Tighter fiscal, financial and monetary policies are needed to control inflation, narrow the trade deficit and stabilise the economy, top officials told the National Assembly Standing Committee yesterday.

Consumer prices rose at an annual rate of 12.17 per cent in January, outpacing the 11.75-per-cent rate in 2010 and the fastest pace since February 2009, according to the General Statistics Office. Throwing fuel on the inflationary fire, the Government recently announced upcoming increases in the costs of electricity and coal.

The central bank devalued the dong by 9.3 per cent a week ago in a move intended to improve the trade deficit, which last year exceeded US $13.2 billion, an amount equal to 10 per cent of the national GDP, but the move has added to inflationary pressures.

Testifying before the Standing Committee on Thursday, Minister of Finance Vu Van Ninh said that the Government would attempt to cool inflation by cutting State budget expenditures by 10 per cent, as well as by reducing the overall money supply.

To achieve the budget savings, the Government would target all non-essential construction projects, Ninh said.

“Excluding flood control and national security projects, no projects will be allowed to roll budgets forward next year if they fail to disburse capital this year,” he said. “Building head offices is neither important nor necessary.”

As part of the move to tighten the money supply and control overheated growth, State Bank of Viet Nam Governor Nguyen Van Giau recommended to the committee that commercial bank credit growth targets for the year be reduced from 23 per cent to less than 20 per cent.

“The central bank will increase interest rates to slow credit growth,” Giau said, noting that the higher interest rates would attract capital back into the banking system.

If achieved, 20-per-cent credit growth would be the lowest level in the past five years, Giau added.

Last year, credit growth reached 27.65 per cent, pushing outstanding loans to 140 per cent of the gross domestic product (GDP).

The central bank yesterday immediately instructed commercial banks to report their credit growth figures and set new targets for lending in both Vietnamese dong and US dollars, as well as credit growth targets for specific economic sectors.

Giau said, “When this message is received, the market will improve. Manufacturers will listen to the message, adjust production levels and cut imports, and the economy will be stabilised.”

The Government has forecast growth of 7-7.5 per cent this year, consistent with the five-year plan adopted by last month’s Party Congress and a modest improvement on last year’s growth of 6.78 per cent.

Source: VNS