It is also important groundwork for Vietnam to successfully realise its socio-economic development plan for 2021-2025.
Challenging goals
Vietnam’s medium-term goal for the next five years is ensuring rapid and sustainable economic growth on a foundation of macroeconomic stability, scientific and technological development and innovation. Vietnam is targeting an average economic growth rate higher than that during the 2016-2020 period, and the hope is that by 2025 Vietnam will have become a modern industrial developing country, surpassing the low-middle income threshold.
According to Do Thanh Trung, Director of the Ministry of Planning and Investment’s Department of National Economic Issues, the goals for the next five years are quite challenging and will require tremendous efforts to achieve. He said it is necessary to look at the country’s actual strengths in order to have a backup plan. Covid-19 has also been factored into the 2021 plan so that feasible measures can be put in place. Although the pandemic has had many negative effects, it has also brought along with it many opportunities. Trung believes that if Vietnam can adapt and manage well as in 2020, the country can take advantage of opportunities for development.
In order to fulfil the set targets, the Ministry of Planning and Investment has laid out major solutions based on science and technology, innovation, digital transformation, institutions, human resources and even culture. Public investment is expected to continue as a driver of growth over the next five years, but in a completely different way. This means public investment must be focussed on inter-regional projects and key national projects so as to reduce costs and enhance the competitiveness of both enterprises and the broader economy.
By assessing the factors affecting the global and domestic socio-economic situations, the National Centre for Socio-economic Information and Forecast (NCIF) has come up with two scenarios for growth during the 2021-2025 period. In the first scenario, the Vietnamese economy will grow by 6.3% per year on the assumption that the threat of Covid-19 remains serious, the Government’s support measures produce a moderate effect while the global situation remains uncertain and risky, and economic and trade growth remains slow. In a more optimistic scenario, average growth could reach 6.8% per year. Although economic growth is expected to be slower after a strong initial pace in 2021, it will make a steady recovery.
Capitalising on new opportunities
Beside the challenges, the Covid-19 pandemic has also created or accelerated many new trends, reshaped international finance, trade and investment, especially in respect of a shift in supply chains, presenting both challenges to and opportunities for long-term economic recovery. Utilising the new opportunities for economic recovery in 2021 and acceleration in the subsequent years is highly significant in terms of fulfilling the targets set in the 2021-2025 socio-economic development plan.
According to the NCIF Deputy Director, the Covid-19 pandemic will remain complicated and unpredictable, continuing to affect the chances of recovery. Therefore it is necessary to focus on the two following major policy groups.
Firstly, Vietnam needs to reduce costs by continuing the policy of waiving, cutting and extending the deadline for tax and land lease payments; eliminating business rules and compliance costs, focusing on enhancing the quality of human resources in order to move some exports to a higher value; and accelerating investment in technological infrastructure.
Second, it is necessary for Vietnam to promote investment and expand the market by accelerating disbursement to major transport projects and important industrial projects from the beginning of the year; stepping up the export of key products to the EU; pushing through institutional reforms and improving the business climate; as well as fostering digital transformation in the corporate sector.
The UNDP in Vietnam stated that the size of Vietnam’s fiscal package to support enterprises struggling due to Covid-19 is much smaller than other countries. The ADB estimated that policy measures in the Asia-Pacific region are equivalent to 15% of GDP on average while the figure in Vietnam is only 1%. According to economic experts, with many unpredictable risks and uncertainties, Vietnam needs to make a huge effort so as to reach a growth rate of over 6% in the coming years. Long-term support packages should be taken into consideration in order to create further drivers for growth.
Deputy Director of the Central Institute of Economic Management Phan Duc Hieu has stated that new support packages need to serve two purposes: recovery and growth acceleration. For the goal of economic recovery, the Government’s measures should focus on sharing difficulties with enterprises in preventing and fighting against Covid-19, and avoiding policies creating a reverse effect.
Regarding the goal of supporting growth acceleration, it is necessary to introduce measures to enhance labour productivity and to speed up the process of institutional reform and improving the business climate. Room for growth must be linked closely to productivity, which is not new because even without Covid-19, it is also a must to enhance productivity. What is new here is dynamism, meaning enterprises should be swift in restructuring themselves. Another key factor that drives growth is institutions which encourage business dynamism and promote competition. During such a process, well-performing enterprises will have a better chance of survival while ineffective ones will be replaced.
