Advancing Institutional Reform for More Rapid Economic Recovery

Fostering economic recovery and conducting institutional reform amid the complicated development of Covid-19 pandemic will help Vietnam's economy recover faster and more sustainably.

Three growth scenarios in 2021 - 2023

Speaking at the recent workshop on “Making economic recovery and institutional reforms intertwined after Covid-19: Way forward for Vietnam”, Dr. Tran Thi Hong Minh, President of the Central Institute for Economic Management (CIEM), emphasized that in 2020 and the first quarter of 2021, Vietnam's economic growth was assessed as positive by international organizations. To date, Vietnam has basically contained the Covid-19 pandemic, maintained macroeconomic stability and facilitated businesses to develop. While Covid-19 pandemic development is raging worldwide and potentially harmful to the Vietnamese economy, reforms need to be focused on in the coming time, she said.

CIEM put forth three scenarios for Vietnam's economic prospects in 2021-2023, all based on the condition that Vietnam fully controls the Covid-19 pandemic by the end of 2021. Mr. Nguyen Anh Duong, Director of CIEM Research Department, said, in the first scenario (median), Vietnam's economy will grow only at 5.98% and inflation will rise by 3.51% in 2021. The growth will be 6.45% and 6.61% in 2022 and 2023, respectively.

In the second scenario (fiscal and monetary policy loosened), Vietnam's economy will grow 6.43% in 2021. Given loosened fiscal and monetary policies, CIEM estimated that inflation will pick up 3.78%. In 2022 and 2023, the growth is projected at 6.8% and 6.83%, respectively.

In the third scenario (fiscal and monetary policy eased, institutional reforms accelerated), Vietnam's economy is forecast to grow at 6.47%. Despite higher economic growth, inflation is believed to rise only 3.56% in 2021, according to CIEM. The economic growth will be accelerated to 6.88% and 6.92% in 2022 and 2023, respectively.

According to Mr. Duong, these three scenarios show that if only fiscal and monetary policy is eased, higher economic growth will come with greater inflationary pressures. If fiscal and monetary policy is eased together with institutional reforms, higher economic growth will be coupled with significant productivity improvements. GDP growth may reach 6.76% a year in 2021-2023. “This is also a way for faster recovery and more sustainable growth", he stressed.

A longer-term plan needed

Although pandemic development scenarios must be taken into account, Vietnam needs to develop a long-term plan for quicker economic recovery after the end of Covid-19. In the report released at the workshop, CIEM proposed a reform roadmap for the 2021-2023 period. Proposed orientations and solutions concerning economic recovery, institutional reform, openness to new economic activity, international economic integration and sustainable development are also concretized, implemented harmoniously and consistently in the coming time. In addition, governmental roles and economic space for the private sector, reform timing are well-acknowledged in the post-pandemic recovery period.

According to CIEM President Tran Thi Hong Minh, in the coming time, Vietnam needs to build a longer-term plan, avoid the risk of "exhausting" policy space and reduce motivations for economic institutional reform. Because if the economy recovers slowly, economic institution reforms will also lack consensus and necessary motivations and not create strong changes to meet economic requirements.

Correspondingly, the focus of 2021 will be effectively preventing Covid-19, removing difficulties for the business community and workers, reforming economic institutions, combining solutions for economic recovery and economic institutional reform in 2022 and gradually withdrawing support solutions for economic growth recovery, with emphasis on economic institutional reform in 2023. Longer-term solutions will be fundamental changes of growth pattern and increasing growth quality.

Sharing this point of view, Dr. Vo Tri Thanh, Director of the Institute of Branding and Competition Strategy, said that the economic recovery should be strongly associated with economic institutional reform to result in higher performance. In particular, in order to enhance economic resilience, institutions to cope with "shocks" is a very big issue that needs to be posed next to macroeconomic stability and growth policy space, he added.

Regarding economic institutional reforms, CIEM President Tran Thi Hong Minh noted, to create a favorable investment and business environment for business development, Vietnam needs solutions to unlock funding channels or enabling policies for business development. However, the most important thing, apart from fostering institutional reform, is to boost communications to people and businesses.

Emphasizing the role of digital transformation, according to experts, in the coming time, it is necessary to focus on developing the digital economy, carrying out institutional reform together with the digital economy, e-government and e-business to reduce physical contact and increase openness and transparency. If enterprises do not adopt digital transformation, it is difficult to access their value chains.

By Thu Ha, Vietnam Business Forum