Elevating Vietnam's Growth Trajectory through Accelerated Economic Institutional Reform

Vietnam's economic achievements in the past year have garnered acclaim from reputable international organizations. Fitch Ratings bestowed a higher long-term national credit rating of BB+ (up from BB), accompanied by a "Stable" outlook. Out of 62 countries in the Asia-Pacific, Vietnam stands among the exclusive two that received an upgrade. Notably, Vietnam's value surged to U$431 billion, propelling it to the 32nd position among the world's top 100 national brands and exhibiting the fastest growth rate globally.

In 2023, the Vietnam Value surged to U$431 billion, propelling it to the 32nd position among the world's top 100 national brands and exhibiting the fastest growth rate globally

Two scenarios

In the dynamic landscape of economic growth, Dr. Tran Thi Hong Minh, Director of the Central Institute for Economic Management (CIEM), asserted that Vietnam remains resolute in its reform endeavors to foster socio-economic recovery and development. This commitment includes sustaining macroeconomic stability, managing inflation, and upholding key balances. Vietnam distinguishes itself by actively pursuing Free Trade Agreements (FTAs) to enhance economic independence. Beyond traditional fiscal and monetary measures, the nation derives substantial momentum from economic institutional reforms.

The CIEM's report "Vietnam's economy in 2023 and prospects for 2024: Reforms to accelerate growth recovery," envisions two scenarios for Vietnam's economic trajectory in 2024. Scenario 1 anticipates a growth rate of 6.13%, while Scenario 2 foresees a more robust growth of 6.48%. These projections also extend to exports, with Scenario 1 expecting a 4.02% increase and Scenario 2 aiming for a more substantial 5.19%. Average inflation is forecast at 3.4% in Scenario 1 and 3.72% in Scenario 2.

Scenario 1's feasibility is anchored in assumptions like slow global economic recovery, persistent inflation, cautious interest rate adjustments, and disruptions in global supply chains. In Scenario 2, a more optimistic outlook envisions improved world GDP, increased means of payment, elevated credit, reduced imported goods prices, a slight VND/USD exchange rate adjustment, and robust institutional reforms fostering growth quality.

Mr. Nguyen Anh Duong, Head of CIEM General Research, underscored that these pivotal factors will bolster investor confidence, thereby providing a solid foundation for increasing disbursed capital within the Foreign Direct Investment (FDI) sector. This concerted effort is projected to yield a 5% increase in capital inflows, encompassing both foreign and Vietnamese stakeholders.

According to Mr. Duong, achieving a positive economic scenario hinges on policy solutions that prioritize macroeconomic fundamental reform. The substantial efforts made in 2023 to enhance economic conditions serve as a solid foundation for this acceleration.

However, forecasting global economic variables for the upcoming year presents a challenge. The context is further complicated by the fact that 2024 is an election year in several countries, with an estimated four billion people heading to the polls worldwide. As a result, Vietnam must proactively prepare for potential shifts in import-export and investment policies across various markets.

The report also assesses the two-year implementation of the Regional Comprehensive Economic Partnership (RCEP). During the period from 2018 to 2023, Vietnam’s import-export ratio with RCEP member countries exhibited a consistent decline. Despite the agreement’s preferential terms, the utilization rate remains relatively low at 0.67%. To fully capitalize on the benefits within the RCEP region, a broader perspective on leveraging preferences in Free Trade Agreements (FTAs) is essential. RCEP, founded on a network of FTAs in East Asia, has spurred motivation for proactive engagement in trade activities - even amidst the challenging context of the COVID-19 pandemic.

Elevating Vietnam’s growth trajectory through policy reforms

CIEM's report underscored the importance for Vietnam to channel its focus toward policy reforms to propel the economy into a positive scenario. The emphasis lies in guiding the implementation of laws, with a pivotal focus on completing the policy framework for digital and green transformations. Notably, key legislative instruments like the Law on Electronic Transactions require comprehensive completion and effective implementation at the national level to boost labor productivity.

Mr. Duong asserted that addressing challenges associated with RCEP implementation is crucial. This includes enhancing preferential utilization rates, mitigating the risk of trade deficits with specific partner countries, and ensuring the quality of FDI projects from the RCEP region. The challenge involves elevating awareness and providing comprehensive awareness to agencies and businesses, fostering thinking for optimal access and utilization of opportunities within RCEP. Concurrently, it is essential to proactively implement existing FTAs, while researching and negotiating upgrades for several ASEAN FTAs.

Mr. Dennis Quennet, Chief Advisor of the Macroeconomic Reform/Green Growth Program, underscored Vietnam's favorable conditions at the outset of 2024. Aligned with global trends, Vietnam is transitioning toward a knowledge economy, necessitating a keen focus on technology transfer, innovative investment approaches, and human resource development. A pivotal priority for Vietnam's economy in 2024 is the enhancement of labor productivity, a critical aspect to steer clear of the middle-income trap.

Ms. Tran Thi Hong Minh emphasized that policy priorities for 2024 should center on fostering economic growth recovery. This entails a steadfast improvement of microeconomic foundations and economic institutions, fostering innovation and environmental sustainability, and adeptly managing risks in the dynamic global economic landscape.

Vietnam's approach to economic growth extends beyond conventional fiscal and monetary solutions. The country harnesses new momentum through robust economic institutional reform, encompassing innovation promotion, development of novel economic models, business environment reform, economic restructuring, and meticulous regional linkage planning and institution refinement. The government actively acknowledges challenges and seeks expert advice on outstanding issues, demonstrating a commitment to resolving document debt, public service discipline, and capital absorption challenges through strategic research initiatives.

Experts recommend reinforcing fiscal and monetary expansion to stimulate economic growth, grounded in a comprehensive assessment of institutional quality improvement, economic reform, and macroeconomic management capabilities. Upholding and deepening the quality of institutional reform positions the Vietnamese economy confidently for positive outcomes in the coming time.

By Quynh Anh, Vietnam Business Forum