Fiscal policy needs to be expanded amid limited room for monetary policy

Fiscal policy needs to be expanded amid limited room for monetary policy

Close coordination and mutual support between monetary policy, fiscal policy and other macroeconomic policies are necessary to maximise effectiveness and achieve the goals of maintaining macroeconomic stability, controlling inflation, promoting growth and ensuring economic balance.

A worker at the Cao Lãnh - An Hữu Expressway, connecting the southern provinces of Đồng Tháp and Tiền Giang. Việt Nam will strengthen its fiscal policy, such as boosting public investment, to support economic growth in 2026. — VNA/VNS Photo

It will soon become necessary to expand fiscal policy, as room for monetary policy is very limited, Deputy Governor of the State Bank of Vietnam (SBV) Phạm Thanh Hà has said.

According to the deputy governor, monetary policy and fiscal policy are two extremely important policies in macroeconomic management.

Monetary policy plays a direct and indirect role in promoting economic growth. The reality in Việt Nam, as well as international experience, has shown that monetary policy needs to focus on the long-term goal of controlling inflation and stabilising the macroeconomy.

Meanwhile, fiscal policy, with tools including fiscal spending, public investment and tax adjustments, directly impacts consumption, investment, FDI attraction and exports, thus influencing aggregate demand and economic growth. 

Another crucial role for budgetary spending to boost growth is the ‘seed capital effect’ of public investment projects, which will attract private investment, create jobs and stimulate consumption.

"Fiscal policy plays a very significant role in boosting aggregate demand in the economy," Hà noted.

Alongside monetary and fiscal policies, Hà said that policies promoting the development of the capital market, including stock and bond markets, also play a crucial role as the backbone of the economy, helping to effectively mobilise medium- and long-term capital for businesses and the Government to invest in production and infrastructure, promote economic growth and reduce dependence on bank credit. 

This contributes to efficient resource allocation and facilitates innovation, aiming towards a diverse, transparent, safe and sustainable financial system.

Over the past few years, the SBV and relevant ministries and agencies have closely coordinated monetary policy with fiscal policy and other macroeconomic policies. The positive results of monetary policy in maintaining macroeconomic stability and enhancing Việt Nam's external standing are important grounds for international rating agencies to upgrade Việt Nam's national credit rating. 

This will create favourable conditions for the Ministry of Finance to successfully issue government bonds in domestic and international markets, while also attracting foreign investors to participate in the market.

To achieve the socio-economic development goals set by the National Assembly and the Government in 2026 and the next five years, Hà said that close coordination and mutual support between monetary policy, fiscal policy and other macroeconomic policies are necessary to maximise effectiveness and achieve the goals of maintaining macroeconomic stability, controlling inflation, promoting growth and ensuring economic balance.

Focus should be placed on improving the quality of coordination between policies, including closely monitoring practical developments, sharing information promptly and ensuring that each policy plays its proper role in achieving sustainable development.

"Given the current limited room for monetary policy, it is necessary to prioritise the expansion of fiscal policy in a focused and targeted manner, as a pillar to promote economic growth, stabilise the macroeconomy and effectively support monetary policy,” Hà said.

The deputy governor added that at the same time, it is necessary to continue promoting solutions to foster the safe and sustainable development of the capital market to become the main channel for supplying medium- and long-term capital to the economy, thus ensuring that the capital's growth needs in the near future are well met.

In a recent report on the 2026 outlook, analysts from Shinhan Bank wrote that the SBV will continue to pursue the goal of limiting excessive fluctuations in the foreign exchange rate, prioritising macroeconomic stability and inflation control this year.

With interest rates currently near historically low levels, the room for monetary policy is considered limited, so Việt Nam is likely to strengthen its use of fiscal policy, such as boosting public investment, to support economic growth in 2026, the report stated.

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