Pressures from Economic Institutional Reform

"Lagging is a fact, not a risk anymore," said Dr Tran Dinh Thien - Director of the Vietnam Institute of Economics. The correlation of Vietnam's position to regional and global economic maps shows that we are much lagging behind in some areas. This fact is evidenced by data announced by the General Statistics Office (GSO): Vietnam's GDP per capita was US$2,052 in 2014, 21 times higher than in 1990, but it equalled that of Malaysia in 1988, Thailand in 1993, Indonesia in 2008, the Philippines in 2010, and South Korea in 1982. Vietnam's GDP per capita in 2014 was equal to three-fifths of Indonesia, two-fifths of Thailand5, one-fifth of Malaysia, one-fourteenth of South Korea and one-twenty-seventh of Singapore. So, Vietnam's GDP per capita is 30-35 years after that of South Korea, 25 years after Malaysia, 20 years after Thailand, and 5-7 years after Indonesia and the Philippines.

 

GSO saw that the economic structure and macroeconomic balances have been shifted towards a positive but slow direction. The share of agriculture in the economy is bigger than some countries in the region. Deeper analyses show that macroeconomic balances tend to offset towards a less positive way. The savings to GDP ratio is always lower than the GDP to investment ratio and tends to decrease from 28.94 percent in 2005 to 27 percent in 2013. State budget deficit and public debt tend to rise sharply in recent years. The government debt to GDP ratio was ranked No. 9 in the ASEAN region and jumped to 5th place in 2013.

 

Financial market development was relatively low and unstable, compared to some countries in the region. This is evidenced by the stock market capitalisation value of listed companies in Vietnam being much lower than in other countries in the region. In 2012, Vietnam's stock market capitalisation was US$32.9 billion while the value of Malaysia was US$476.3 billion, Singapore with US$414.1 billion, Indonesia US$396.8 billion, Thailand US$383 billion and the Philippines with US$264.1 billion.

 

Besides, the growth quality and economic efficiency is low relative to other countries in the region, reflected by rising costs for production from 1996 up to present. Energy consumption for production tends to rise while energy efficiency, capital efficiency and productivity are significantly lower than countries in the region. The relative gap in labour productivity with ASEAN countries has been narrowing but the absolute gap with some developed countries in the regional has strongly been widening. Given the deeper and broader integration trend, this lag will be very dangerous and challenging to development, he warned.

 

Dr Nguyen Dinh Cung, Director of the Central Institute for Economic Management (CIEM), said the nature of this reform version is to upgrade the economic growth quality towards a modern market economy. Vietnam is heading for a modern, complete and integrating market economy because we have no way to turn back. He added that Vietnam needs to seriously carry out market reform contents and State management.

 

It is vital to comprehensively develop all types of markets, particularly capital, land and resources markets and ensure institutions for the full operation and development of these markets. It is necessary to narrow the State scale and comprehensively reform governance system, including the reform of State roles and functions to fit and complement the complete and integrating market economy, reform State organisational structure, particularly the structure of Government, ministries and government-affiliated agencies, he warned.

According to experts, right in the 2016-2020 period, Vietnam needs to focus solutions on improving the business environment and enhancing national competitiveness; comprehensively reform regulations on business conditions, export and import management, administrative procedures relating to investment, land, construction and environment. These reforms are expected to shape a healthy incentive system to replace the current deviation, to facilitate resources to be allocated and utilised according to market signals.