Vietnam Needs New Growth Drivers for Economic Recovery

10:06:50 AM | 5/8/2020

Despite suffering a big shock, Vietnam is still among the most dynamic countries in the world, said the World Bank’s latest Taking Stock report, titled “What will be the new normal for Vietnam? The economic impact of Covid-19” released recently.

If the world situation gradually improves, economic activity should rebound in the second semester of 2020 so that the economy will grow at around 2.8% for the entire year, and by 6.8% in 2021. With less favorable external conditions, the economy will expand by only 1.5% in 2020 and 4.5% in 2021. This forecast Vietnam to be the fifth fastest-growing economy in the world in 2020.

Ms. Stefanie Stallmeister, World Bank Acting Country Director for Vietnam, said, while most countries were hesitant in their pandemic responses, Vietnam took quick and bold actions. Early responses - targeted monitoring and testing, transparent disclosure, combined with creative communication campaigns - proved to be highly effective up to this point of time. Despite lying near to the starting point of the pandemic and having a relatively large population, Vietnam determined its fate with a low rate of community infections and very few deaths because of Covid-19 since the beginning of the crisis in early 2020.

Like any other country in the world, Vietnam is vulnerable to the pandemic in the absence of vaccines that help protect human life. The recent outbreak of community infections in Da Nang City, as it happened in Beijing or Melbourne earlier, once again reminded us of the fragility and risks of a potentially renewed wave of Covid-19.

According to the World Bank, the main challenge for Vietnam will be finding new drivers of growth to consolidate the expected recovery. The country’s traditional sources of growth - foreign demand and private consumption - are unlikely to return to their pre-crisis levels soon, amid continued uncertainties both at home and abroad. Covid-19 has also caused a surge in inequality as the pandemic affects businesses and people differently as, for example, workers in the service sector have seen a bigger decline in their income than farmers.

Ms. Stefanie Stallmeister said, Vietnam should not envision a return to the old normal, but rather should define what will be the new normal, as the pandemic has changed in so many ways how people live, work, and communicate. Vietnam will have to move in an uncertain world both domestically and internationally in the coming time.

“To adapt to the new normal, policymakers must find new ways to compensate for the weakening of the traditional drivers of growth, while managing rising inequality. However, by being ahead of the curve of the Covid-19 crisis, Vietnam has the unique opportunity to increase its footprint on the global economy and become a leader in tomorrow’s digital world,” she added.

The report suggests three complementary measures for the government to take today so that the country can avoid the Covid-19 economic trap and return to its historical trajectory of rapid and inclusive growth. First, it should consider removing mobility restrictions on international travel, gradually and carefully to balance with safety concerns, as Vietnam’s economy is dependent on foreign visitors and investments. The second measure is to accelerate the execution of the existing public investment program to enhance domestic demand. However, the effective implementation of this action will require significant improvements in the allocation of resources and financial management, while minimizing technical and financial losses during implementation. Third, it should provide targeted support to the private sector, particularly to the hardest-hit industries such as tourism and manufacturing exports, through a combination of financial assistance and smart incentives.

Vietnam can also exploit several global trends, which have been accelerated by Covid-19, to push ahead its domestic agenda. For example, in a new global trading system, Vietnam can consolidate its existing footprint by developing strategic alliances with countries that have also low rate of Covid-19-infections and boosting promotion efforts to attract companies planning to diversify their supply chains. Similarly, Covid-19 presents a unique opportunity to move toward a more “contact-free” economy by promoting digital payments, e-learning, telemedicine and digital data sharing and, by so doing, help respond to the fast-expanding demand for quality services by the middle-class in the country.

By Quynh Anh, Vietnam Business Forum