Comprehensive Institutional Reform Needed

According to a research report on “Vietnam socioeconomic development reality and the risk of falling behind other countries in the region", the General Statistics Office (GSO) under the Ministry of Planning and Investment pointed out that Vietnam's economy has basically maintained a high growth rate in recent years. From a country with a GDP of only US$6.4 billion in 1990, ranked 90th in the world, Vietnam’s GDP reached US$186.2 billion in 2014, ranked 55^th in the world.

 

However, according to the report, the scale of economy has been expanded though, its GDP gap with other ASEAN countries has been narrowed. But, compared with some developed countries in the region, Vietnam's economy is still lagging with a lot of limitations. Specifically, in 2014, Indonesia's GDP is more than 4.8 times of Vietnam’s GDP. Vietnam’s GDP scale to that of Thailand, Malaysia, Singapore and the Philippines is 2, 1.8, 1.7 and 1.5, respectively. Although Vietnam was recognised a middle-income country, its GDP per capita is still very low in compared with other countries.

 

South Korea took 16 years to become a low middle-income country. And, this target took Thailand 27 years, and Indonesia 34 years. Malaysia only needed six years to become a low middle-income nation.

 

Therefore, according to GSO, despite achieving high per capita GDP growth, Vietnam is going 30-35 years after South Korea, 25 years after Malaysia, 20 years after Thailand, Indonesia and Philippines after about 5-7 years.

 

Although the economic structure was shifted towards a positive direction, slow, the share of agriculture in GDP is bigger than other countries in the region. The savings to GDP ratio was always lower than the GDP to investment ratio. State budget deficit and public debt tend to rise sharply in recent years. Financial market development was relatively low and unstable.

 

Particularly, one of the criteria for gauging the competitiveness of Vietnamese economy is labour productivity, which does not have proper growth in relation to potential strength. Accordingly, the labour productivity of Vietnam has recently improved significantly to VND74.7 million (US$3,530), the gap with ASEAN countries is narrowing. Among economic sectors, FDI sector had the highest labour joint venture, 1.7 folds higher than the State sector and 9.2 folds higher than non-State field.

 

According to the Central Institute for Economic Management (CIEM), Vietnam's economy is recovering slowly, featured by much lower growth than earlier. State budget revenue growth is on the fall and the rate is lower than spending growth rate. State budget-funded investment is volatile and lower than regular sending. Budget structure is unreasonable and inconsistent with medium and long-term development; public debt increases rapidly to a level is that higher than that in other countries in the region.

 

Dr Nguyen Dinh Cung, Director of CIEM, said that it is easy to see difference in Vietnam’s growth stages. The country’s average GDP was 7.8 percent a year before 2008 and 5.8 percent after 2008 to date. Given an annual GDP growth of 5 percent to 2023, Vietnam's GDP will equal only 70 percent of Thailand’s current GDP. If the growth is 7 percent, the then GDP will reach 98 percent of Thailand. Thus, the risk of being lagged behind is very big. “If the growth is 7 percent, Vietnam can reach [Thailand], if the growth is 5 percent, it is surely left behind,” he said.

 

He noted that this economic reform must focus on State-owned enterprises (SOEs) because reform from the State is necessary condition and the reform from the market is sufficient condition. And, only this time, the market will be complete, competitive and perfect. Some measures need to be solved drastically like restructuring budget, especially expenditure and expenditure efficiency improvement to raise budget for investment; narrowing and decreasing payrolls in State sector to reduce burdens on the State budget; narrowing State management functions, overcoming market deficiencies; not allocating State budget for unnecessary projects or projects that can mobilise investment capital from other sources.

 

Giving more dialectical perspective, Dr Vo Dai Luoc said that the current openness of global economy is very large and we must follow the trend. This means that we have to think the same thought as the world. What the world researches or thinks of, we must do the same because the lag of thinking is the most dangerous. When our thinking is lagged behind, the economy will be difficult to take a leap and it will continue to lag further, he stressed.

 

In taking opinions from scientists and economists, Minister Bui Quang Vinh said economic institutional reform or other reforms for the national development is a regular work but it needs time to make breakthroughs. Although Vietnam actively integrates into the world, it still lacks solutions to take advantage of integration opportunities. Thus, it needs a deep and comprehensive institutional reform.