Better-than-expected economic growth, sustained macroeconomic stability, inflation kept in check, major economic balances reinforced and expanded, and improved standards of living are the bright spots of Vietnam’s socio-economic development since the start of the year.
|Manufacturing mechanical equipment at LILAMA 18
Growth exceeding potential
According to a government report, Vietnam is expected to reach all of the 12 socio-economic criteria set by the National Assembly, with five surpassing the targets. Full-year GDP growth is expected to reach 6.8%, among the highest in the region and the world, while inflation is kept well in check at under 3%.
Total government revenues exceed the estimate by 3.3%; the spending deficit is estimated at 3.4% of GDP and public debt dropped to 56.1% of GDP from 64.6% in 2016. Vietnam’s foreign reserves also hit a record high of US$73 billion.
A joint report by the Central Institute of Economic Management (CIEM) and Aus4.Reform Program also indicates that Vietnam has posted relatively high economic growth and has grown beyond its potential for many recent consecutive quarters.
Nguyen Anh Duong, a senior economist with CIEM, noted that the first and foremost growth driver is industrial production, especially the mining sector, which has returned to positive growth after shrinking for several quarters. Manufacturing and construction also saw slight increases. Export and import activities continued to grow, with the trade surplus estimated at US$7 billion in the first ten months of 2019. It is worth noting that export growth recorded by domestic enterprises is at 16%, much higher than the 5% growth registered by the private sector.
According to a research team at CIEM, impressive growth in the past two years is attributed to the government’s consistent stance to maintain macroeconomic stability, flexible and cautious foreign exchange regulation and efforts to improve the business environment. Calculations by the team suggest that if the quality of legal documents increases by 1%, the total factor productivity will increase by 1.38%. Growth has been greatly contributed by continuous efforts to improve the business environment for many years since 2014.
Looking for new drivers
As global economic and trade growth is slowing and the world is projected to likely move towards a recession, economic experts share the same view that sustaining 6.8% growth is very challenging, given Vietnam’s high degree of economic openness and heavy reliance on exports and foreign investment.
According to Nguyen Dinh Cung, a member of the Prime Minister’s economic advisory team, the solution to sustaining and improving economic growth in the coming years is further reform, noting that factors driving growth in the past time are short-term and uneven.
Therefore he suggested establishing an inter-sectoral working group to review and abolish unnecessary business requirements. If such task continues to be undertaken by ministries, the result will be a compromise without an extensive simplification of business requirements to encourage more private sector investment.
This is a very important matter because the state and foreign sectors are no longer the main growth drivers. Public investment disbursement has so far met only 69.2% of the target and increase by 5.3% compared with the previous year while the FDI inflow is declining. In addition, it is necessary to speed up public investment disbursement and enhance its quality by new measures such as assigning the leaders of ministries, sectors and local authorities to make a list of priority projects and focus all resources to implement such projects and be held accountable for them.
Concerning foreign direct investment (FDI), Cung warned that since the start of the year, the number of projects has increased by 26% but investment pledges declined by 14.5%. Such figures suggest that the size of FDI projects is falling. The ministries concerned need to take an initiative to meet with foreign investors, listen to the opinions of business associations in order to promptly bolster their confidence.
According to experts, domestic preparations are not commensurate with the pace of signing and implementing free trade agreements as seen in the less-than-expected exports to member economies of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Therefore, it will be difficult to leverage free trade deals to boost economic growth if domestic enterprises are not prepared for origin of goods, participation in the value chains and formulation of scenarios for handling trade relationships with major markets.
Chairman of the Vietnam Association of Foreign-invested Enterprises Nguyen Mai stated that it is necessary to create an action programme to capitalise on free trade agreements to serve economic growth like what Vietnam did when joining the World Trade Organisation.