Economy in 2016- 2020 Period: Three Growth Scenarios

National Centre for Socio-economic Information and Forecast (NCIF) has announced three scenarios for Vietnam's economy for the next 5-year period from 2016- 2020. Accordingly, the growth is forecast to be higher than that of the previous period, but the economy will also face many difficulties and challenges.

Greater competitive pressures
According to Dr Dang Duc Anh, Head of the Economic and Social Analysis and Forecasting Division of the NCIF, in the next 5-year period from 2016- 2020, the economic growth of Vietnam is expected to have strong recovery benefiting from the trade agreements that Vietnam has signed in recent years as well as other external forces including FDI, economic restructuring, institutional reforms and improved business environment. This will create a good impact on the economy.

Along with the extensive integration of Vietnam's economy into the economy of the region and the world, domestic enterprises will face difficulties due to their weak competitiveness and insufficient preparation for the integration process. In addition, Vietnam will face many obstacles regarding technical barriers and requirements of quality, food safety, and certification of origins many countries are applying. There will be more stringent requirements for imported goods, especially agricultural and forestry products.

The service sector will welcome new opportunities created from the integration, along with challenges from participation of regional businesses, especially financial sector, banking and logistics. Therefore, it is necessary to improve growth of the service sector, which depends heavily on improving the competitiveness of businesses operating in this sector.

Three growth scenarios
Based on evolution of the economy as well as macroeconomic activities related to mechanisms and policies affecting the business environment in the near future, the NCIF has announced three growth scenarios in the period of 2016- 2020.

In a less positive scenario, the world economy and international trade will fall sharply, global financial system is less stable; investment growth rate is only 7 per cent; risks from public debt, budget deficit and financial system are growing; reliance on old-styled growth model is large while the competition is fiercer. The average economic growth in the period 2016-2020 is forecast to be 6.20 per cent.

In the baseline scenario, which is likely to occur, the world economic growth continues to stabilize at an average of about 3 per cent. State investment is improved in both quality and quantities of the disbursement. Policy management, legal procedures and the investment environment continue to improve. Social investment rate continues to increase by 7 per cent on average. Trade agreements are implemented effectively, which will promote investment and exports of Vietnam. The forecast economic growth in the period 2016- 2020 is 6.55 per cent.

In a more positive scenario, which is less likely to occur, the economy achieves the expectations as in the baseline scenario, and economic restructuring process is more robust, especially institutional management reform, thus improving public investment; labour productivity is equal to that of ASEAN countries; short-term lending rates are reduced to the average level of developed countries. Accelerating divestment of state enterprises to invest in infrastructure.

At the same time, risks to the economy such as public debt or financial systemic risk (ie NPLs) will be resolved. Meanwhile, not only does the economy achieve stable growth, corresponding to an average economic growth of about 6.85 per cent in the last period, but also it can maintain sustainable growth, creating premises for the next 5- year plan.

Mr Le Quoc Phuong, the Deputy Director of Centre for Trade and Industry Information, said, if domestic and international economies prosper, Vietnam's economy could achieve GDP growth rate of 7 per cent. However, the most important thing is not economic growth to ensure sustainable, quality growth but the growth that should be remained stable to protect the business environment.

According to Dr Dang Duc Anh, positive effects of trade agreements, the rate of economic growth is forecast to be higher than that of the previous period. However, the economy is also facing many challenges and significant pressure due to the impacts of climate change factors and the risks of environmental pollution in the development process.

Vietnam ranks 23rd among 193 countries in the Climate Change Vulnerability Index. The average forecast in the period of 2016-2020, natural disasters and environmental pollution could reduce the GDP by 0.6 per cent per year.

Dinh Thanh