Vietnam Economy 2023: Macroeconomic Stability, Inflation Control to Be Given Priority

8:16:26 AM | 12/26/2022

The Government of Vietnam clearly defined the overall goal of 2023: Continued priority of maintaining macroeconomic stability, controlling inflation, promoting growth, and ensuring major economic balances.

Vietnam will continue with the containment of COVID-19 and other emerging diseases. The country will accelerate restructuring and enhance the internal capacity, self-reliance, resilience and adaptability of the economy. The country will effectively carry out the socioeconomic recovery and development program and three national target programs; and foster innovation, green growth and digital transformation.

Main indicators in 2023 include GDP growth of 6.5%, GDP per capita of US$4,400; the share of the processing and manufacturing industry to GDP of 25.4-25.8%, consumer price index (CPI) of 4.5%; and labor productivity growth of 5-6%.

Challenges in 2023

The Asian Development Bank (ADB) raised its economic growth forecast for Vietnam to 7.5% in 2022 and revised down inflation to 3.5%. According to ADB, Vietnam's economy is performing well amid global economic uncertainty and rising risks to the economic outlook. While trade continues to grow, there are signs that global demand for Vietnamese exports is waning. Therefore, Vietnam's economic growth forecast in 2023 is revised down to 6.3% by ADB due to the weakening of major trading partners.

Dr. Ho Sy Hung, Vice Chairman of the Committee for Management of State Capital at Enterprises, said economic recovery is producing positive results in many aspects, with some returning to pre-pandemic levels. Progress is seen in all areas and all localities. Economic growth is expected at 8% in 2022 while average inflation will rise by more than 3%. Exports are projected to expand by 12% and investment was forecast to grow by 9%.

Goals and targets set for 2023 are not easy to achieve, because external challenges are lingering, he said. The pandemic is still lingering and countries are behaving very differently. Geopolitical risks and strategic competition among countries are disrupting supply chains, although petroleum prices as well as other goods are trending down, trade and investment protection tend to increase. In particular, the world economy's slight recession (China's growth is as low as 4.5%) undermines trade demand and causes Vietnam’s export to face more difficulties. FDI inflows and other resources will slow down. Vietnam's international tourism is unlikely to expand rapidly soon.

Global inflation is showing signs of being controlled by countries, with a moderation trend. The United States may slow down its rate hikes and even make slight cuts from the end of 2023, Mr. Hung added. Thus, external pressures on Vietnam's inflation, interest rate and the exchange rate will be softer. As a result, risks in manufacturing, financial - monetary and real estate sectors will decrease. Nevertheless, these risk factors have not ended globally. High-risk exposures in some economies undermine the financial, monetary and property markets of Vietnam which have integrated deeply into the world. In addition, next year, we may have to accept price hikes of some goods managed by the government (basic salary, electricity price, health care and education).

Public investment can be a lifesaver

According to economic experts, recovery momentum in 2022 will create the foundation and resources for policy administration next year. High growth in 2022 will help realize the 5-year socioeconomic development plan. Well-controlled inflation enables accommodative, prudent (but not tight) monetary policy. Low budget deficit and realized budget revenue provide room for fiscal expansion. Accordingly, it is necessary to maintain and promote the positive influence of this recovery process to create inertia for the economy to keep stable operation.

In addition, many medium and long-term development programs and plans were approved; plans, documents and procedures for public investment disbursement were carefully prepared in 2022; packages under the socioeconomic recovery program and national target programs were ratified, so it will be possible to deploy faster next year and create a quicker impact on the economy.

“When the economy declines, increasing public investment is a solution to promote growth. Especially in the current specific conditions, when the room for monetary policy is not much, the room for fiscal policy is still relatively easing thanks to efforts to ensure the budget balance; the ratio of public debt and overspending is low relative to the given ceiling. Therefore, by loosening targets to expand the fiscal policy, more resources for public investment will be increased (expenditure for development investment is about VND730 trillion, nearly VND530 trillion higher than the value allocated for 2022,” he analyzed.

In order for this resource to be most effective, the capital flow for public investment must go in the right direction, to the right destination and on the right schedule so that it can promote economic growth and avoid wasting resources. On the other hand, if the capital flow does not go to the right destination or on schedule, the effect on growth will not be as expected, and on the contrary, it may cause instability. Requirements for fiscal policy expansion associated with public investment efficiency must align with capital flows to areas that affect growth.

Besides, according to Dr. Ho Sy Hung, as Vietnam's manufacturing industry still deals with low-value segments, growth has not reached its full potential and especially increasing labor productivity has not reached the target. During the past economic crisis, many businesses faced difficulties, but that was also an opportunity for businesses to take advantage of support policies or provide them with a break period to upgrade technologies and improve products to break out from low-value production to high value-added sectors. Enterprises and investors should strongly restructure, accelerate digital transformation, reduce costs, enhance publicity, transparency and professionalism, and better manage risks.

In general, the biggest bottleneck of Vietnam today is inconsistent and overlapped management policies and laws. For example, real estate projects confront many difficulties with the Land Law or public investment is still entangled in processes and procedures. Therefore, solving institutional bottlenecks is important to create momentum to promote growth. At the same time, inadequacies in land, financial, real estate, labor, and health markets have been identified and solutions are being applied.

With these advantages, the opportunity to clear bottlenecks in 2023 is huge and the economy will continue to recover and develop sustainably.

By Anh Mai, Vietnam Business Forum