More money in circulation could increase inflation rate
It is expected that large amounts of money will be pumped into circulation to obtain the ambitious target of 6.7 percent GDP growth rate. This has raised the fear that hot growth will bring high inflation back.
“Don’t try to run at 100 kilometers per hour if your motorbike can run at 50 kilometers per hour,” said Nguyen Duc Thanh, director of VEPR (the Vietnam Institute for Economic Policy Research).
“You will still reach the destination point even if you run at the low speed of 40 kilometers per hour. Meanwhile, if you run too fast, you may have accidents,” he said.
The example was cited by Thanh when talking about the way Vietnam needs to follow to obtain the 6.7 percent GDP growth rate target in 2016.
This is an ambitious goal as commented by economists. In the first six months of the year, the GDP growth rate was 5.52 percent only, which means that Vietnam needs to obtain the 7.6 percent growth rate in the last six months, a very difficult task.
Thoi Bao Kinh Te Sai Gon commented that the government has wavered about the economic growth plan after the weak economic performance in the first half of the year.
In a report to the National Assembly, the government affirmed it would be very difficult to obtain the targeted 6.7 percent GDP growth rate. However, in a recent report, it said the target is still attainable.
“6 percent would be a good result,” Thanh commented. “The hot growth may lead to macroeconomic uncertainties."
Thanh spoke about the ‘2008’s lesson’. “If the inflation is high, Vietnam will have to tighten the monetary policy and have to pay high for this,” he warned.
VEPR’s survey has found that a big amount of money was pumped into the market in the first six months of the year.
The total money supply in circulation and the deposits at banks had increased by 8.07 percent over the end of 2015, much higher than that of the same periods in the previous two years.
“The planned 18-20 percent credit growth rate in 2016 may lead to the loss of control over the inflation,” Thanh said.
Old but valuable lessons
Meanwhile, Vu Dinh Anh, a renowned economist, can see high risks from public investment disbursement.
Anh, citing an official report about the disbursement, commented that total investment capital had increased more rapidly than the economic growth rate.
He went on to say that in previous years, the inflation rate usually increased sharply in the last months by 1-2 percent a month, partly because of strong disbursement of public investment funds.
Luong Bang, VNN