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Unsteady progress

Released at: 20:46, 05/02/2015

Unsteady progress

There is much concern about Vietnam's economic prospects in 2015 as the internal capacity of the economy remains weak.

by Truong Tuyet Mai

Vietnam’s economy in 2015 is predicted to continue its recovery at a slow pace and only be stronger from 2016 onwards. Local economic and financial experts have pointed out a series of macroeconomic challenges and warned that the local economy is still quite fragile. Economic recovery has fallen short of expectations and healthy GDP growth cannot be taken as a sign of recovery. Despite the fact that the country’s economic health is undoubtedly improving, barriers to development still exist. “Citing GDP growth as evidence of recovery doesn’t reflect the actual nature of Vietnam’s economy, as recovery only means economic health is better while all its woes have not been resolved,” Director of the Vietnam Institute of Economics, Mr. Tran Dinh Thien, told a seminar in Ho Chi Minh City last month. 

Having experienced a host of problems in the last seven years, Vietnam’s economy is now at its weakest in 30 years. Mr. Thien described the transition of the country’s economy to a new growth model as a moulting snake. “It is fragile and very weak,” he said. “In the current circumstances, new policies should be issued with great caution and it is important to forecast and identify risks rather than make rosy statements about the economy.” At this point in time, he warned, it would be too risky to make ambitious global integration commitments as the economy’s health is at stake. Exports hit a record high of $150 billion in 2014, he said, with a trade surplus of nearly $2 billion, but the trade deficit with China is still on the rise. Vietnam enjoys a trade surplus with the world but grapples with an increasing trade deficit with its huge neighbor to the north. Meanwhile, Vietnam’s cross-border trade policy is inappropriate and may drag the economy down. He added that the country’s border imports from China were $15 billion in 2014, together with $30 billion in general trade deficit, for a total of $45 billion.   

Local economists have raised concerns about Vietnam’s economic prospects in the context of low internal capacity as it integrates more deeply. Overcoming this requires greater economic restructuring. But this has been slow to date and had limited results. Dr. Nguyen Dai Lai, a banking and financial expert, said that although the change in growth model and economic restructuring policies are restated year after year, the results remain disappointing. The State is still the leading actor, holding a majority of the country’s resources, but its competitiveness and capacity is poor. The foreign direct investment strategy still provides enormous incentives to attract foreign investors while Vietnamese enterprises can only handle low-value outsourcing. Local subsidiaries are not receiving transferred technologies from their foreign parent companies. Workplace productivity is low and inputs are reliant upon foreign suppliers.

Looking the economic picture as a whole, Professor Nguyen Quang Thai from the Vietnam Economics Association noted that Vietnam’s economy is plagued by uneven growth throughout the country. Economic development features localized short-term thinking, with the country’s 63 cities and provinces having different economic development models. They tend to compete for achievements and waste resources on reaching targets. Coordination for general strength is lacking. Economic expert Vo Dai Luoc from the Vietnam Asia-Pacific Economic Centre said that economic restructuring in Vietnam is still thwarted by many barriers, like old ways of thinking, slow institutional reform and amendments to legal documents, the strong influence of interest groups on policy making, and the ineffective allocation of resources. Although institutional reforms have been seen as the most important solution, progress has been particularly slow. Vietnam has removed 30 per cent of its administrative procedures but new procedures quickly appear to take their place. Economic and administrative institutions have not been reformed to make them suitable to the new context, so economic restructuring will continue to face obstacles.

Local experts said that the key solution for Vietnam’s economy is to reform growth models based on productivity and effectiveness  and also to improve competitiveness. The private sector serves as a backbone and main driver of growth in modern market economies. According to Mr. Luoc, it is necessary to foster the development of private enterprises to strengthen the engine of the country’s economy. 

“The government’s macroeconomic polices have never been as consistent as they are now. The country hasn’t been hurried in chasing  growth, continuing to stabilize the macroeconomy and complete its legal system. I believe growth this year will exceed 6.2 per cent. 2015 is a year of deepening integration and this presents a major opportunity for Vietnam’s economy in general and its businesses in particular. There are many challenges, however.”

Dr. Tran Du Lich, Member of the National Assembly’s Economic Committee

“The picture for Vietnam’s economy in 2015 has been described as ‘a difficult recovery, with many risks and tough reforms’. Key issues need to be resolved this year, such as monetary policy (credit and bad debt management), international integration, and the restructuring of State-owned enterprises, the banking system, public investment and financial supervision.”

Dr. Vo Tri Thanh, Vice President of Central Institute for Economic Management

“In the future, the government should focus on developing support industries and high-tech industry to enable the development of start-up enterprises. Vietnam also needs to focus on the risks posed by free trade agreements, contraband and commercial fraud, bad debts, and the US raising its interest rates. In 2015 the focus is on administrative reform, anti-fraud and smuggling. The biggest risk for Vietnamese enterprises is fraud and smuggling.”

Dr. Le Xuan Nghia, former Deputy Chairman of the National Financial Supervisory Commission

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