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Supporting aggregate demand through public investment

In a newly released report, the World Bank recommended that the Vietnamese government should support aggregate demand by accelerating public investment disbursement.

Economic growth in the first quarter of 2023 slowed down due to a contraction in industry. The recovery outlook of the manufacturing sector remains uncertain as the Purchasing Managers' Index (PMI) has fallen to below 50 points. Major drivers of the economy, including exports and foreign investment, are all facing difficulties.

Supporting aggregate demand, public investment, World Bank, Vietnamese government, public investment disbursement, Economic growth

An expressway in Vietnam.

The budget records a surplus but development investment spending only accounts for one tenth of the planned budget, suggesting that public investment disbursement is slowing down. It is still necessary to continue monitoring the situation in the coming months, but if domestic and external demand continues to remain weak, the necessary response will be to support aggregate demand through accelerating public investment disbursement.

According to calculations by economic research organisations, a 1% increase in public investment disbursement will increase Vietnam's GDP by 0.058%. Especially with global aggregate demand falling and hurting exports, the acceleration of public investment disbursement is an important and effective solution to restore and enhance the competitiveness of the economy and boost growth.

If all of the more than 700 trillion VND (29.8 billion USD) from the state budget is injected into the economy in 2023, it will quickly create jobs and activate economic activities.

Therefore, ministries, agencies and localities need to prioritise disbursement for large-scale projects. They need to focus on resolving difficulties and obstacles from the preparation of investment projects to site clearance, mine licensing, providing sufficient building materials for contractors and adjusting the price of building materials in order to accelerate the progress of public-funded projects.

In this process, just one delay could affect the entire project and investment efficiency, thereby undermining the growth engine. Strict sanctions are also needed for investors, project management boards, organisations, and individuals who intentionally cause difficulties, obstruct, or slow down the progress of allocation, implementation, and disbursement of public investment funds.

Public investment is both a driving force and a resource for economic development. In order to speed up public investment disbursement, many localities have proposed that the government allow the extension of time for the implementation and payment of capital from 2022 to 2023. They also called for the early allocation of capital sources, especially from the socio-economic development recovery programmes and national target programmes.

The remaining public investment plan for 2023 is still huge, thus ministries, agencies and localities are setting high determination to reach a disbursement rate of 95%.

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Source: NDO

Supporting aggregate demand, public investment, World Bank, Vietnamese government, public investment disbursement, Economic growth
 
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