Vietnam’s GDP Growth Projected to Surge to 7.5%

11:05:14 AM | 8/15/2022

Vietnam’s economic recovery accelerated over the last six months on the back of resilient manufacturing and a robust rebound in services. GDP growth is forecast to surge from an estimated 2.6% in 2021 to 7.5% in 2022, while inflation is projected to average 3.8% over the year.

This statement is made in the “Taking Stock: Educate to Grow,” the World Bank’s bi-annual economic outlook for Vietnam. 

Lingering risks

Vietnam’s economy expanded 5.2% in the fourth quarter of 2021, 5.1% in the first quarter of 2022, and 7.7% in the second quarter of 2022, as consumers satisfied pent-up demand and foreign tourist arrivals picked up.

Madam Carolyn Turk, World Bank Country Director for Vietnam, said, “Although these data assure us, Vietnam is subject to heightened risks that include rising inflation, continued disruption of global supply chains (GVC), continued labor shortages and the emergence of new COVID-19 variants that may threaten domestic and global recovery prospects. If major economies and export markets such as the United States, the eurozone and China slow down more sharply than we currently expect, Vietnam’s exports could be further affected.”

Domestic challenges include continued labor shortages, the risk of higher inflation, and heightened financial sector risks.

Given the nascent domestic recovery, the weakening global demand outlook, and heightened inflation risks, the report suggests a proactive response by the authorities. In the short run, on the fiscal front, the focus should be on the implementation of the economic recovery and development policy package and expanding targeted social safety nets to help buffer the poor and vulnerable from the effects of the fuel price shock and rising inflation. In the financial sector, close monitoring and strengthening non-performing loan reporting and provisioning as well as adopting an insolvency framework would be recommended.

If upside risks to inflation materialize -with core inflation accelerating and the consumer price index moving above the 4% target set by the government - the State Bank of Vietnam (SBV) should be ready to pivot to monetary tightening to quell inflationary pressures through interest rate hikes and tighter liquidity provision.

Transforming the higher education system

Ms. Carolyn Turk said, to sustain economic growth at the desired rate, Vietnam needs to increase productivity by 2-3% every year. International experiences have shown that higher worker productivity can be achieved by investing in the education system, as an important part of a basket of investments and reforms. A competitive workforce will generate much-needed efficiency for Vietnam in the long term.

“Vietnam needs a skilled workforce to transform into an upper-middle income country by 2035. If the country wants to transform its economic model into a dynamic, knowledge-driven, productivity-driven, digital, and resilient economy, it will need to have a workforce with 21st-century skills to grow,” she said.

Adjusted for learning, Vietnam's average years of schooling is 10.2 years, second only to Singapore among ASEAN countries and its human capital index is 0.69 out of a maximum of 1, the highest among lower-middle-income economies. However, regarding tertiary education, including higher education and technical and vocational training, the figures are not as good as they should be. While most jobs in Vietnam continue to be for unskilled or skilled manual workers, firms do report difficulty in securing employees with technical, managerial, or leadership skills. According to a survey on business and skills conducted by the WB in 2019, 73% of surveyed firms found it difficult to hire employees with leadership skills, 54% had difficulty in recruiting emotional and social skills, and 68% reported difficulty in employing workers with job-specific technical skills.

The matter is related to both quality - relevance of the skills and employability of current graduates - and quantity - the number of graduates. In quality, Vietnam ranked in the bottom third of the 140 countries listed in the 2018 Competitiveness Index on skills relevance of university graduates. In quantity, only 10.2% of the population aged 25 or older had completed a bachelor’s degree or equivalent in 2019. Vietnam's tertiary gross school enrollment rate was 28.6%, below regional comparators, and the enrollment average of 55.1% for upper-middle-income countries. Right now, Vietnam has about 2 million students at tertiary education institutions. In the long run, to meet upper-middle income enrolment levels, Vietnam would have to facilitate the enrolment of an estimated 3.8 million students, almost double the numbers in 2019.

The increasing financial costs of pursuing higher education and the perception of diminishing economic returns from pursuing higher education have weakened demand. The system is further undermined by falling short of providing skills sought by employers, underinvestment by the state, and a weak and fragmented institutional structure governing higher education. For that reason, according to the report, to improve access to higher education, enhance the quality and relevance of instruction, and make more efficient use of resources, Vietnam should expand the use of digital technologies, enhance the role of the private sector, and streamline the regulatory framework.

In addition, according to Carolyn Turk, structural and policy reforms in tertiary education are recommended.

Anh Mai (Vietnam Business Forum)