from the highest level of leadership, telemedicine can be progressively mainstreamed in Vietnam’s health service delivery system. Since telemedicine need not be ‘high-tech’, inexpensive and simple technologies should also be prioritized in the short-term such as telephone consultations which are a cost-effective way of connecting health professionals to patients. 4. Enhanced information sharing for increased resilience: The COVID-19 crisis has proved to be a game changer in the use of data and information-sharing in Vietnam. The recent issuance of a broad regulation on digital data sharing and open data should be followed by the rapid adjustments of sector-specific regulations and practices. The objective should be here to generate more efficient and more responsible behaviors in health, land, environment and natural resources, trade, as well as public finance. 5. Aiming for a low-carbon economy: The disruption in the global energy demand and supply presents a unique opportunity to implement climate-smart policies and investments which are not only good for environment but also promote energy security and financial viability. Implementing demand moderation, supply diversification, and promoting low-carbon investments should be prioritized. While these five opportunities are not exhaustive, they are worth pursuing as they will bring substantial gains to Vietnam, regardless of how the global economic recovery scenarios play-out. These policy actions should be pursued swiftly given that the window of opportunity for Vietnam will be relatively short as other countries emerge from the COVID-19 crisis in the coming months. 56 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies Global context: As of end-May, Vietnam is mega-trends from the global economy. moving out of the COVID-19 health crisis By being ahead of the curve in the fight with extraordinary results: the number of against the COVID-19, and building on its infected people is just over 300, with nearly natural as well as comparative advantages, 80 percent of them having recovered, and Vietnam has the opportunity to consolidate no registered deaths. After focusing on its recovery, as well as to mitigate the risks immediate health response, time has now associated with the emerging world order. come for Vietnam to ease the restrictions and However, policymakers need to move to gradually reopen the economy. While the fast as the window of opportunity would trade-off between saving human lives and be relatively short. Several concrete and economic costs is a cause of much debate implementable ‘no-regret’ policy actions worldwide, the Government’s decision are being recommended to reshape the seems justified by its success in controlling economy. These actions are worth doing the pandemic while also dealing with the now regardless of how the global economic harsh realities associated with the lockdown recovery scenarios play out. They will of the economy. By easing controls, the enhance development outcomes by Government aims at alleviating the financial improving the competitiveness and resilience burden on both businesses and people by of Vietnam’s economy and help improve the jump-starting the recovery of economic country’s resilience to possible future waves activities. While a rapid (or V-shaped) of pandemics by encouraging the reallocation recovery is possible, it is unlikely. The return of resources toward sectors less prone to to the pre-COVID-19 growth trajectory might human contacts.34 These actions focus on take some time and efforts because the ‘new areas such as: (i) repositioning Vietnam in normal’ for people and businesses will be new global value chains, (ii) supporting the different. The speed of the recovery will also boom in e-commerce by digital payments, depend on what happens with Vietnam’s (iii) expanding the delivery of contact-free main trading partners. For all these reasons, health services, (iv) sharing information for the Government should do all what it can improved resilience and for encouraging today, to stimulate the economy without responsible behavior, and (v) aiming for a endangering the country’s fiscal and debt low-carbon development pathway. sustainability in the longer-term. This policy note presents description of In line with the World Bank’s last policy some of the mega-trends and then explores note which identified several actions to how Vietnam can build on them not only accelerate the economic recovery, this to generate the much-needed economic note aims at supporting the Government gains during the recovery phase, but also in its efforts by sharing new ideas on how to help implement a successful reform Vietnam can leverage various emerging agenda in the longer term. 37 Discussion on the double causality between the (re)allocation of labor and probability of infection: D. Krueger, H. Uhlig, and T. Xie, Macroeconomic dynamics and Reallocation in Epidemic, NBER Working Paper, N. 27047, 04-2020. 57 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES 1. What mega-trends are emerging from the COVID-19 pandemic? COVID-19 has tipped the world economy intermediate goods, severely affecting into its most severe crisis since the production in manufacturing industries that Depression. While the full impact of the practice lean inventory management. Many pandemic would be hard to predict, there governments have become concerned about is a consensus amongst experts that: (i) shortages of essential products from offshore the world trade system will look different in sources. Such trend against globalization the years ahead, (ii) social distancing will would reinforce the existing forces against change the way we work and do business, international trade that have been linked to and (iii) the value of life will become an the automation of manufacturing and the explicit element of Government decisions. growing environmental concerns associated These factors will influence how countries to the excessive carbon footprint linked to and individuals manage risks and resilience international transport.38 in the future. Below is a brief discussion on However, the impact of the pandemic these three mega-trends as they expect on globalization might not be as to influence Vietnam in both the short and straightforward as suggested above. longer terms. A word of caution would be Technology will continue to shrink physical useful as the intent is not to be exhaustive on distances and favor the delocalization complex and evolving issues but to suggest of production, in countries that will be new directions to Vietnamese policymakers. offering the best conditions to international Revisiting globalization: The COVID-19 businesses. Furthermore, ensuring a pandemic is causing the worst contraction domestic capacity to produce what is in global trade in the post-war era and, so, needed, can be prohibitively expensive has strengthened the hand of those who for many firms and governments, at least have long opposed economic openness in the short term. There are also several between countries. On the face of it, all alternative to reshoring activities to address our current vulnerabilities seem rooted security and strategic concerns for essential in globalization: disease transmission, goods. In this environment, firms as well economic interdependence, and medical as countries have an incentive to reduce procurement transcend boundaries. Even the risk exposure of supply chains over the before the pandemic, the balance was medium-term by increasing the geographical tilting towards closed economies. The diversity of their suppliers. Rather than reemergence of protectionism might change producing a full line of everything from food the way multinationals and governments and fuel to medical textiles to respirators do business in the years ahead. The at home, the best bet for states is to group reshaping of global value chains and trade together with trustworthy partner countries, is envisioned for those who argue that the in the expectation that whatever is produced world have become too interdependent in the larger bloc will always be accessible (e.g. relying on a few countries for medical to all members. Sound government policies equipment and being left helpless when with respect to infrastructure investment, supply chains break down). Workplace education, and public health could therefore closures or transportation difficulties have encourage the efficient relocation of some caused interruptions to the delivery of production to a variety of countries and 38 McKinsey Global Institute estimates that 60 percent of all jobs could see more than 30 percent of their key tasks automated, affecting 400 million to 800 million jobs around the world by 2030. 58 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies help firms manage the risks of transnational such a shift would impact the worldwide production. These trends may offer a unique education and heath markets. Research opportunity for Vietnam. suggests that online learning has been shown to increase retention of information, The rise of a contact-free economy: With and take less time, meaning the changes the increasing adoption of new technologies, coronavirus have caused might be here it is becoming possible to imagine a world to stay. There are, however, challenges of business, from the factory floor to the to overcome. Some students or patients individual consumer, in which human contact without reliable internet access and/or is minimized, but not eliminated. This move technology struggle to participate in digital toward a contact free society is not new but learning and to access telehealth services; has been accelerated by the combination this gap is seen across countries and of social distancing policies and the rapid between income brackets within countries. development of digital technologies during The pandemic has forced organizations the pandemic. In three areas in particular, into perhaps the most significant social digital commerce, the delivery of services experiment of the future of work in action, and home-based work, the pandemic could with work from home and social distancing prove to be a decisive turning point. While policies radically changing the way we work e-commerce was already meaningfully and interact. But the impact on work is far and visibly eating into the sales of brick- more profound than just changing where and-mortar stores, what the coronavirus people work, it is also fundamentally altering has done is to accelerate a change in what work is performed and how we perform shopping habits. According to Salesforce it. Companies have relied on automated Global Shopping Index, between Q1 2019 services to allow workers to operate, and Q1 2020, retailers experienced a spike monitor, and control systems remotely, of 16 percent in digital traffic growth.39 thereby reducing the risk of human exposure Additionally, the average amount spent per to the virus and enabling operations to run visit grew by 4 percent. Social distancing smoothly without service disruptions. and school closures (globally, over 1.2 billion children are out of the classroom) have also The value of life as a key element encouraged the move toward e-learning of decision making: In times of high whereby teaching is undertaken remotely uncertainty (war, natural catastrophes, and on digital platforms.40 pandemics), the value of human life (current and future generations) increase, The figures for telemedicine and virtual rebalancing priorities of governments, health are just as striking. With a vaccine people and businesses to incorporate or treatment at least months away, patients resilience in their decisions processes. and healthcare providers both have reason We are all learning valuable lessons in to expand virtual interactions. With this resilience and human adaptability. We are sudden shift away from the classrooms and learning how quickly humans can respond doctor’s offices in many parts of the globe, when faced with a common enemy, be it a some are wondering whether the adoption novel virus or the well-established physics of of online learning and telemedicine will climate change. A good way to illustrate how continue to persist post-pandemic, and how 39 The Index captures the activity of more than 1 billion shoppers worldwide. https://public.tableau.com 40 Even before COVID-19, there was already high growth and adoption in education technology, with global investments reaching US$18.66 billion in 2019 and the overall market for online education projected to reach $350 Billion by 2025. 59 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES the pandemic has changed policymaking taking early actions and savings life. By is to explain how social distancing policies using this concept, economists have been have been justified by using the concept able to calculate that the costs of taking early of the statistical value of life. This concept social distancing measures were generally measures how much an individual or a much lower than the long-term costs society is willing to pay upfront to minimize associated to a situation with no government the risk of death. According to a recent interventions.38 In the US, the use of social study, the statistical value of life is around distancing measures has been justified $400,000 in Vietnam. If we assume that in as long as they don’t cost more than $6.1 case of non-interventions, the coronavirus trillion or 20 percent of GDP. Such approach would have killed around 200,000 people, was already utilized by environmental or a crude mortality rate of 0.2 percent, the agencies but is now expected to become total losses would have been equivalent to a more popular tool in other areas such $70 billion or almost 1/3 of current GDP. This as health crisis management and natural simple calculation provides some sense of catastrophes. how much the Government has saved by 2. How can Vietnam take advantage of these mega-trends? Vietnam can take advantage of the mega-trends could be immersed within the three mega-trends (described above) Government’s main priorities in shaping a by undertaking swift and concrete policy strong policy agenda. These priorities are: reforms. However, the window of opportunity (i) accelerating the country’s economic will be short as many other countries would structural transformation by upgrading its likely be planning on engaging in these production structure through diversification, areas. The ongoing crisis has caused a added-value and innovation, and (ii) swing in the political economy which can responding to the evolving domestic demand create favorable conditions to undertake from the emerging middle-class and aging such reforms. There can be much support population that will be looking for new and generated with a view of long-term benefits sophisticated products and services such associated with reforms will be greater than as: healthcare, quality post-secondary the costs. However, this swing might only be education, and better housing. Using this temporary. framework, the World Bank team has identified a set of opportunities (presented To identify ‘no-regret’ policy actions below). These are opportunities on which which the Government could quickly and Vietnam can build on emerging mega- opportunistically implement, the World trends to accelerate the priorities of its policy Bank is presenting a proposed framework. agenda (Table 5.1). This framework describes how the three 41 The Macroeconomics of Epidemics by Martin S. Eichenbaum, Sergio Rebelo, and Mathias Trabandt, NBER Working Paper 26882. 60 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies Table 5.1: Summary of no-regret opportunities Structural transformation Emerging new demand Revisiting globalization • Reshaping global value chains • Promoting local production of (local/global) imported high value fruits and • Developing strategic partnerships vegetables (e.g. $2 billion of with low-COVID-19 risk countries fruits are imported per year) • Increasing exports of products • Encouraging Inward FDI for in higher demand (rice, health domestic market (services, equipment) consumer goods) Contact-free economy • Encouraging formalization of • Improving access to education small businesses through ID4D by e-learning programs • Providing healthcare through the • Developing digital payments development of telemedicine (particularly G2P) and e-commerce The value of life • Greening production (e.g. carbon • Improving responsible behaviors tax, domestic emission trading) by information sharing through • Greening investment in energy digital tools and transport • Developing risk sharing instruments (insurance) against shocks Vietnam can exploit the emerging global useful, a higher degree of granularity is mega-trends to push ahead its domestic necessary such that the recommendations agenda. Of course, this list is not exhaustive can be implemented quickly. Within this and should be illustrative of a wider range vision, further analysis and recommended of possibilities. The proposed framework policy actions are presented for five selected emphasizes the relationships between the focus areas of these identified opportunities. mega trends and the domestic agenda, but it In each of these focus areas, the discussion fails to account for potential synergies across is organized to respond to the following opportunities. For example, encouraging the guiding questions: (i) what is the underlying formalization of small businesses can help mega-trend, (ii) why would it matter to the development of linkages with larger Vietnam, (iii) why would it matter now, (iv) enterprises and so their integration in global what could be done about it, and (v) what value chains. Similarly, improving e-learning, has been the international best practice in notably as part of upskilling and reskilling these areas? programs for the existing labor force, would enhance the delivery of the skills that are Area 1: Tapping into the new global necessary to sustain the shift toward the trading system proposed greening of production capacities. These synergies would make the proposed Global context: As explained earlier, opportunities even more valuable. We COVID-19 has heightened negative attitudes believe that the above selection of priorities is towards globalization. In a joint effort to straightforward as it is based on the country’s reduce the propagation of the pandemics, existing advantages and the recent changes most countries have closed their borders induced by the COVID-19 crisis. To be most and prevent people movements. The global 61 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES demand for many products has also declined, Similarly, the successful containment of leading to an unprecedented fall in the community infections has made the country prices of most commodities on international relatively safe, opening the possibility for markets. As a result, the value of trade the gradual return of international visitors. is predicted to plunge between 13 and 32 The Government can build on these recent percent in 2020.42 The role of global value positive developments to launch a trade and chains (GVCs) has also been increasingly investment strategy, which will complement questioned in view of their vulnerability to the country’s traditional advantages of cheap the combination of factory closures, border labor and stability. International investors closures, and reduced demand. The high appear to have already reacted positively reliance on China in several strategic to Vietnam’s attraction as the value of products (notably in food and medicine) has registered FDI surged by 20 percent in April also been a concern for many governments. 2020 compared to a year ago. Moving fast For these reasons, the reshaping of global is also justified from a business point of value chains, notably away from China, view as, many firms will aim at increasing offers a unique opportunity for Vietnam. their own resilience by increasing the geographical diversity of their suppliers. By Why does it matter for Vietnam? Any its relative economic and political stability change, even marginal, in the structure of and its proximity to China, Vietnam offers a world trade and investment is expected to credible investment destination for firms that impact heavily on the Vietnamese economy, aim to rapidly substitute their production. which is one of the most open in the world. Vietnam does not only report a merchandise What to do? Vietnam can consider two trade to GDP ratio close to 200 percent, but strategic moves to strengthen its footprint on its economy is also highly dependent on both trade and investments global markets. international tourists and FDI. The country First, it can develop alliances with country has also succeeded to position itself in partners that also appear COVID-19 safe various GVCs, notably in electronics and and so boost bilateral movements of goods textile and clothing where the import content and people. As illustrated in Figure 1 below, of exports was almost three times higher several of Vietnam’s major trade partners than the rates reported in Indonesia and are also highly ranked by the COVID-19 China. Similarly, many industries in Vietnam safety index, including China, South Korea are sourcing inputs that are then used by and Japan. Others (like Germany, Australia export companies located in other countries. and New Zeeland) are safe but not trading A large fraction of the bilateral trade between extensively with Vietnam. The strategy Vietnam and China is explained by these for Vietnam, while prioritizing safety for intra-sectorial relationships. Vietnamese citizens, should be to gradually open borders with these two groups of Why now? Vietnam can move fast because countries. To be effective, this gradual it is further ahead of the COVID-19 curve opening should be mutual between these compared to many of its competitors, countries, especially for key sectors such including India and Indonesia. Factories as high value agriculture exports, medical are opening up again, and many workers products (including PPEs) and tourism are going back to work, revamping supply (similar to the tourism bubble that New capacities in the tradable sectors and Zealand and Australia are considering). minimizing supply chain disruptions. Second, Vietnam can target industries that 42 Source. World Trade Organization, press release, April 8, 2020. 62 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies are considering diversifying their value chains some production to Vietnam, additional (Vietnam is well placed as it was ranked at opportunities may emerge in agro-processing the second rank in terms of attractiveness and transformation building on Vietnam’s for companies that aim at relocating from massive agricultural capacities. That said, China). Beyond its traditional assets and Vietnam’s absorptive capacity is limited by its geographical proximity with China, it can its skilled labor force size and its complex also count on its successful management cross-borders administrative procedures of the COVID-19 crisis as a prime foreign (ranked 104 out of 190 economies in trading investment promotion tool. Vietnam’s across borders, 2020 Doing Business privileged access to various markets due to report). Improving these weaknesses will its bilateral, regional and multilateral trading require an acceleration of current reforms on arrangements (such with the US, Korea, post-secondary education (e.g. vocational ASEAN, CP-TPP and the EV-FTA) open up education and training), tackling current trade opportunities to the largest markets gender-based skills and occupational in the world for companies relocating in segregation, simplifying and streamlining the country. While a number of electronic further administrative procedures faced by companies have already started to move businesses. Figure 5.1: COVID-19 safety rankings can be used to select trade partners Vietnam Exports (USD Billion) by Destination Country and COVID Safety Ranking 20 18 16 China, 35.4 Exports share (%) 14 12 10 8 Japan, 16.8 Korea, 14.8 6 4 Hong Kong, 7.6 Germany, 6.4 2 Australia, 3.3 Singapore, 2.9 0 New Zealand, 0.5 0 2 4 6 8 10 12 COVID 19 Safety Country Ranking (1-40) Source: WITS trade data and DKG COVID-19 safety ranking Note: (i) The COVID-19 Safety Ranking integrates four main parameters; quarantine efficiency, government management efficiency, emergency treatment readiness and monitoring and detection; (ii) the size of the bubble captures the amount of Vietnamese exports to the particular country (in billions of US dollars). 63 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES Table 5.2: Recommended actions to enhance trade and FDI Objectives Key considerations Examples New • Promote bilateral agreements with other • South Korea: the customs partnerships safe countries. administration has implemented Increase • Facilitate trade including (inbound several reforms to facilitate trade Vietnam’s and outbound) by Customs Clearance including the implementation of footprint in global Support Center. measures to facilitate the trade of trade critical supplies for both inbound • Use ASEAN and other FTA’s such as CP- and outbound cargoes. Customs TPP as a platform for trade promotion. Clearance Support Center • Promote digital technology to facilitates the movement of critical reduce transaction costs, improve raw materials. This includes competitiveness, business continuity. critical supplies needed to restart • Promote contact-free business factories. KCS temporarily platforms: e-procedures, logistics, implemented 24/7 support teams warehouse, promote digitally enabled for emergency clearance of raw tourism ecosystem businesses materials at several customs • Promote quality and safety. This offices. applies to tourism workers and visitors. Also important for supplying safe and quality food through development and enforcement of food safety regulations; and improve coordination between government authorities and exporters/ producers for compliance with Sanitary and Phytosanitary (SPS) measures. Targeted information campaigns (including online) will be necessary. New investments • Target companies that are interested in • Singapore’s Economic Attract new diversifying supply chains Development Board (EDB) offers sources of quality • Launch a campaign with companies investors financial advantages FDI that have already expressed interest in through long term shareholding locating in Vietnam. to companies in high-growth technology sectors. It also focuses • Establish a database for value chain towards innovation-led industries mapping and regional specialization and such as biomedical cluster, establish high frequency information information and technology, system to provide important policy smart and sustainable technology making information. (Internet of Things, AI, software • Identify skills demanded by companies/ automation and robotics) and industries targeted for new investments selected industry clusters under and promote availability of in-demand Strategic Investment Program. skills, especially through vocational training and improved tertiary education that can also promote a gender diverse labor force. • Promote greater use of services in the manufacturing sector (e.g. for research and development, design and embedded services, logistics that increasingly matter for manufacturing competitiveness and account for much of the value added in a product). 64 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies Area 2: Promoting digital payments for a surrounding financial inclusion initiatives. new business model Why now? The COVID-19 pandemic Global context: The closures and social hastens the need to transition away from distancing triggered by the COVID-19 a cash-based economy toward a system crisis have highlighted the potential of that encourages the use of electronic e-commerce and practical use of digital payment services, which are vital to payments to instantly link sellers with buyers, increase efficiency, reduce costs, facilitate lower transaction costs, and create new financial inclusion and reduce poverty. The markets tailored to consumer demand, while Government and the SBV have been moving minimizing physical contact. The pandemic in that direction, notably under the necessity has also highlighted how digital payments to deliver financial support to vulnerable facilitates the availability and smooth people and businesses that do not owned provision of cash and non-cash payment a bank account or do not use electronic services used by the most vulnerable payments. The recent development of individuals particularly for Government to e-commerce (as a substitute to traditional Person (G2P) payments and remittances. shopping) has proved to be important for Those trends have proven advantageous business resilience, including SMEs. Yet, in countries that embraced digital financial many of them are restricted not by the lack services and has reduced the full economic of access to Internet but by the absence of impact of the pandemic on commerce and secure cashless payment systems. access to financial services. What to do? Facilitating enabling regulation Why does it matter for Vietnam? The related to branchless banking initiatives Vietnamese economy continues to be will help Vietnam achieve greater levels heavily cash-based, with only a fraction of of financial inclusion by promoting the transactions conducted using electronic entry of diverse providers into the digital payments. According to the Global Findex financial services market and strengthening survey, only 24 percent of adults in Vietnam knowledge-sharing around financial had a debit card in 2017, compared with 43 inclusion initiatives. This would however percent in East Asia and Pacific countries require enhancements to regulations overall. The disparity between ownership of governing account opening and provision debit cards and usage of those cards was of low value transaction accounts as well as also substantial; only 5 percent of adults a more evolved role for third party payment that owned a debit card had used it to make service providers to interact with payment payments within the previous year as of systems and to allow for a more effective 2017. There is significant scope for growth in use of innovative technologies and the digital banking since Vietnam has a high rate growth of the retail access networks. These of smartphone penetration and cost-effective steps will be essential to expand outreach internet and Wi-Fi access, but a remaining to the under- and un-served segments of gap in existing regulations. Building an the population, including the majority of enabling payments eco-system is essential micro-entrepreneurs who are women, and to help Vietnam promote digital payments to improve the usage and reduce the cost and reach greater levels of financial inclusion of payment services, including remittances. by expanding coverage and outreach and Most digital payments require an e-wallet promoting the entry of diverse providers with a bank that in turn requires a bank into the digital financial services market account. Given the current circumstances, and strengthening knowledge-sharing it may be prudent to revisit the potential of 65 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES digital payments and expedite the process of the expanding digital economy, but it is developing the regulations to allow for non- also one of the enabling factors for growing bank agents to operate in the Vietnamese other aspects of the digital economy like payments landscape. The growth in digital e-commerce. payments is an important component of Table 5.3: Recommended actions to promote digital payments Objectives Key considerations Examples Developing • Strengthen digital ID to facilitate adoption of • Interoperability with Mobile digital payments digital payments, to improve privacy, and to Network Operators is common ecosystem reduce fraud risks. and prevalent in many countries. • Strengthen consumer protection to build trust Increasingly QR codes as a form in digital payments. of payment are also gaining in popularity particularly in Asia. • Adopt standards and guidelines to complement Regulatory authorities in Asia innovations in disclosure and recourse. are pushing for standardization • Promote interoperability of services across to support interoperability of service providers and points of service. payments systems across • Expand the use and acceptance of e-payments; financial service providers. QR by promoting electronic payments to and from codes are two-dimensional government and between businesses. machine-readable barcodes, • Create a regulatory and institutional framework used to facilitate mobile for participation of third-party payment service payments at the point-of-sale. providers in new payments infrastructure. Facilitating • Enable e-KYC and tiered-KYC requirements • M-Pesa is a mobile phone-based e-commerce and for low risk accounts. money transfer and micro-finance financial inclusion • Establish regulated third-party payment service which was launched in initiation services through open architecture Kenya in 2007 and has since to new national Automated Clearing House expanded in several countries. (ACH) payment schemes. M-Pesa allows users to deposit, withdraw, transfer money, pay • Set up transparent and objective operational for goods and services, access and organizational criteria for all potential credit and savings all with a companies. mobile phone. M-Pesa is an • Encourage small retailers and businesses example of a branchless banking to create an on-line presence and accepting service that uses a network of digital payments and roll-out rural e-commerce banking agents. The service has demonstration programs. successfully provided millions • Strengthen collaboration among ministries on of people access to the formal data sharing with complementary cloud based financial system and for reducing digital services including (i) point of sale and crime in large cash-based sales management, (ii) accounting, (iii) ERP, and societies. (iv) delivery and logistics. • Develop Supply Chain Finance through digital financing platforms that will help create a transparent database on transactions among suppliers and buyers. 66 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies Area 3: Promoting telemedicine an opportunity to address the systemic challenge of lack of coordination and Global context: As societies grow in wealth integration of care in Vietnam’s fragmented and go digital, people want better healthcare health service delivery system. Healthcare and expect it to go digital, too. With rising providers currently do not coordinate incomes, people increasingly aspire to enjoy among one another on patient transfers and long, healthy, and productive lives. As in other discharge, fragmented payment systems countries, rising expectations of a growing lead to conflicting incentives, and there is middle class in Vietnam have contributed to no information sharing across providers for higher demand for better quality and more follow up care. Electronic sharing of medical technologically sophisticated healthcare. records facilitates coordination of care Recent advancements in information and across providers. Telemedicine also allows communication technology (ICT) have been patients to seek care at home or at lower the biggest drivers of telemedicine over the level facilities with remote consultations with past decade. The transition from analogue to specialists at secondary or tertiary levels, digital forms of communication, increased use which can improve quality of care. There are of the Internet, and advances in computing also potential cost-savings and economic power have created new possibilities for benefits from telemedicine. Direct cost health service delivery. Common forms savings have been shown from teleradiology of telemedicine include telemonitoring of (transmission of CT images), avoidance patients, sharing of information across of unnecessary patient transfers to higher providers, remote consultations (provider- levels, and phone consultations. Opportunity to-provider) and virtual visits (patient-to- costs from time spent seeking care can also provider). A rapid drop in the cost of ICT be reduced: studies suggest that a typical has also led to increased availability and doctor’s visit takes 121 minutes, of which utilization, expanding the potential for 37 are travel time, 84 at the clinic, with just telemedicine to be a game-changer in 20 minutes of face-to-face physician time. healthcare. Such cost-savings will also likely affect the Why does it matter for Vietnam? existing gender time use gap, as females Telemedicine presents an opportunity to spend more time on unpaid care than male increase access to good quality health care. household members. As in other countries, Examples from developing countries have women are also at risk of being victims of shown improvements in the quality and gender-based violence (GBV). accessibility of medical care by allowing Why now? The COVID-19 pandemic has providers to evaluate, diagnose, treat, and accelerated several trends that justify provide follow-up care to patients from a the uptake of telemedicine, including the distance, and enable remote access to growing use of digital tools and the demand tertiary care advice in underserved areas. for more sophisticated services by the In East Asia, for example, China extensively aging and emerging middle class. The uses ICT for remote consultations between mainstreaming of telemedicine also offers hospitals and primary care facilities, the opportunity to reach out to isolated which a delegation from Vietnam viewed population in mountainous and lagging during a study tour in 2018. Telemedicine regions. implementation in the long term. interventions should take equity into In response to the COVID-19 pandemic, consideration, ensuring that it facilitates many countries have introduced or access to care for people and not only accelerated the use of telemedicine. While wealthy urbanites. Telemedicine also offers robust assessments of clinical-and cost- 67 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES effectiveness are not possible in real time, What to do? Of course, not all telemedicine promising use cases have emerged for both needs to be “high-tech”: Vietnam could COVID-19 and non-COVID-19 patients. use inexpensive and simple technology, “Forward triage” and nurse hotlines have especially in the short term. Phone enabled effective screening while protecting consultations are a cost-effective way of patients, clinicians, and the community connecting health professionals to patients. from exposure; virtual visits using simple Hospitals in Vietnam already conduct technology (phone or video calls) have patient satisfaction surveys via phone enabled primary care physicians to continue after discharge. This can be expanded to seeing their patients. Telemedicine also has include questions on patients’ well-being, the potential to support continued health simple follow-up medical advice, and case service delivery in this context where fewer management. There may be inequities people are seeking care for essential services arising from a “digital divide” based on (e.g. vaccination, antenatal care) for fear age, education, socioeconomic strata, and of going to health facilities. Telemedicine, geography. User acceptance of and level of coupled with care teams operating in shifts comfort with ICT may also limit the adoption of and designated spaces and protocols for telemedicine. Effort will be needed to ensure managing suspected COVID-19 cases, that the elderly, lower-income households, could maximize the number of consultations and those in hard-to-reach areas can (remote and face-to-face) and reduce also benefit from telemedicine. Offering instances of foregone care. Vietnam, too, telemedicine in relevant languages would has rapidly adopted telemedicine and also be important to making it accessible to online counseling to GBV survivors during ethnic minorities. Global experience shows COVID-19. Bluezone by Viettel covers a that there are several common factors for range of uses and supports contact tracing successful implementation of telemedicine. and alerts for COVID-19. The Government These include having the appropriate of Vietnam aims to extend the application technological environment (reliable ICT across the country, to bring high quality infrastructure, interoperable systems); clear health services to people regardless of their regulations and policies and organizational location, at a low cost. This rapid adoption of arrangements; a conducive economic telemedicine comes after almost a decade environment (strong financial incentives of attempts to develop and standardize and clear evidence on clinical and economic the use of ICT in Vietnam’s health system. benefits); and the “human element” of COVID-19 thus presents a rare opportunity telemedicine: user acceptance, competence, – with ongoing momentum and with support and confidence. In addition, when it comes from the highest level of leadership – to to case-management and online service to roll out telemedicine more broadly and GBV survivors, confidentiality and anonymity mainstreamed in the health service delivery are important elements. system in the long term. 68 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies Table 5.4: Recommended actions to promote telemedicine Objectives Key considerations Examples Technological • Improve coverage of ICT • Thailand: Telemedicine program environment infrastructure especially in hard-to- and ICT investments in rural Including reliable reach areas. hospitals. ICT infrastructure, • Introduce standards for • Estonia: Consolidated online interoperable interoperability of systems, e-health record per citizen, systems consolidate existing data, and accessible by providers and encourage a culture of data sharing. patients and interoperable with non-health databases. • Euro region: Unique patient ID, shared electronic health records. • India: Has established an e-health authority and national IT portal. Regulations and • Review and revise regulations and • Euro region, US: Legislation on organizational policies, in particular on (i) data data protection and use environment security, protection, and sharing, • China medical alliances, Germany Establish clear (ii) reimbursement, and (iii) Gesundes Kinzigtal, Singapore regulations and responsibility for patients to ensure Regional Health Systems: New policies; reorganize clear medical liability and continuity governance structures or contracts health service of care. for care networks; clearly defined delivery network • Consider new governance and roles for providers within network, management structures for use of multidisciplinary teams and organizing health care providers, integrated care pathways. including specifying new roles of • UK: Remote patient monitoring providers and health workers, and platforms coordinate care across developing tools for collaboration. different providers. • Encourage informal (and virtual) social support networks for GBV survivors and expand support to on-line counseling Financial and • Revise payment policies to create • US (selected states): Payment economic conducive financial arrangements parity between telemedicine and incentives for the adoption of telemedicine, so face-to-face services. Establish strong that the reduction in face-to-face • UK: Selected e-health apps free of financial incentives service volume will not adversely charge to patients, with negotiated and clear evidence affect providers’ revenue and reimbursement rates to providers. on clinical and income. • Systematic reviews of existing economic benefits • Establish measurement and evidence suggest significant evaluation methods to assess scope for better measurement and the effectiveness of the different evaluation, especially in developing technologies, clinical interventions, countries. and improvements to patient outcomes from long term, routine use of telemedicine. 69 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES Objectives Key considerations Examples Human element • Use simple technology (e.g. phone • Vietnam’s hospitals conduct Increase user consultations) to mitigate potential patient satisfaction surveys via acceptance of ‘digital divide’ and offer services phone. Expand scope to include and level of in relevant languages to ensure follow-up consultations and case comfort with ICT; access to ethnic minorities and management. Improve providers’ women, in particular. • US: Telemedicine training competence and • Train providers and run public components in some confidence in ICT awareness and education undergraduate medical curriculum campaigns to boost acceptance • Australia: Telemedicine Awareness and use. Week Area 4: Enhanced information sharing for corporate governance, or geospatial such increased resilience as natural asset management, flood and risk information. While these data have been Global context: Over 90 percent of data used with success by the authorities to design that exists today has been created over their policy strategies, many are not shared the last two years. This data has become with the public. As a matter of fact, Vietnam a source of comparative advantage for was ranked 106 out of 178 countries by the firms (seven out of the ten best-performing most recent Open data Index.43 Limiting companies in the world are data-oriented) the widespread sharing of the data could be and for governments. International justified for security and privacy motives, but experience demonstrates that forward it also contributes to the deterioration of the thinking governments are those that have quality of the collected data and to weaker made innovation possible by opening their accountability as results cannot be properly own data and make them easier to share monitored and evaluated over time. The through the use of digital tools. These tools government can leave a strong legacy for the (data collaboratives, big data and artificial future now by publishing an increasing share intelligence) have been increasingly applied of government information more proactively to solve today’s challenges, from addressing and boldly, including through digitization climate change to public health and to job that largely reduce the transaction costs creation. associated to this effort. Why does it matter for Vietnam? Why now? The COVID-19 crisis can International experience has shown that serve as a catalyst for Vietnam to take more open, inclusive, and data-sharing bolder actions to place the use of data and governments are not only more efficient but information sharing in the heart of its recovery also more resilient and better able to adapt strategy. The successful containment of the to shocks. Over the years, the Government Coronavirus outbreak has demonstrated of Vietnam has been quite effective in that data sharing can be a powerful tool to gathering data from different sources design, implement, monitor, and evaluate (government operations, households the impact of policy actions on individual and firms’ surveys). The collected data and collective behaviors. Vietnam has used also covers a broad range of areas from a wide range of digital support to inform and health, labor markets, pollution, public track people during the crisis. Reliable and finance, public investments, contracting, transparent information from the government 43 Source : https://odin.opendatawatch.com/ReportCreator/ExportCountryReport/VNM/2018 70 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies on the outbreak not only helped citizens was a step forward in the right direction. It to make concerted actions to contain the should be followed by the rapid adjustments virus, but also enabled public authorities of sector-specific regulations and practices, at different levels to flatten the curve. The such as in health, land, environment and government can certainly build on these natural resources, trade, or public finance gains by further opening government data – tax administration - that are limiting the in order to help strengthen management, sharing of this invaluable information even improve market perceptions of risk, and among public entities. Ultimately, a whole-of- increase accountability for service delivery government data governance structure needs in its post-COVID-19 recovery. Information to be implemented to facilitate seamless disclosure in public and natural assets data sharing across government agencies management could also enable the general and with businesses and citizens. Moving public to complement regulatory monitoring toward this objective could be attained by (i) and enforcement to improve performance of removing barriers to information accessibility the industries or service delivery units. in priority areas; (ii) developing government data platforms or easy-to-use portal with What to do? Collecting and sharing data application programming interfaces (APIs) to has proved to be a game changer during automatically share data between computer the COVID-crisis. The recent issuance of a systems; and (iii) improving privacy and broad regulation on digital data sharing and security for users. open data, amid the outbreak in early April, Table 5.5: Recommended actions to enhance information sharing Objectives Key considerations Examples • Issue sector specific • South Korea: national data Regulations (for free) data sharing warehouse regulations and guidelines • China : Environment, Enhance information of critical datasets including pollution control, natural accessibility for opening up data in foundational registries assets (land, citizens, businesses), • Brazil: greater transparency tax, public finance, health in timber tracking is helping insurance, land, environment tackle illegal activities found and natural assets, and in 70 percent of the timber geospatial data. operations. 71 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES Objectives Key considerations Examples Government Information • Assign data custodians at the • Canada: Standards, Develop whole-of-government central, sector, and agency OpenMaps data governance structure and levels • Denmark: Datafordeler data integration and inter- • Develop a whole of • Switzerland: SwissTopo operability government common IT • Indonesia: Geospatial Portal platform • United States: O*NET • Develop standards for sector-specific data collection and classification schemes with agreed data exchanges standards and exchange formats to enable updating, use and reuse of data • Developing data exchange mechanisms - establishing APIs and portals for seamless data sharing Consumer rights • Issue regulations on • Singapore: SingPass Mobile Improve privacy and security privacy protection including App with sign-in security protection anonymization features • Issue security standards and • Thailand Personal Data layer for access control and Protection Act forgery prevention in digital • Europe: General Data transactions Protection Regulations Area 5: Aiming for a low-carbon economy past months, on average, by 50 percent below pre-COVID-19 levels. In some cases, Global Context: The COVID-19 pandemic for instance, crude oil, the prices have fallen and the ensuing lockdowns have created an below theoretical limits (to negative) for the intense demand shock in the global energy first time in modern history. Given that over markets. While fluctuations in the market two-thirds of the global energy system relies are common, the magnitude of the current on fossil-fuels, the reduced consumption is demand reduction is the largest since the having a dramatic impact on carbon-dioxide second world war. By the end of the year, (CO2) emissions. The rate of decline of CO2 demand for oil is expected to be down by emissions has been the fastest in over one- 9-10 percent, for coal by 8-9 percent, for gas hundred years and six-times larger than by 2-4 percent, and for electricity by 5-10 the previous record reduction of 0.4 Gt in percent. Renewable energy is one of the 2009 caused by the global financial crisis. few sources noticing an increase in demand Countries across the world have noted of around 1-2 percent which also points to the highly positive impact of the reduced its economic and financial viability. Due to pollution levels to human health and natural the supply-demand imbalance, the energy environments. The gains from reductions in commodity prices have plummeted in the rate of increase of CO2 emissions and local 72 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies air pollution will be short-lived unless they between 1995 and 2015. facilitate deeper and longer-term behavioral, business, and institutional changes. Why now? It is anticipated that energy Furthermore, it is imperative to avoid commodity supply will increasingly be an emissions ‘snapback’ similar to what throttled to respond to the demand shock occurred during the global financial crisis of and that the prices will rebound strongly 2008, when CO2 emissions from fossil fuel within a year. Nearly 70 percent of Vietnam’s combustion and cement production grew energy for core productive sectors, such 5.9% in 2010 (more than triple the decrease as transport, electricity, industry, is derived associated with the recession). from fossil fuels. At the current rate, energy imports will account for at least a quarter Why does it matter for Vietnam? The of all energy consumed in Vietnam by energy commodity price fluctuation is 2030. The vulnerability of Vietnam’s energy experienced differently by fuel exporting and system to imported fossil-fuels will leave it importing nations. Fuel exporting nations exposed to financial risks (foreign exchange are facing unprecedented current account payments for imports), energy security deficits and are reducing fiscal programs risks (disruptions in imported supply), and while also having to respond to emergency environmental risks (increased GHG and spending needs for the pandemic. Vietnam, air pollutant emissions) unless it seizes as a net energy importer (e.g. oil, gas, coal), the current window of opportunity and has thus far fared well in this regard. Having undertakes urgent course corrections. The managed the COVID-19 crisis better than timing of these decisions is particularly many nations, Vietnam’s economy is on relevant given the policy framework transition the path to recovery. The transport sector expected in the year 2020. Several landmark is slowly rebounding, industrial activity is actions are being considered which could resuming, and the year-to-year electricity have a tremendous impact on the energy consumption, which is fossil fuel intensive, sector. For instance: the planned revision is up by 4 percent in the first four months of of the Vietnam’s Nationally Determined 2020. Given the reliance of energy system Commitments (NDCs) can increase ambition on fossil-fuels, the instinct would be to on CO2 emission reductions and put in expand consumption (liquid fuel and coal place no regret policies and measures that inventory at the end of March 2020 was 47 can address air quality and climate action percent higher than the same period last together, Social-Economic Development year). Since Vietnam has largely eliminated Plan (SEDP) which can connect the climate fossil fuel subsidization mechanisms, by commitments to core economic policy, default, end consumers would benefit from Power System Development Plan (PSDP lower pass-through prices (with allocation 8) which can anchor renewable energy being made for the Fuel Stabilization Fund). based generation, Vietnam’s National However, as commodity prices rebound, this Energy Efficiency Plan (VNEEP) which near-term financial benefit can have severe can accelerate implementation of energy negative financial as well as economic efficiency measures, as well as the proposed impacts in the long-term with regards to revisions to the Law on Environmental human health, environment, and natural Protection, which would set a strong legal resources. In recent past, Vietnam has been basis for climate action. As the energy the lower middle-income country with the demand for economy continues to rise, it highest average annual change (of about will be imperative that investments in the 3 percent) in losses from ambient pollution COVID-19 recovery period do not lock-in 73 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES Vietnam on a fossil-fuel intensive pathway. (e.g. power system loss reduction, industrial This would help avoid potential stranded retrofitting, improved building codes, asset risks in the energy sector, given appliance standards, etc.); and (v) providing that long-term investments with lifetimes investment incentives (e.g. credit facilities, spanning up 50 years or even longer may tax breaks) for firms and individuals together not be economically viable much earlier with targeted communication campaigns to than that. Taking a low-carbon orientation in support behavior change towards efficiency. investments (including stimulus measures which should not ignore environmental Electricity continues to become the primary standards for fast-tracked implementation) fuel source of Vietnam’s modern economy. As can enhance competitiveness, more such, switching from imported molecules to attractiveness of foreign direct investment, local electrons through aggressive utilization improved public health, and local quality of of abundant domestic renewable energy life. Additionally, supporting the development resources (e.g. solar and wind energy) can of a clean energy industry will also bring significantly reduce, and eventually eliminate, about short-term job creation benefits while the reliance on fossil fuels. Given continued also potentially building an internationally trend of reduced costs of renewable energy, competitive manufacturing industry in rising environmental costs of fossil fuels, Vietnam. and the ongoing hurdles experiences in implementing new projects, the opportunity What to do? COVID-19 presents a is now to reconsider plans for large-scale unique opportunity to prioritize climate- coal-fired power plants. Following actions smart investments. These investments should be undertaken: (i) revised sector not only provide long-term financial and plans (PSDP 8) should include ambitious environmental benefits, but also bring targets for renewable energy as part of short-term and low-risk positive impacts on the generation mix, while also including all employment and economic activity. Three relevant technical requirements (e.g. for grid areas are discussed below: (i) demand strengthening, battery storage) for enabling moderation, (ii) supply diversification, and successful variable renewable energy (iii) facilitating low carbon investments. integration; (ii) while private investment is essential and should be promoted, public Scaling-up production-side and consumption- investment in upgrading grid capacity to side energy efficiency effort is a low-hanging evacuate renewable energy needs to be fruit. Following actions should be undertaken: prioritized; (iii) implementing transparent (i) pushing for a shift towards greater use commercial framework for promoting private of public transport for passengers and of sector investment (e.g. reverse auctions railways, waterways, and coastal shipping for and standardized agreements) can further freight; (ii) promoting e-mobility by switching reduce costs build investor confidence; (iv) from fossil-fuel driven vehicles to electric distributed generation programs (e.g. rooftop vehicles (especially where public transit is solar systems) can reduce the pressure on not feasible) must become a priority; (iii) the centralized grid supply; and (v) regional making efforts to reduce transport demand power trade with careful consideration through prudent use of telecommuting, of energy security (e.g. import of surplus e-commerce, and promotion of compact hydropower from Laos and China) can urban planning; (iv) strengthening regulatory facilitate utilization of low cost, low carbon frameworks to implement energy efficiency energy. targets at sub-national and sector levels 74 Don’t let a crisis go to waste - COVID-19 POLICY RESPONSE NOTES reshaping the economy through ‘no-regret’ policies Successful clean energy transition will energy would be important. Such market- require upfront financial support for long- based approaches will provide an incentive term economic benefits. Following actions for firms and consumers to find areas where should be undertaken: (i) charging a carbon lower-carbon technologies can substitute price on fossil fuels (not passing on all most easily without disrupting the uses benefits directly to consumers) and using where low-carbon alternatives are not close the proceeds for low-carbon investments, to being cost competitive. It would also including in renewable energy and energy incentivize innovation in those areas where efficiency. Given the historically low prices alternatives are expensive; (ii) supporting as well as relatively low levels of fossil private sector led financing (which can be fuel consumption, this would be a timely enhanced with government guarantees or opportunity. Adopting a well-designed equity support) and launching green bonds carbon pricing instrument (e.g. carbon tax, can bolster investments; and (iii) establishing cap and trade system) would make climate- cost-reflective tariffs for electricity which smart investments more competitive and enables long-term financial viability. lead to a shift towards low-carbon forms of Table 5.6: Recommended actions to ‘flatten the carbon curve’: Objectives Key considerations Examples Demand moderation • Promote e-mobility, public • China’s public bus Reduce the energy intensity transport, and other fossil- electrification program is one of the economy as Vietnam’s fuel demand reduction of the largest in the world energy elasticity to the GDP is measures. • USA’s energy efficiency estimated to be about 2, which • Scale-up investment in stimulus resulted in double is one of the highest in the improved energy efficiency the energy cost savings region and calls for significantly of supply as well as • Hebei’s Pollution Prevention increased ambition consumption of electricity. and Control Implementation • Stricter energy efficiency Action Plan (China) focusing standards for industry, on reducing emissions in appliances, vehicles while enterprises, household phasing down super climate stoves and transport pollutants (HCFCs and • Montreal Protocol support for HFCs) used for space HCFC phase-out and HFC cooling, refrigeration and phase-down insulation. 75 Don’t let a crisis go to waste - reshaping the economy through ‘no-regret’ policies COVID-19 POLICY RESPONSE NOTES Objectives Key considerations Examples Supply diversity • Improve planning and • India, China, UAE: energy Accelerate clean energy provide complementary from Solar PV has reached transition from imported public investment to grid-parity in many countries molecules to local electrons ensure growth of domestic • Korea plans to shut half its through aggressive utilization of renewable energy. coal power plants and nearly abundant domestic renewable • Accelerate development of triple the share of renewable energy resources (e.g. solar transparent and competitive energy in electricity and wind energy) commercial frameworks generation to attract private sector financing. • Identify and promote training in the skilled workforce needed to support this transition. Facilitating low-carbon • Implement a carbon price on • Canada has successful investments fossil-fuels and use proceeds reduced emissions using a Support clean energy industry for low carbon investments. carbon tax on fossil fuels and innovation that will require • Adopt a well-designed • EU, Japan (Tokyo and upfront financial support for carbon pricing instrument to Saitama), USA (California) long-term economic benefits provide incentives for low have used cap-and-trade carbon innovations. schemes to incentivize GHG • Continue electricity tariff emission reductions targeting reforms and support heavy emitting sectors development of market- based investment approach. 76 COVID-19 POLICY RESPONSE NOTES ANNEX ANNEX Annex A: Policy packages in selected East Asian countries A.1. Hong Kong For Enterprises Hong Kong announced its 2020/2021 fiscal • Provide 100% government guarantee for budget deficit at an estimated HKD139.1bn, loans for SMEs up to HKD2mn. or 4.8% of GDP, largest since 2002. The • Profit tax cut of 100% for 2019/2020, up to budget included a mix of short term and a cap of HKD20k. long-term measures for households and enterprises to help the economy weather • Continue measures to help operations the multiple headwinds it currently faces. including subsidies for 75% of electricity The most eye-catching announcement was charges (up to HKD5k per month) for four the HKD10,000 cash hand out for all adult more months and 75% waiver of water and permanent residents which will cost roughly sewage charges for four more months. HKD71bn. The hand out aims to spur consumption for the retail sectors which • Waivers of government fees including have been hard hit by COVID-19 and local business registration fees, company social incidents last year. With still ample annual returns and rates for non-domestic fiscal reserves of over HKD1.1trn, the properties for 2020/2021. government has policy space to implement • Continue rental subsidies or rent these countercyclical fiscal measures to reductions of 50% for certain businesses help provide a cushion for growth. and for some government properties for Key measures of the budget: For six months. Households and Individuals • Additional support for hard hit industries • HKD10,000 cash hand out for permanent such as construction (subsidies for residents over 18 years old. contractors), transportation (pilot subsidy scheme, profits tax exemption for ship • Personal income tax cut of 100% for lessors) and tourism (increase fund for HK 2019/2020, up to a cap of HKD20k. Tourism Board by HKD700mn). • Provide additional funding for retraining Other key measures: and employment programs. • Increase housing and land supply by • Waivers of government rates for residential implementing the Land Sharing Pilot properties for 2020/2021. Scheme, rezoning land for public housing projects, assessing brownfield sites, etc. • Additional allowance for social security recipients and one-month rental waiver for • Introduce pilot scheme for fixed rate public housing rental tenants. mortgage loans with interest rates of 2.75%, 2.85%, and 2.95% for 10, 15 and • Waiver of high school examination fee. 20 year loans. 77 ANNEX COVID-19 POLICY RESPONSE NOTES • Waive stamp duties on stock transfers for Medium-term policy priorities ETFs created and redeemed in Hong Kong. • Additional capital injection for the Rural • Health Authority recurrent funding Development Bank introduced to support increased to HKD75bn to support health agro-processing firms. care services and population growth. • The establishment of a new (state owned) • Continue to diversify the economy by SME Bank designed to support SMEs. supporting innovation and technology The bank also provides co-financing and by increase funding for Innovation and risk sharing with commercial banks (and Technology Fund as well as Science and microfinance institutions) that lend to Technology parks of HKD2bn each. SMEs to improve access to finance for domestic firms. • Support environmental goals such as by encouraging use and transition to • Additional measures (to be introduced electrical vehicles through subsiding EV in April) include measures to improve infrastructure development. competitiveness and productivity, trade facilitation, and ease of doing business, A.2. Cambodia addressing actual challenges in key sectors and sub-sectors for the medium An initial phase of policy priorities under term such as agriculture, agroindustry, the 2020 budget’s 3 percent of GDP fiscal tourism and SMEs. stimulus covers: Short-term policy priorities A.3. China • Measures supporting the hardest Short-term policy priorities hit industries (tourism, garment and • While fighting the virus remains the footwear) with tax relief and exemption priority, the policy focus has shifted from contributing to social security toward relieving the economic impact of funds, providing laid-off workers with the outbreak and resuming production. unemployment benefits (60 percent of salary) plus retraining and upskilling • A differentiated approach to disease programs as well as job-finding services. control: • Promote domestic tourism by launching • High-risk regions will continue to campaigns to organize activities and focus on virus control. Hubei will block events in Siem Reap Province, extend transportation until the end of March. the validity of each ticket to Ankgor Wat • Other regions are resuming transportation complex, and improve international and production. passenger routes • Frontloaded policy stimulus, including • Property registration tax exempt for accommodative monetary policy and purchase of a property below US$70,000. fiscal support, to arrest the economic • Measures to improve trade facilitation with slowdown. an expansion of “the green lane” and post • Ensuring employment and consumer price audit clearance which will reduce trade stability and the livelihood of low-income costs and underpinning more advanced households. logistics enhance the longer-term competitiveness. 78 COVID-19 POLICY RESPONSE NOTES ANNEX Medium-term policy priorities • A on-lending fund (0.3 percent of GDP) to support key manufacturers of medical • President Xi reiterates the need to reach supplies and daily necessities. the annual economic targets. • Cut (both interbank and lending) policy • Policy actions to enhance resilience rates (mostly by 10bps). against similar health shocks, including enhanced food safety, health surveillance A.4. Malaysia and response and public communication systems. The stimulus package valued at RM20 billion is anchored on three strategies as follows: Fiscal policies • Strategy I: Mitigating impact of COVID-19; • Targeted fiscal support to contain the spread of the virus (~0.1 percent of GDP). • Strategy II: Spurring Rakyat centric economic growth; and • Increased local government bond issuance planned in 2020 Q1 (0.6 percent • Strategy III: Promoting quality investments. GDP higher than 2019Q1). Planned Strategy I: Mitigating Impact of COVID-19 infrastructure investment in areas including medical equipment, 5G, and The most immediate economic impact of industrial internet. COVID-19 has been the sharp decline in tourist arrivals throughout the region. Hotels, • Tax breaks and subsidies and deferrals airlines, travel companies and more broadly including cut in social insurance payment the tourism-dependent retail industry have to ease near-term cashflow problems in been badly affected. the enterprise sector (significant but hard to quantify now): To mitigate the impact, the Government will implement a three-pronged approach – first,  uppliers of major medical supplies for -- S to ease the cash flow of affected businesses, virus prevention and control enjoy pre-tax second, to assist affected individuals, and deductions when purchasing equipment third, to stimulate demand for travel and to expand the scale of production; tourism.  nterprises working in the transportation, -- E Easing Cashflow. To assist businesses life service and daily necessities delivery most adversely affected, the Government service sectors exempted from the value- proposes for a period of 6 months beginning added tax; from April until September 2020: -- MOF introduced an interest subsidy • First: To allow deferment of monthly income scheme for new loans to companies tax instalment payments for businesses in that produce medical supplies which are the tourism sector. In addition, companies earmarked for fighting the coronavirus affected by the COVID-19 to be allowed to -- Companies partly exempted from the revise their profit estimates for 2020 with payment of pension, unemployment and respect to monthly income tax instalment work injury insurance payments without penalty; Monetary policies • Second: To provide 15% discount in monthly electricity bills to hotels, travel • Sizeable liquidity injection through the agencies, airlines, shopping malls, repo market (~1.7 percent of GDP). conventions and exhibitions centres; 79 ANNEX COVID-19 POLICY RESPONSE NOTES • Third: To exempt Human Resource a one-off payment of RM600 each to taxi Development Fund (HRDF) levies for drivers, tourist bus drivers, tourist guides hotels and travel related companies; and and registered trishaw drivers. • Fourth: To exempt the 6% service tax for As a sign of appreciation to those in the front hotels. However, this exemption will be line protecting Malaysia from the contagion, made effective earlier, that is from March Government staff directly involved in the to August 2020. containment efforts will be eligible for a special monthly critical allowance of RM400 The Government will also provide financing for medical doctors and other medical facilities for affected companies, as follows: personnel, as well as RM200 for immigration • First: Bank Negara Malaysia (BNM) will and related front line staff commencing provide a Special Relief facility worth RM2 February 2020 until the end of pandemic. billion, particularly in the form of working To date, the Ministry of Health has committed capital for Small Medium Enterprises RM150 million to purchase the relevant (SMEs) at an interest rate of 3.75%; and equipment, medicine and consumables in • Second: Bank Simpanan Nasional (BSN) the effort to contain COVID-19 outbreak. will allocate a RM200 million in microcredit The Government will provide the necessary facility offering an interest rate of 4% to resources to ensure COVID-19 disease is affected businesses. In addition, the well managed. approval process for existing loan funds Human Capital Development. The will be further streamlined such as Bank Government encourages employers to Pembangunan’s Tourism Infrastructure further invest in raising the productivity Fund of RM1.5 billion. of human capital during this economic All banks are required to provide financial slowdown period. Towards this, the relief in the form of payment moratorium Government will provide double deduction comprising restructuring and rescheduling on expenses incurred on approved tourism- loans for affected businesses and individuals. related training. The Government will also BNM is tasked to ensure that all financial provide up to RM100 million on a matching institutions will assist all companies in need grant basis to HRDF to fund an additional without exception. 40,000 employees from the tourism and other affected sectors. In the spirit of shared responsibility to overcome current challenges, the The Government will also provide RM50 Government calls on industry players to play million to subsidize short courses in digital their part – for hotels to offer discounts and skills and highly skilled courses. This shopping malls to reduce rentals to their incentive is expected to benefit 100,000 tenants. Malaysians. Malaysia Airport Holdings Berhad (MAHB) The Malaysian workers retrenched can will provide rebates on rental for premises rely on the Employment Insurance System at the airport as well as landing and parking (EIS) with a current fund of RM1.1 billion. charges. Furthermore, EIS will increase the claimable training cost from RM4,000 to RM6,000 Assistance for Affected Individuals. The for the affected sectors. A daily training Government acknowledges lower tourist allowance of RM30 per day will also be arrivals has negatively impacted those provided to trainees under EIS. reliant on tourism. The Government will give 80 COVID-19 POLICY RESPONSE NOTES ANNEX Stimulate Tourism Sector. To stimulate • Second: a payment of RM200 to all tourism industry, the Government will Bantuan Sara Hidup (BSH) recipients introduce initiatives as follows: scheduled for May 2020 will be brought forward to March 2020. • First: personal income tax relief of up to RM1,000 on expenditure related to • Third: an additional RM100 will be domestic tourism; paid into the bank accounts of all BSH recipients in May 2020. Subsequently, an • Second: Malaysian will be eligible to additional RM50 will be channeled in the digital vouchers for domestic tourism of up form of e-tunai. to RM100 per person for domestic flights, rails and hotel accommodations for all To enhance the income of rakyat and reduce Malaysians. Additional matching grants cost of living, the Government will undertake for tourism promotion will be provided. An the following initiatives: allocation of RM500 million is provided for • First: Agrofood facility of RM1 billion will the vouchers and tourism promotion; and be provided by BNM at an interest cost • Third: Relaxation of existing guidelines of 3.75% to promote food production limiting use of hotels by Government activities to meet domestic and export agencies as part of mitigating the reduced demand. demand. • Second: M10 million allocation to FAMA Strategy II: Catalyzing Rakyat Centric to provide food storage facilities to help Economic Growth reduce food prices. Rakyat’s Assistance. The effects of • Third: Grants of RM1,000 to 10,000 local COVID-19 reverberate beyond the tourism entrepreneurs to promote sale of their industry. Malaysian businesses, especially products on e-commerce platforms. exporters are affected by supply chain • Fourth: Allocation of RM20 million to disruptions involving factories and ports in Malaysian Digital Economy Corporation China. (MDEC) for Perkhidmatan e-Dagang Therefore, the Government will carry Setempat (PeDAS) program to transform out immediate measures to boost local Pusat Internet Desa into e-commerce consumption growth to cushion the effect of hubs. negative external factors, while protecting Rural Stimulus. The Government will local Malaysian jobs. These measures allocate an additional RM2 billion for include: the immediate implementation of small • First: the minimum Employees Provident infrastructure repair and upgrading projects Fund (EPF) contribution by employees will nationwide especially in rural areas. To be reduced by 4% from 11% to 7%, with ensure that the projects are effectively effect from 1 April 2020 to 31 December implemented for the benefit of the rakyat, the 2020. This will potentially unlock up to allocations will be channeled in partnership RM10 billion worth of private consumption. with State Governments, local authorities, Malaysian workers have the option to opt NGOs and local communities. out from the scheme and maintain their The projects need to be implemented contribution rate. expeditiously in order to give positive impacts 81 ANNEX COVID-19 POLICY RESPONSE NOTES in stimulating economy. To expedite the • Third: GLCs such as TNB will invest RM13 implementation of all projects, the Ministry of billion in 2020, including accelerating Finance (MoF) will provide special relaxation projects such as LED street lights, on financial procedures for the year 2020 as transmission lines and rooftop solar follows: installations. • First: Increase procurement threshold To enhance greater national competitiveness, value for balloting from RM50,000 to the Government will promote higher value- RM100,000 and for quotations from added private sector investments through: RM500,000 to RM800,000; • First: A Co-Investment fund of RM500 • Second: Ensure Ministries channel million to be co-invested and matched by sufficient allocations to respective private investors on a ratio of at least 1 to 3 implementing agencies by first quarter of which will make the total funds amount to 2020. MoF will oversee the compliance to RM2 billion for investment in early-stage procurement schedule to ensure projects and growth-stage Malaysian companies; are undertaken on a timely basis. • Second: Waiving of the listing fees Strategy III: Promoting Quality by Securities Commission and Bursa Investments Malaysia for one year, for companies seeking listing on Leading Entrepreneur To bolster business confidence, the Accelerator Platform (LEAP) or Access, Government is committed to sustaining Certainty, Efficiency (ACE) markets, public investments and in particular, expedite as well as companies with market in 2020, the tenders and implementation of capitalization of less than RM500 million development expenditure projects. seeking listing on the Main Market; In addition, agencies and Government linked • Third: BNM will provide an SME companies (GLCs) will also accelerate Automation & Digitalization Facility of planned investment projects for 2020, RM300 million at an interest cost of including: 3.75%; • First: Ministry of Energy, Science, • Fourth: The Government will provide Technology, Environment and Climate accelerated capital allowances over a Change (MESTECC) will open for bids two-year period on expenses incurred on quota of 1,400MW for solar power machinery and equipment including ICT; generation. This is expected to involve RM5 billion of private investments and • Fifth: The government will provide a generate 25,000 jobs; tax deduction of up to RM300,000 on renovation and refurbishment cost; and • Second: Malaysian Communications and Multimedia Commission (MCMC) will • Sixth: Import duty and sales tax exemption implement up to RM3 billion on works on importation or local purchase of related to the National Fiberisation and machinery and equipment used in port Connectivity Plan (NFCP); and operations for 3 years commencing 1 April 2020. 82 COVID-19 POLICY RESPONSE NOTES ANNEX ANNEX B. Table B1: MAIN ECONOMIC INDICATORS, 2016-2022   2016 2017 2018 2019e 2020f 2021f 2022f Real economy Real GDP (% change) 6.2 6.8 7.1 7.0 3.0 6.8 6.5 Agriculture 1.4 2.9 3.8 2.0 0.8 2.0 2.0 Industry and construction 7.6 8.0 8.9 8.9 4.5 8.4 8.3 Services 7.0 7.4 7.0 7.3 2.0 7.0 6.5 Prices Consumer price index (% change, annual average) 2.7 3.5 3.5 2.8 3.5 3.6 3.5 GDP deflator (%, change) 1.1 4.1 3.4 1.8 3.4 3.3 3.2 Fiscal balance (% GDP) Total revenue and grants 24.0 24.5 24.5 24.1 22.6 23.6 24.1  Total expenditure (including off-budget items) 27.8 29.2 28.9 28.1 28.4 28.3 28.1 Fiscal balance (by GFS, IMF) -3.9 -4.7 -4.4 -4.0 -5.8 -4.7 -4.0 Public and publicly guaranteed debt (by GFS, IMF) 59.6 58.3 55.7 54.1 55.8 55.0 54.2 External Balance Exports of goods (fob, % GDP) 87.7 97.6 100.9 101.8 99.8 100.9 102.6 Exports of goods (fob, % change) 9.0 21.8 13.3 8.4 2.3 9.4 9.7 Imports of goods, (cif, % GDP) 86.9 96.7 98.1 97.6 95.8 96.1 98.2 Imports of goods (cif, % change) 5.6 21.9 11.1 6.8 2.5 8.5 10.2 Foreign direct investment (Inflows, US  billion) 11.6 13.6 15.0 19.9 10.3 15.5 17.3 Current account balance (% GDP) 0.3 -0.7 2.3 4.9 0.1 1.0 1.2 Reserves, including gold ($US billion) 36.9 49.4 55.5 78.5 78.2 87.0 97.4 Reserves (in months of imports) 2.5 2.8 2.8 3.7 3.6 3.7 3.8 Financial Markets Credit to the economy (% change, 18.8 17.4 12.7 12.9 7.0 12.0 12.0 period-end) Short-term interest rate (3-M deposits, 4.9 5.5 5.5 5.5 --- --- --- period-end) Memo: GDP (nominal, trillion dong) 4,503 5,006 5,542 6,037 6,430 7,096 7,805 83 ANNEX COVID-19 POLICY RESPONSE NOTES Table B2: Main channels of transmission on vulnerable groups Labor Income Prices Direct Costs TRADE Employment loss due to layoffs Income reduction Supply chain in export-oriented sectors or as prices decline disruptions and those with linkages to such due to supply global demand sectors and demand shocks impacting on • Electronics imbalances output/business • Textile and garments • Farmers affected by • Tourism sector food price Forgone income during drops or input temporary shut downs price spikes CONTAINMENT • Businesses owners (self- Limited evidence Increased expenses MEASURES employed) in activities with of price spikes • Protective restricted gatherings so far Travel restrictions, consumables containment • Hotels & restaurants, • Electricity & water measures causing • Arts & entertainment consumption with work disruptions/ • Transport longer stays at suspension, reducing • Casual employees in home demand in some economic sectors impacted areas and causing social distancing measures – demand spikes for highly concentrated in others, • Construction • Wholesale & retail • Transport • Hotels & catering INFECTION Forgone income to days not Out-off pocket Sickness or worked due to illness - So expenses for health infections from far limited due to contained care infection in the country • Minimal due to greater health financial protection in Vietnam 84 COVID-19 POLICY RESPONSE NOTES ANNEX Table B3: List of social protection measures   Number of Level of support  Cost beneficiaries per beneficiary for (billion VND) 3 months Income support to vulnerable groups 1 Poor households 984,000 3,000,000 2,952 2 Near-poor households 1,260,000 1,500,000 1,890 3 Social assistance beneficiaries 4,315,000 1,500,000 6,473 4 Merit people, who had made 1,135,000 1,500,000 1,703 contribution during revolution and wars time; 5 Informal sector employees being 5,000,000 3,000,000 15,000 affected) 6 Close down tax-registered household 760,000 3,000,000 2,280 businesses with annual income 10% of the payment for the filing period from March – labor force impacted by COVID-19 December 2020 Unemployment Deferral of unemployment fund All businesses fund payment payment for the filing period from March – December 2020 Household Turnover based Deferral of turnover based tax payment All household businesses that meet businesses tax till December 15 criteria 1-10 above. All Land rental Deferral of land charges payment from All businesses that meet criteria businesses charges May 31. New due date is October 31. 1-10 above. 86 Publishing licence No: ĐKKHXB 2050-2020/CXBIPH/01-74/DT and 615/QĐXB-NXBDT issued on 5th June 2020 8th Floor, 63 Ly Thai To Street, Hoan Kiem District, Hanoi, Vietnam Telephone: +84 24 39346600 Facsimile: +84 24 39346597 Website: www.worldbank.org/en/country/vietnam