Vietnam Economy Definitely to Improve in 2022

“Trade has helped sustain growth. The rapid vaccination rates have clearly been beneficial for boosting recovery. And so we definitely see improved economic conditions in 2022,” said Mr. Andrew Jeffries, ADB Country Director for Vietnam regarding the country’s economic outlook. Anh Mai and Bui Lien report.

What is Vietnam's economic outlook in 2022?

Vietnam saw GDP contract due to the Delta variant wave of the COVID-19 pandemic in the third quarter.

The economy has now improved with revived consumer spending, manufacturing, and trade, partly due to opening up after the lockdowns and very high vaccination rates.

Trade has helped sustain growth. And I think the rapid vaccination rates have clearly been beneficial for boosting recovery. And so we definitely see improved economic conditions in 2022. We see Vietnam on its path, at least towards its normal, pre-pandemic growth levels, given expanding vaccination coverage, with economic improvement as a result.

What are the biggest challenges to Vietnam’s economy and how can these challenges be addressed?

Well, first and foremost, you know, this socioeconomic crisis has been rooted in the COVID-19 pandemic as opposed to the financial crisis or like in 2007 and 2008. Health solutions still play a fundamental and decisive role in coping with the near-term challenges. Macroeconomic policies are complementary and important, but Vietnam's aggressive vaccination drive, which is very commendable, will need to continue and also, booster shots.

And as we know, there's a new coronavirus variant Omicron in the world, and boosters will be very important. Various vaccines may need to be modified over time, adjusted for certain new variants. So another important measure that I know Vietnam is looking to do is to develop local manufacturing capacity for vaccines, it's a public sector initiative. There are some very hard-hit businesses in Vietnam; for obvious reasons, tourism, and those focused on tourism and various services. There are a lot of businesses that need some help, and particularly small and medium-sized enterprises which consist of 98% of all registered private companies in Vietnam, and employ 50% of Vietnam's workforce, and they make up 40% of Vietnam's GDP. And these smaller companies tend to be less resilient than larger, deeper-pocketed corporations and companies. It's important to support small and medium-sized enterprises, perhaps with some kind of credit guarantee scheme, to have the government subsidize or shoulder some of the risks. There should be some caution and forward-looking care towards non-performing loans and ensuring adequate capitalization of banks because they play a key role in recovery and in medium-term growth and so if they are impaired a lot it will slow down the whole economy. The fourth is continued improvement in the country's overall competitiveness.

Productivity levels are the economic measure of productivity that tends to be lower in Vietnam than in some other neighboring countries. Education and training and encouraging higher-value foreign direct investment, it’s not just about the quantity of FDI but the quality and attracting FDI with the right incentives, that brings new technology. All of these things are very important for competitiveness.

What is Vietnam supposed to do to support businesses to overcome the pandemic and improve competitiveness?

The first part of the question is on supporting businesses to overcome the pandemic and improve competitiveness. This touches on some points I previously made: the vaccines and booster shots are very important not just to individuals for their safety, but also to enable more connectivity and businesses to stay open. Vietnam has been very prudent in its fiscal consolidation and public debt management over the years, so it's created sufficient fiscal room to respond to emerging fiscal needs. So, Vietnam can afford a higher budget deficit and more public debt in the near term as needed if the recovery is slow, so fiscal support packages. Vietnam's stimulus has been relatively low compared to a lot of countries in the region at less than 3% of GDP. There's room to grow that, I understand the government's working on contemplating a larger stimulus package.

Health spending and safeguarding vulnerable groups, cash transfers or vouchers for the poor and vulnerable, not only helps them, but they turn around and use that to buy needed goods and services, so it supports businesses and small businesses as well.

How to engage the private sector more in infrastructure development, contributing more to Vietnam’s socioeconomic development?

Vietnam needs to grow at something like 7% per year, around that range, to reach upper-middle-income status by 2030, which is a main goal of the government, and with all that growth comes, the continued need for more infrastructure. Attracting private investment is, of course, very important because of the huge need that public budgets can't accommodate on their own. There's been very heavy investment in areas such as real estate and manufacturing, but how to attract that to infrastructure? The key to that is that private investment in infrastructure is suitable for certain types of infrastructure because these investors need a predictable revenue stream.

An example would be an expressway with cars and trucks and buses paying toll then those toll fees create a revenue stream. There's also revenue from water supply and power, electric power generation, so there needs to be some risk allocation, and a degree of revenue predictability for private investment to fund these matters. So that makes the new public-private partnership or PPP law very important, and that law may need further revision, depending on the uptake and issues faced with upcoming PPP projects. I know that the government is keen to use PPP a lot more in the future.

So regardless of if it's going slow or slow uptake, perhaps that law needs some adjustment, it's too early to tell. Big infrastructure often involves big foreign companies, maybe contractors or equipment suppliers, and there needs to be very strong clarification around the intersections of local laws and international contracts.

Another area of complexity and a lot of time is land acquisition. That's a very difficult area, land acquisition to build a new expressway or whatever that infrastructure is. And that's really a government's endeavor. And so, the timing of that land acquisition has to go. It has to be at an advanced stage, before the private investment starts coming in to build the actual infrastructure.

So, those are important aspects to attract more private investment into infrastructure, but there still remains a large amount of infrastructure that won't produce revenue streams. Rural roads and basic services are free for the public. So they may have huge economic benefits, not financial cash benefits, but they're still very important. And that's where public sector investment comes in. And so good, efficient public investment in infrastructure will always remain very important, even if getting more private investment in infrastructure succeeds, that public investment will always continue to be so very important.

By Vietnam Business Forum