Spurring vibrant economic growth

Jacques Morisset, World Bank lead economist and programme leader for Vietnam

Vietnam’s National Assembly (NA) will soon gather to discuss a hallmark programme on economic recovery and development for the next two years. How can this help Vietnam bounce back as an Asian tiger, as expected by many international experts?

I believe that Vietnam can grow again as an Asian tiger, and it started to grow again at the end of 2021. I think the government can do more and the NA session to discuss this programme is a good signal. The government is aware of the situation and ready to do more.

At the same time I believe that Vietnam had great potential before the pandemic occurred, and I would argue that maybe the crisis can help to accelerate some of the reforms that Vietnam to realise to become a higher income nation by 2045.

The country should further boost the development of a digital economy during the economic crisis, which would be a good signal for the future. In addition, we also see some reforms and changes in the thinking about public investment management, the economy, and the response to climate change. The commitments by the Prime Minister Pham Minh Chinh at the COP26 climate summit is an indication that Vietnam is likely to move faster in this important issue.

The recent NA session has set out key targets for 2022, including a goal of 6-6.5 per cent in economic growth. Do you think this goal will be achievable?

I think this target is feasible. You can project that Vietnam is going back to the growth trajectory of the time before the health crisis appeared, but this assumes that the world and Vietnam will not suffer any more from a big crisis.

I hope that the government will stimulate the economy by the spending and tax policies. If this condition is materialised, I believe that there will be no reason why Vietnam will not be able to grow strongly again as it did previously, and even grow higher because it can catches time to resume the high economic growth in the time before the pandemic occurred.

So I am very optimistic about the Vietnamese economic outlook, of coursed based on the two conditions of the government well controlling the fiscal policy and the economy not being closed again due to the pandemic.

What will be the obstacles and risks for Vietnam to reach these targets in the context of the health crisis remaining quite complicated and concerns over high inflation?

I think the biggest risk for 2022 will continue to be the pandemic. In the first quarter or even the second quarter of 2021, no-one could have forecast that the economy would decline deeply in the third quarter. So I don’t know exactly what are going to happen not only in Vietnam but also in the wider world.

Recently we have been talking about the Omicron variant and we don’t know what the implications will be yet, and there may be bigger pandemic waves in the next few years. This is the biggest risk in my view.

In addition, even if the pandemic is controlled, there also may be economic risks. Vietnam is an open economy, and it certainly depends on what is happening in the rest of the world. Exports have been driving Vietnam’s economic growth over many years. You can see that the International Monetary Fund or the World Bank have reduced the projections for growth in the US and Europe. The less vibrant situation of the global economy will certainly impact Vietnam as the country’s exports will grow less.

Another risk is that inflation could be an issue but right now this is mostly imported inflation because commodities, particularly oil prices, have gone up and they have impacted on transport. These factors have been reflected via Vietnam’s inflation rate, which is the combination of imported inflation going up and at the same time domestic prices not increasing due to demand being lower than supply.

But let’s assume that demand increases as you want growth and then at some point of time, there will be domestic inflation which however will stay at a manageable level. But we need to wait as there may be a combination between a rise in prices of imported goods and a rise in prices of domestic goods. This will lead to high inflation, requiring authorised agencies to take greater caution of controlling inflation as compared to the previous years.

What are some of the more positive prospects for the Vietnamese economy in 2022?

There remain many opportunities for Vietnam and the nation is very good at grasping them. The first comes from the export sector. Exports are mostly created by multinational corporations and foreign direct investment, and around 80 per cent of exporters in Vietnam are foreign-invested enterprises.

You can see a big attraction from Vietnam for such enterprises, thanks to a combination of many factors: an attractive economy with cheap labour, and people are working a lot. Vietnam also offer attractive tax incentives, then helping the country to woo many enterprises and investors.

I also believe that the pandemic has prompted us to diversify supply chains and Vietnam is a good candidate to diversify, and some big companies are coming to the country in order to diversify their own supply chains and ensure their exports to other nations from Vietnam.

It can be said that Vietnam is now well taking advantage of this diversification trend.

In addition, I also believe that Vietnam can take advantage of opportunities from the green economy and climate change economy. I know that Vietnam is very much exposed to climate change. In Hanoi you can see big pollution, while the Mekong Delta region is exposed to rising ocean water. So Vietnam is a victim of climate change, but the country also can take advantage of this.

For example, in 2020 the government subsidised the prices of solar energy and decided to help companies to invest into solar power, and the Vietnamese private sector has been amazing. Total solar investment in Vietnam in the first eight months of 2020 was higher than that of the whole ASEAN member states and even that of the African continent. That’s an example that Vietnam boasts big potential for green energy development.

Vietnam can do well in solar development and it can do the same for wind power. You can also do it for batteries and many other green products. This shows the vibrancy of the private sector in Vietnam. I think this is a strength of the Vietnamese economy as the vibrancy of its entrepreneurs is quite clear.

You said that foreign investment and exports will continue acting as the key drivers for the Vietnamese economy in the coming time. Do you see any other drivers for the economy?

In the short term, the important sectors will still be exports and a shift to a greener economy. In the medium term, just like before the pandemic, domestic demand will be important. When Vietnam become a richer nation, with a stronger middle class, domestic demand will increase.

Pre-pandemic, the driving force was the consumption power of the middle class in combination with the development of big domestic companies. I believe that this will continue play an important role in spurring on the economy, with the shift from foreign demand to domestic demand, as well as the development of the middle class. This will be one of the key drivers of Vietnam’s economic growth.