{"id":74906,"date":"2025-07-07T10:58:00","date_gmt":"2025-07-07T03:58:00","guid":{"rendered":"https:\/\/neu.edu.vn\/steady-fiscal-policy-steers-growth-as-room-for-monetary-easing-shrinks\/"},"modified":"2025-07-07T10:58:00","modified_gmt":"2025-07-07T03:58:00","slug":"steady-fiscal-policy-steers-growth-as-room-for-monetary-easing-shrinks","status":"publish","type":"post","link":"https:\/\/neu.edu.vn\/en\/steady-fiscal-policy-steers-growth-as-room-for-monetary-easing-shrinks\/","title":{"rendered":"Steady Fiscal Policy \u201cSteers\u201d Growth as Room for Monetary Easing Shrinks"},"content":{"rendered":"
(TBTCO) – Credit remains a pillar of growth, but it also represents a \u201cred line\u201d for risk. Economy-wide outstanding credit reached 134% of GDP at the end of 2024, far exceeding the warning thresholds of many international organizations. Speaking to 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 the scope for monetary policy support gradually narrows.<\/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> Vietnam\u2019s outstanding credit has frequently exceeded the safety threshold recommended by the International Monetary Fund (IMF) for many years, 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 deserves attention. Vietnam\u2019s growth model relies primarily on expanding inputs, driven by investment and credit, while science, technology, and innovation play little role. This issue has long been raised, but the growth model has seen little improvement.<\/p>\n

To achieve high growth, credit typically also grows rapidly to support it. By the end of 2024, economy-wide outstanding credit 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 grown 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, relies heavily on credit financing 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 sectors such as real estate and stocks. 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 – Prof. Dr. To Trung Thanh<\/em><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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

Both issues result in an unsustainable growth model that 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 when the banking system must continue to supply medium- and long-term capital while its funding is primarily short-term, or even consists of demand deposits?<\/em><\/p>\n

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

Second is the risk of nonperforming loans. When credit grows rapidly without improvements in investment efficiency, the potential nonperforming loan ratio rises, threatening the stability of the financial and monetary system. Pressure to expand credit rapidly to support growth may lead to increased \u201cloosening 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 apparent. Sharp increases in credit and the money supply, coupled with limited efficiency in capital use, will put substantial pressure on inflation; asset prices, particularly real estate prices, tend to be pushed higher; and the U.S. dollar exchange rate also faces mounting pressure. Unless brought under control promptly, this financial and macroeconomic instability will spread and adversely affect the real economy.<\/p>\n

Reporter:<\/strong> Given high growth targets 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 banking system\u2019s resilience?<\/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 banking system\u2019s resilience.<\/p>\n

Current credit measures are primarily short-term. Credit expansion is only 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 develop two key channels simultaneously: the corporate bond market and the stock market. Both have substantial potential to share the burden of supplying capital with the banking system while laying the foundation for dynamic development in the business sector. Increasing the contribution of these channels will also help create a more balanced, well-proportioned, and sound financial structure.<\/p>\n

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

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

Both fiscal and monetary policies are currently expansionary. However, the room for monetary policy support is gradually narrowing because of pressures from rapid credit growth, sharp exchange rate fluctuations, and limited scope 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 created greater fiscal space that can be used to support growth.<\/p>\n

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

However, the NEU expert noted that fiscal space is not unlimited, and public debt pressures will return if spending is inefficient. Effective use of public investment funds and reform of public finance institutions are therefore crucial in the period ahead. Public investment must go hand in hand with improvements to the private investment environment, stronger implementation capacity, and greater transparency in capital allocation procedures.<\/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 it also represents a \u201cred line\u201d for risk. Economy-wide outstanding credit reached 134% of GDP at the end of 2024, far exceeding the warning thresholds of many international organizations. Speaking to 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 the scope for monetary policy support gradually narrows. Source: State Bank of Vietnam. Graphic: Van Chung Reporter: Vietnam\u2019s outstanding credit has frequently exceeded the safety threshold recommended by the International Monetary Fund (IMF) for many years, 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 deserves attention. Vietnam\u2019s growth model relies primarily on expanding inputs, driven by investment and credit, while science, technology, and innovation play little role. This issue has long been raised, but the growth model has seen little improvement. To achieve high growth, credit typically also grows rapidly to support it. By the end of 2024, economy-wide outstanding credit 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 grown 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, relies heavily on credit financing 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 sectors such as real estate and stocks. 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 – Prof. Dr. To Trung Thanh Second, the banking system remains responsible for \u201cshouldering\u201d growth through credit. However, the financial and banking system has yet to achieve sustainable soundness: capital adequacy ratios (CAR) remain low, asset quality shows signs of deterioration, nonperforming loans are rising, and systemic liquidity pressures persist… Continuing to expand credit rapidly and lower interest rates to support growth could come at the cost of macroeconomic instability. Both issues result in an unsustainable growth model that 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 when the banking system must continue to supply medium- and long-term capital while its funding is primarily short-term, or even consists of demand deposits? Prof. Dr. To Trung Thanh: Excessive reliance on bank credit creates many risks. The first is a mismatch between funding and lending maturities, also known as maturity risk. Banks primarily raise short-term funding, including demand deposits, while most outstanding loans are medium- and long-term. Currently, around 55% of total credit is medium- and long-term, while 80% of funding is short-term or consists of demand deposits. This leaves the system vulnerable to liquidity shocks, especially when market confidence is affected. Second is the risk of nonperforming loans. When credit grows rapidly without improvements in investment efficiency, the potential nonperforming loan ratio rises, threatening the stability of the financial and monetary system. Pressure to expand credit rapidly to support growth may lead to increased \u201cloosening 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 apparent. Sharp increases in credit and the money supply, coupled with limited efficiency in capital use, will put substantial pressure on inflation; asset prices, particularly real estate prices, tend to be pushed higher; and the U.S. dollar exchange rate also faces mounting pressure. Unless brought under control promptly, this financial and macroeconomic instability will spread and adversely affect the real economy. Reporter: Given high growth targets 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 banking system\u2019s resilience? 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 banking system\u2019s resilience. Current credit measures are primarily short-term. Credit expansion is only 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 develop two key channels simultaneously: the corporate bond market and the stock market. Both have substantial potential to share the burden of supplying capital with the banking system while laying the foundation for dynamic development in the business sector. Increasing the contribution of these channels will also help create a more balanced, well-proportioned, and sound financial structure. Reporter: Thank you! Fiscal Space Is Not Unlimited Both fiscal and monetary policies are currently expansionary. However, the room for monetary policy support is gradually narrowing because of pressures from rapid credit growth, sharp exchange rate fluctuations, and limited scope for further interest rate cuts. Against this backdrop, Prof. Dr. To Trung Thanh believes fiscal policy should be regarded as the […]<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[169],"tags":[],"class_list":["post-74906","post","type-post","status-publish","format-standard","hentry","category-latest-news","post-no-thumbnail"],"acf":[],"_links":{"self":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/74906","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=74906"}],"version-history":[{"count":0,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/posts\/74906\/revisions"}],"wp:attachment":[{"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/media?parent=74906"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/categories?post=74906"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/neu.edu.vn\/en\/wp-json\/wp\/v2\/tags?post=74906"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}