{"id":74895,"date":"2025-07-07T15:39:00","date_gmt":"2025-07-07T08:39:00","guid":{"rendered":"https:\/\/neu.edu.vn\/neu-in-the-media-prof-dr-to-trung-thanh-fiscal-policy-steadily-steers-growth-as-monetary-policy-space-narrows\/"},"modified":"2025-07-07T15:39:00","modified_gmt":"2025-07-07T08:39:00","slug":"neu-in-the-media-prof-dr-to-trung-thanh-fiscal-policy-steadily-steers-growth-as-monetary-policy-space-narrows","status":"publish","type":"post","link":"https:\/\/neu.edu.vn\/en\/neu-in-the-media-prof-dr-to-trung-thanh-fiscal-policy-steadily-steers-growth-as-monetary-policy-space-narrows\/","title":{"rendered":"NEU in the Media \u2013 Prof. Dr. To Trung Thanh: Fiscal Policy Steadily \u201cSteers\u201d Growth as Monetary Policy Space Narrows"},"content":{"rendered":"
\n

(TBTCO) – Credit remains a pillar of growth, but also represents a \u201cred line\u201d for risk. Outstanding credit across the economy reached 134% of GDP at the end of 2024, far exceeding the warning thresholds of many international organizations. Speaking with a reporter, Prof. Dr. To Trung Thanh, Head of the Department of Research Management at National Economics University (NEU), warned against excessive reliance on credit and emphasized the role of fiscal policy as monetary policy space gradually narrows.<\/p>\n<\/p><\/div>\n

\n\n\n\n\n
\"Steady<\/td>\n<\/tr>\n
Source: State Bank of Vietnam. Graphic: Van Chung<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Reporter:<\/strong> For many years, Vietnam\u2019s outstanding credit has frequently exceeded the safety threshold recommended by the International Monetary Fund (IMF), reaching 134% of GDP at the end of 2024. How do you assess this situation?<\/em><\/p>\n\n\n\n
\"Steady<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Prof. Dr. To Trung Thanh:<\/strong> For many years, Vietnam has maintained high GDP growth, ranking among the fastest-growing economies in the region and the world. However, behind these positive figures lies a reality that warrants attention. Vietnam\u2019s growth model relies primarily on expanding inputs, driven by investment and credit, with science, technology, and innovation playing no role. This issue has long been raised, but the growth model has seen little improvement.<\/p>\n

To achieve high growth, credit typically expands rapidly to provide support. By the end of 2024, outstanding credit across the economy reached VND 15.6 quadrillion, equivalent to 134% of GDP, far exceeding the IMF\u2019s recommended safety threshold. Outstanding credit across the economy is estimated to have increased by 6.52% in the first five months of 2025, far above the rate in the same period a year earlier (2.41%). This reflects two major issues in the economy\u2019s growth.<\/p>\n

First, the business sector, particularly the domestic private sector, depends heavily on bank credit because it lacks other channels for accessing medium- and long-term capital.<\/p>\n\n\n\n
\n

Credit Expansion Without Clear Direction Leaves Many Risks Looming<\/h2>\n

\u201cIf credit expands but does not flow into productive sectors that generate high added value, investment efficiency will decline, wasting resources and creating asset bubbles in speculative areas such as real estate and securities. At the same time, the risk of nonperforming loans will increase. The financial soundness of the banking system therefore also needs to be strengthened, particularly in terms of capital adequacy, liquidity, and asset quality, to ensure that financial and macroeconomic risks can be addressed.\u201d \u2014 Prof. Dr. To Trung Thanh<\/em><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Second, the banking system still bears responsibility for \u201cshouldering\u201d growth through credit. However, the financial and banking system has yet to achieve lasting soundness: capital adequacy ratios (CAR) remain low, asset quality shows signs of deterioration, nonperforming loans are increasing, and liquidity pressures persist across the system… Continuing to expand credit rapidly and cut interest rates to support growth could come at the cost of macroeconomic instability.<\/p>\n

Both issues result in a growth model that is unsustainable and carries risks.<\/p>\n

Reporter:<\/strong> With demand for capital typically rising sharply in the second half of the year and liquidity pressures becoming a major bottleneck, could you clarify the risks to macroeconomic stability as the banking system continues to shoulder the role of providing medium- and long-term capital while its funding is predominantly short-term, or even demand deposits?<\/em><\/p>\n

Prof. Dr. To Trung Thanh<\/strong>: Excessive dependence on bank credit leads to numerous risks. The first is a mismatch between funding and lending maturities, also known as maturity risk. Banks primarily raise short-term funds, including demand deposits, while most outstanding loans are medium- and long-term. Currently, around 55% of total credit is medium- and long-term, whereas 80% of funding is short-term or in demand deposits. This leaves the system vulnerable to liquidity shocks, particularly when market confidence is affected.<\/p>\n

Second is the risk of nonperforming loans. When credit grows rapidly but investment efficiency has not improved, the potential nonperforming loan ratio increases, threatening the stability of the financial and monetary system. Pressure to achieve high credit growth to support economic growth can lead to greater \u201ceasing of credit standards,\u201d resulting in poor-quality loans. In addition, Vietnamese banks\u2019 nonperforming loan coverage ratio fell from 150% in 2022 to around 83% in mid-2025. This indicates that the room to respond to credit risk is increasingly limited.<\/p>\n

Third, the risk of macroeconomic instability is becoming increasingly evident. Sharp increases in credit and the money supply, while capital use remains inefficient, will put substantial pressure on inflation; asset prices, particularly real estate prices, tend to be driven higher; and the US dollar exchange rate also faces mounting pressure. If not brought under control promptly, this financial and macroeconomic instability will spread and adversely affect the real economy.<\/p>\n

Reporter:<\/strong> Given the ambitious growth target and substantial capital needs for long-term projects, do you think continued credit expansion remains a sustainable path, considering the capacity to absorb capital, investment efficiency, and the resilience of the banking system?<\/em><\/p>\n

Prof. Dr. To Trung Thanh: <\/strong>With other resources still limited, continued credit expansion is inevitable as the economy needs to recover and grow rapidly. Given the risks outlined above, credit expansion must proceed cautiously, minimize risks, and rest on fundamental principles: the economy\u2019s actual capacity to absorb capital; the quality of credit flows; and the resilience of the banking system.<\/p>\n

Current credit measures are primarily short-term. Credit expansion can only be truly sustainable when integrated into a comprehensive strategy for developing financial markets and restructuring the economic growth model.<\/p>\n

To meet the economy\u2019s medium- and long-term capital needs, Vietnam must simultaneously develop two key channels: the corporate bond market and the equity market. Both have considerable potential to share the burden of capital provision with the banking system while laying the foundation for dynamic development in the business sector. Increasing these channels\u2019 share of capital provision will also help create a more balanced financial structure and promote its sound development.<\/p>\n

Reporter:<\/strong> Thank you!<\/em><\/p>\n\n\n\n
\n

Fiscal Space Is Not Unlimited<\/h2>\n

Both fiscal and monetary policy are currently expansionary, but the scope for monetary policy support is gradually narrowing amid pressures from strong credit growth, sharp exchange rate fluctuations, and limited room for further interest rate cuts.<\/p>\n

Against this backdrop, Prof. Dr. To Trung Thanh believes fiscal policy should be regarded as the primary policy for supporting economic growth. Accordingly, he argues that, in the period ahead, the Government should continue to strengthen countercyclical fiscal policy to stimulate aggregate demand and support growth, particularly as the budget is not under excessive strain and public debt is trending downward. The favorable budget situation in 2024 creates greater fiscal space that can be used to support growth.<\/p>\n

This objective needs to be pursued through two instruments: increasing public spending and reducing taxes. Accordingly, the Government needs to remove institutional and policy bottlenecks to accelerate the disbursement of public investment funds. Tax reductions need to target the appropriate beneficiaries, and tax refund procedures need to be simplified. Moreover, amid difficult conditions, declining production at businesses has left hundreds of thousands of workers facing reduced working hours, job losses, and lower incomes. Improving social welfare policies will make a substantial contribution to increasing consumption, and vulnerable groups must be placed at the center of policy.<\/p>\n

However, the expert from NEU cautioned that fiscal space is not unlimited, and public debt pressures will return if spending is inefficient. The efficient use of public investment funds and reform of public finance institutions are therefore crucial in the coming period. Public investment must go hand in hand with improvements to the private investment environment, stronger implementation capacity, and greater transparency in capital allocation processes.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n

Source: Vietnam Financial Times<\/a><\/strong><\/em><\/p>\n

This is an automated translation. If you notice any errors, please contact the Department of Communications, National Economics University at phongtruyenthong@neu.edu.vn<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

(TBTCO) – Credit remains a pillar of growth, but also represents a \u201cred line\u201d for risk. Outstanding credit across the economy reached 134% of GDP at the end of 2024, far exceeding the warning thresholds of many international organizations. Speaking with a reporter, Prof. Dr. To Trung Thanh, Head of the Department of Research Management at National Economics University (NEU), warned against excessive reliance on credit and emphasized the role of fiscal policy as monetary policy space gradually narrows. Source: State Bank of Vietnam. Graphic: Van Chung Reporter: For many years, Vietnam\u2019s outstanding credit has frequently exceeded the safety threshold recommended by the International Monetary Fund (IMF), reaching 134% of GDP at the end of 2024. How do you assess this situation? Prof. Dr. To Trung Thanh: For many years, Vietnam has maintained high GDP growth, ranking among the fastest-growing economies in the region and the world. However, behind these positive figures lies a reality that warrants attention. Vietnam\u2019s growth model relies primarily on expanding inputs, driven by investment and credit, with science, technology, and innovation playing no role. This issue has long been raised, but the growth model has seen little improvement. To achieve high growth, credit typically expands rapidly to provide support. By the end of 2024, outstanding credit across the economy reached VND 15.6 quadrillion, equivalent to 134% of GDP, far exceeding the IMF\u2019s recommended safety threshold. Outstanding credit across the economy is estimated to have increased by 6.52% in the first five months of 2025, far above the rate in the same period a year earlier (2.41%). This reflects two major issues in the economy\u2019s growth. First, the business sector, particularly the domestic private sector, depends heavily on bank credit because it lacks other channels for accessing medium- and long-term capital. Credit Expansion Without Clear Direction Leaves Many Risks Looming \u201cIf credit expands but does not flow into productive sectors that generate high added value, investment efficiency will decline, wasting resources and creating asset bubbles in speculative areas such as real estate and securities. At the same time, the risk of nonperforming loans will increase. The financial soundness of the banking system therefore also needs to be strengthened, particularly in terms of capital adequacy, liquidity, and asset quality, to ensure that financial and macroeconomic risks can be addressed.\u201d \u2014 Prof. Dr. To Trung Thanh Second, the banking system still bears responsibility for \u201cshouldering\u201d growth through credit. However, the financial and banking system has yet to achieve lasting soundness: capital adequacy ratios (CAR) remain low, asset quality shows signs of deterioration, nonperforming loans are increasing, and liquidity pressures persist across the system… Continuing to expand credit rapidly and cut interest rates to support growth could come at the cost of macroeconomic instability. Both issues result in a growth model that is unsustainable and carries risks. Reporter: With demand for capital typically rising sharply in the second half of the year and liquidity pressures becoming a major bottleneck, could you clarify the risks to macroeconomic stability as the banking system continues to shoulder the role of providing medium- and long-term capital while its funding is predominantly short-term, or even demand deposits? Prof. Dr. To Trung Thanh: Excessive dependence on bank credit leads to numerous risks. The first is a mismatch between funding and lending maturities, also known as maturity risk. Banks primarily raise short-term funds, including demand deposits, while most outstanding loans are medium- and long-term. Currently, around 55% of total credit is medium- and long-term, whereas 80% of funding is short-term or in demand deposits. This leaves the system vulnerable to liquidity shocks, particularly when market confidence is affected. Second is the risk of nonperforming loans. When credit grows rapidly but investment efficiency has not improved, the potential nonperforming loan ratio increases, threatening the stability of the financial and monetary system. Pressure to achieve high credit growth to support economic growth can lead to greater \u201ceasing of credit standards,\u201d resulting in poor-quality loans. In addition, Vietnamese banks\u2019 nonperforming loan coverage ratio fell from 150% in 2022 to around 83% in mid-2025. This indicates that the room to respond to credit risk is increasingly limited. Third, the risk of macroeconomic instability is becoming increasingly evident. Sharp increases in credit and the money supply, while capital use remains inefficient, will put substantial pressure on inflation; asset prices, particularly real estate prices, tend to be driven higher; and the US dollar exchange rate also faces mounting pressure. If not brought under control promptly, this financial and macroeconomic instability will spread and adversely affect the real economy. Reporter: Given the ambitious growth target and substantial capital needs for long-term projects, do you think continued credit expansion remains a sustainable path, considering the capacity to absorb capital, investment efficiency, and the resilience of the banking system? Prof. Dr. To Trung Thanh: With other resources still limited, continued credit expansion is inevitable as the economy needs to recover and grow rapidly. Given the risks outlined above, credit expansion must proceed cautiously, minimize risks, and rest on fundamental principles: the economy\u2019s actual capacity to absorb capital; the quality of credit flows; and the resilience of the banking system. Current credit measures are primarily short-term. Credit expansion can only be truly sustainable when integrated into a comprehensive strategy for developing financial markets and restructuring the economic growth model. To meet the economy\u2019s medium- and long-term capital needs, Vietnam must simultaneously develop two key channels: the corporate bond market and the equity market. Both have considerable potential to share the burden of capital provision with the banking system while laying the foundation for dynamic development in the business sector. Increasing these channels\u2019 share of capital provision will also help create a more balanced financial structure and promote its sound development. Reporter: Thank you! Fiscal Space Is Not Unlimited Both fiscal and monetary policy are currently expansionary, but the scope for monetary policy support is gradually narrowing amid pressures from strong credit growth, sharp exchange rate fluctuations, and limited room for further interest rate cuts. Against […]<\/p>\n","protected":false},"author":9,"featured_media":50517,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[724,169],"tags":[],"class_list":["post-74895","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic-information","category-latest-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/74895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/comments?post=74895"}],"version-history":[{"count":0,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/74895\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media\/50517"}],"wp:attachment":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media?parent=74895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/categories?post=74895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/tags?post=74895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}