Associate Professor - Dr. Pham The Anh: To achieve high growth, we must stabilize the macro economy and avoid real estate "fever"

Associate Professor - Dr. Pham The Anh (National Economics University). Photo: Ho Long

To achieve high growth, we must "cut" the "land fever"

Speaking at the Consultation Seminar on the Socio-Economic Situation organized by the Standing Committee of the Economic and Financial Committee this morning (September 5), Associate Professor - Dr. Pham The Anh said that in order to achieve the high growth target in the coming period (double-digit growth from next year), the prerequisite is to maintain macroeconomic stability. Because if high growth leads to loss of macroeconomic stability, in the long term, the high growth target will not be achieved.

According to this expert, macroeconomic stability can be quantified by four specific indicators.

Firstly, inflation must be kept low, not exceeding 4%, ideally 2-4%. This level of inflation both stimulates production and business enterprises and ensures real income for people, because "inflation is the fastest way to deprive workers and the poor of their income".

Second, we must avoid real estate price fevers, which are the fastest growing factor in the gap between rich and poor, causing many economic and social consequences. In fact, over the past several decades, every few years there has been a real estate "fever" and currently real estate prices have far exceeded the affordability of people, even those with high incomes. According to Associate Professor Dr. Pham The Anh, even people with an income of 50-70 million VND/month currently find it difficult to buy a house in big cities. With an average income per capita of about 5,000 USD/year, workers who have saved for 30 years will find it difficult to realize their dream of owning a house in big cities.

Third, the exchange rate must be stable. For an economy that relies heavily on exports and foreign investment like Vietnam, maintaining a stable exchange rate is extremely important. VND can depreciate but only within acceptable limits. If VND depreciates by 5-10% each year, it is a sign of macroeconomic instability.

Fourth, it is necessary to ensure the sustainability of public debt. Currently, the public debt target in Vietnam is quite low (about 34% -35% of GDP), but it cannot be ignored, because if only one project such as the North-South high-speed railway is implemented, this public debt ratio will increase sharply again. Not to mention, there are a series of other large public investment projects about to be implemented, requiring the mobilization and use of resources to be calculated to ensure the sustainability of public debt and maintain the stability of the financial system.

There is not much room left for monetary policy to support growth.

According to Associate Professor - Dr. Pham The Anh, in principle, monetary policy should not be used to promote growth, especially continuous growth in the long term.

“If monetary policy is continuously used to stimulate growth - for example, increasing credit by 15-20% every year continuously for a long time - it will certainly cause macroeconomic instability. The main function of monetary policy is to stabilize the macro economy, loosen monetary policy when the economy is in recession and tighten it when the economy is overheating. Monetary policy is a tool for countries to stabilize the economy, not a tool to promote growth. The function of promoting long-term growth belongs to fiscal policy,” Mr. Pham The Anh emphasized.

According to this expert, there is almost no room left to use monetary policy to promote growth in Vietnam.

Firstly, Vietnam's money supply/GDP and credit/GDP ratios are currently at 160% and 140% respectively, which are very high figures compared to all countries in the world , except those suffering from hyperinflation. The above figures show that the economy is heavily dependent on capital from the banking system.

Second, the gap between interest rates and inflation is almost zero (currently, the mobilization interest rate is around 4-5%/year while the target inflation rate in 2025 is 4.5%). The lack of real interest rates makes the banking system unable to mobilize long-term capital, leading to banks' term imbalance. In fact, currently, most banks can only mobilize short-term capital in the residential market, while for long-term capital, banks must mobilize through the bond channel. Looking at the corporate bond market, it can be seen that the issuers are mainly banks and real estate enterprises.

Third, the gap between domestic interest rates and USD interest rates is very low, at many times VND interest rates are even lower than USD. If we continue to expand the currency and force VND interest rates to low levels, USD will flow out, VND will lose value, and in the long run, it will affect national competitiveness, the ability to attract FDI capital and promote international trade.

Fourth, the decline in foreign exchange reserves also narrows the room for using monetary policy to promote growth. In previous years, foreign exchange reserves exceeded 100 billion USD but have now decreased to about 70 billion USD, according to the prediction of Associate Professor - Dr. Pham The Anh.

In this context, although supporting the State Bank to remove the credit room, experts recommend that in order to remove the room, the State Bank must complete the system safety index (based on Basel II, Basel III...) and must build a modern, updated monitoring system.

Finally, experts recommend that monetary policy must increase its independence, with the aim of maintaining macroeconomic stability. Accordingly, the Government can expand fiscal policy to promote growth, but maintaining macroeconomic stability must be reserved for monetary policy.

“Monetary policy must have a certain independence. The National Assembly can assign targets and objectives, but the State Bank must have full authority to use its policy tools to achieve those objectives,” Associate Professor - Dr. Pham The Anh suggested.

Source: https://baodautu.vn/pgs---ts-pham-the-anh-de-tang-truong-cao-phai-on-dinh-vi-mo-tranh-cac-con-sot-bat-dong-san-d378968.html