Dr Nguyễn Quốc Việt, Deputy Director of the Việt Nam Institute for Economic and Policy Research (VEPR)

The Vietnamese basic salary increased by 30 per cent, from VNĐ1.8 million to VNĐ2.34 million per month, on July 1. However, alongside the excitement of an increased salary, most people are concerned that market prices may also surge. Dr Nguyễn Quốc Việt, Deputy Director of the Việt Nam Institute for Economic and Policy Research (VEPR) speaks to Vietnam News Agency about this issue.

How are the positive impacts of the basic salary increase on the economy?

In the first seven months of 2024, Việt Nam's economy grew relatively well. In which, the leading growth driver was improved import-export activities, compared to 2023.

However, many experts believe that while domestic consumption demand has increased compared to the same period last year, it has still not recovered yet to the kind of growth levels before 2020 when not having the COVID-19 pandemic. The pandemic created negative impacts on Việt Nam's economy.

Therefore, along with other consumption stimulus measures of the Government, the salary increase is expected to support Việt Nam in increasing total economic demand.

In the context that some enterprises are still facing difficulties in production, the salary increase will help low-income workers and those who depend on pensions to achieve minimum living standards. The increased income includes the base salary, regional minimum wage, pensions, social insurance benefits and preferential allowances for people with meritorious services.

However, there are still many concerns whether the salary increase will create additional price pressures. What is your opinion on this issue?

In principle, the salary increase will create factors that push up inflationary pressure towards the end of the year.

Workers receiving salaries from the State budget account for eight per cent of the workforce nationwide. Some will put the wage increase in savings, but others will buy goods and services. This will create a new demand for goods and services on the domestic market.

In addition, the enterprises have prepared for the salary increase, but they will still face many factors that increase input costs due to additional labour costs, such as increase salary and attached benefits.

Việt Nam increased the basic salaries in 2008 and 2011. At the same time, the world economy fell into serious financial and economic crisis, thus having negative impacts on Việt Nam's economy.

Compared to the period 2008 - 2011, Việt Nam's economy now has a completely different picture.

The world is facing many problems such as political tensions, inflationary pressure and increasing races on interest rates.

However, thank to curbing inflation to stabilise the macro economy, Việt Nam has created a stable and attractive investment environment, attracting a record amount of foreign investment capital.

Foreign economic relations in recent years have made great breakthroughs in the support for the economy in general compared to the previous period, creating stability in the balance of payments.

How do you evaluate the Government's price management policy in the past?

The world has fallen into inflation, instability and high public debt due to impacts from the COVID-19 pandemic period, so many countries have had expansionary fiscal policies and interventions to support for their economic growth.

Meanwhile, Việt Nam has also had supportive programmes and policies for enterprises and workers. The Government has used synchronous measures to promote economic recovery as well as support for enterprises, business people and workers.

Việt Nam has implemented an expansionary fiscal policy including direct supportive policies, public investment and wage increases for workers.

In addition, the State Bank's flexibility in operating monetary policy, handling domestic financial risks and coping with interest rate and exchange rate pressures have all been highly appreciated.

The State Bank's policy combination, especially technical and monetary policies, has helped Việt Nam's economy gradually recover.

In addition to the pressure from wage increases on prices in the second half of 2024, prices of some State-managed goods have also gone up including electricity, university tuition fees and medical services. So, what solutions are needed to avoid a wave of other price increases in goods and services following the price increase of those products?

Controlling prices of State-managed goods, along with stabilising essential goods, has become a tool of the State in the process of stabilising inflation. From now until the end of the year, Việt Nam will still control inflation but the Government should pay attention to the tolerance of those industries.

To avoid inflationary pressure from now until the end of the year, especially core inflation, Việt Nam should also come up with reasonable economic operating solutions.

If those products' prices are increased according to the roadmap, the Government should consider not imposing new taxes on people and enterprises. Because besides ensuring budget revenue growth, the macroeconomic stability is still a very important issue. VNS