Vietnam needs drastic reforms to create firm ground for economic growth: experts

 

Drastic institutional reforms are needed to create firm ground for economic growth in the context that persistent challenges, both external and internal, still cloud the growth prospect, experts have said.

Nguyen Dinh Cung, former Director of the Central Institute for Economic Management (CIEM), who has witnessed ups and downs of economic reforms in Vietnam during the past three decades, said that it seems to be the hardest time ever.

Vietnam’s economy has a good start with a growth rate of 5.66% in the first quarter of this year, the highest rate since 2020. However, whether the recovery is firm remains a question, Cung said.

He pointed out a number of problems behind the figures.

The index of industrial production (IIP) lacks stability. The purchasing managers’ index was below 50 in March, indicating a contraction. The number of firms quitting the market is also rising.

“The economic recovery in the first quarter lacks a firm ground,” he said.

Statistics of the Agency for Business Registration showed that nearly 74,000 firms quit the market in the first quarter of this year, up 22.8 % against the same period last year.

Cung said that there was one firm quitting the market for every four new firms in the 2018-22 period. However, from 2023 to March 2024, for every business entering the market, two withdrew.

It is undeniable that both businesses and the overall economy are in significant difficulty, raising a question about future growth, he said.

While exports hardly recover strongly due to external impacts, growth in services – a major driver – is losing momentum on rising inflation but incomes do not improve much.

Private investment has not returned to the previous level. Foreign direct investment attraction has been robust in recent years but the average capital per project since 2015 is lower than the average of the past 30 years.

Cung said that it is necessary to improve the investment climate of Vietnam to attract huge foreign capital.

With a GDP growth rate target set at 7% per year by 2030, the Vietnamese economy needs to expand at 8% per year on average in the next six years, requiring hastened efforts to accelerate business environment reforms to create a firm ground for economic growth, Cung said.

Vietnam needs a comprehensive institutional reform, he stressed.

Vu Thanh Huong from the VNU University of Economics and Business pointed out that the economy is facing persistent risks and uncertainties, including escalating geopolitical tensions, economic instabilities, rapid technology development, climate change and global fragmentation.

According to Truong Van Cam, Vice Chairman of the Vietnam Textile and Apparel Association (VITAS), although orders are increasing for the garment industry, caution remains on rising raw materials, production cost, exchange rates, green requirements of major markets and labour shortage.

Ngo Sy Hoai, General Secretary of the Vietnam Timber and Forest Product Association, said the timber industry is facing new deforestation regulations of major markets. Complicated procedures, including tax refunds, are also weighing on the industry.

Pham Xuan Hoe, former Deputy Director of the Banking Strategy Institute, said that small and medium-sized enterprises (SMEs) still struggle with accessing banking credit. Meanwhile, lending rates remain high. He said that a national credit guarantee fund should be founded to support SMEs.

He said that the target inflation can be increased from 4.5% to 5%, if necessary, to create room for monetary policies.

Public investment will remain a major growth driver this year with a plan of disbursing a sum worth nearly 700 trillion VND, a rise of 12% against 2023, expert Can Van Luc said.

There is significant room for expanding fiscal policies, he said, adding that the value added tax reduction should be prolonged to the end of 2024.

Vietnam should also take the opportunities arising from digital economy, circular economy, green growth, regional linkage, and international integration to promote the economic growth more sustainably, he stressed.

These new growth drivers could help increase GDP by 0.9-1.4 percentage point in the context of global slowdown, Luc said.

The World Bank has forecast Vietnamese economy to expand at 5.5% in 2024 and 6% in 2025. The World Bank’s report released on April 23 said that after experiencing downturns in 2023, Vietnamese economy has been showing signs of recovery during the first quarter of this year on stronger exports and gradually increasing domestic consumption and private investment.

The Asian Develop Bank has maintained its earlier growth projection for Vietnamese economy at 6% in 2024 and 6.2% in 2025 despite lingering uncertainties in the external environment.

The Vietnamese Government has set the economic growth target at 6-6.5% in 2024.

For the 2021-25 period, the country aims to achieve an average growth rate of 6.5-7% per year./.