2016 Vietnam Economy: Strong Growth Engine Needed

This is the brightest figure of Vietnam’s economic growth data in 2015 announced by the Central Institute for Economic Management (CIEM). Mr Nguyen Dinh Cung, CIEM President, said Vietnam's economy is in a transitional period which not only lies between two socioeconomic development plan periods (correspondingly 2011-2015 and 2016-2020), but also moves from growth stability and recovery to more extensive economic growth and integration. Vietnam also targets microeconomic reform more strongly and facilitates business community development after its focus on macroeconomic policy.

 

Mr Nguyen Anh Duong, Deputy Director of Macroeconomics Committee at CIEM, cited data from the report, saying that economic growth has recovered clearly since the rate is higher quarter on quarter over 2014 although it was lower than in the 1990 - 2010 phase. In 2015, many socioeconomic indicators exceeded their objectives, including the GDP growth of 6.68 per cent - relatively higher than the target of 6.2 per cent, an inflation growth of 0.6 per cent, an estimated credit growth of 18 per cent and FDI disbursement value of US$14.5 billion. However, economic growth has not increased inflationary pressures as the economy has not really escaped from the decline cycle and growth momentum is not enough. Exports however failed to meet the initial target when it ended the year with a 7.9 per cent growth.

 

Speaking of medium and long-term economic opportunities in 2016, he said private investment and foreign investment channels still have high growth prospects on open business policies. Therefore, public investment is forecast to grow fast in the first year of the 2016 - 2020 medium-term investment framework. In addition, opportunities will also come to Vietnam at the back of many new-generation free trade agreements (FTAs) like TPP, AEC and FTA with some partner countries. Apart from opportunities, CIEM researchers also pointed out some risks and uncertainties that may impact Vietnam's economy in 2016, like slow recovery in developed countries and investment outflows from emerging markets (outflows from China alone amounted US$1 trillion from June 2014 to November 2015) and falling commodity prices on global markets. Hence, according to researchers, Vietnam should continue to ensure macroeconomic stability in a substantive manner. Top priorities will remain budget deficit reduction, spending discipline and inflation stability, while efforts for a better business environment will be strengthened.

 

Mr Duong said although the country’s GDP growth reached 6.68 per cent in 2015, it was still lower than the average annual growth in the 1990-2006 period (7.6 per cent). Therefore, although the macroeconomic recovery is secured, Vietnam's GDP growth is equivalent to its long-term growth trend only. GDP has not exceeded the long-term growth trend in the 2013-2015 period. Cyclical developments in the 2011-2015 period showed that even if GDP exceeds the long-term trend, this result is not really sustainable. This shows that Vietnam's economy still lacks strong growth momentum, Mr Duong noted.

 

Vietnam’s labour productivity being lower than other countries in the region and uneven across sectors is also a concern. Slow sector-based economic restructuring (even in agriculture), bottlenecks and barriers in labour shifting to higher productivity sectors, obsolete machinery, equipment and technology, and low labour administration level are cited as behind this weakness, he added.

 

Former Trade Minister Truong Dinh Tuyen said in the past few years, Vietnam’s growth was actually driven by foreign investment, while its internal sustainable growth momentum is also absent. Labour productivity did not increase and even declined. Agriculture - the foundation of societal stability - is very poor and weak. Worse still, many shortcomings have not been solved, including the pressure on the private sector from the State sector and outweighing government bonds over credit which results in a hike in interest rate. “These will be very difficult consequences if Vietnam integrates more deeply into the world economy. Particular, it will face the risk of lagging behind when it joins the ASEAN Economic Community (AEC) since Thailand’s agricultural competitiveness is very strong,” he added.

 

Economic expert Pham Chi Lan said private small and medium agribusinesses and business households are eagerly expecting for State arbitrating roles to fight against the coercion of State-owned and foreign-invested companies. Nevertheless, the State does not become an arbitrator, but a third coercive force. “The pressure and invasion of these big three are killing the private sector,” Ms Lan said. In 2015, corporate closures hit a new record high, although the business environment was reportedly improved. Economic growth continued but more companies went to the wall or were weakened. The compression Ms Lan described came from government bonds, pricing regulation and rising tax and fees.

 

Therefore, according to Mr Nguyen Dinh Cung, macroeconomic indicators look good but they lack momentum. Meanwhile, motivations have not changed, potential almost exploited to the full and growth requirements are high. Hence, in 2016, the economy still sees daunting challenges in couple with great opportunities, he concluded.