Development Partners present a range ideas at Vietnam Development Partnership Forum on how to move Vietnam's economy forward.
The Vietnam Development Partnership Forum (VDPF), with the theme “Towards Competitive, Inclusive and Sustainable Growth”, was held on December 5 with a range of suggestions and recommendations from Development Partners (DPs).
Speaking at the forum on behalf of the Vietnamese Government, Prime Minister Nguyen Tan Dung expressed his appreciation of the partnership between the government and DPs and was pleased to say that many recommendations from VDPF 2013 and 2014 had been applied in practice and achieve positive results.
The Prime Minister thanked the frank comments from the DPs and said the theme of the forum was consistent with Vietnam’s development policies in the time to come.
“We recognize that our development steps will have many favorable opportunities but will also face and overcome difficulties and challenges,” he said. “Vietnam looks forward to continuing to receive support from all DPs. We are ready to engage in dialogue with you in good faith and sincerity.”
The VDPF is a forum for senior policy dialogue between the Vietnamese Government and DPs on important policies to promote economic development in a comprehensive manner and improve quality of life.
Vietnam has invested 9 to 10 per cent of GDP in transport, energy, telecommunications, water, and sanitation in recent years; a very high level by international standards. This expenditure has helped to raise standards and improve the efficiency of the country’s infrastructure. Vietnam’s economy has contributed to growth and as the country has become richer it has begun to face new infrastructure financing challenges. Urbanization is adding half a million of people per year to Vietnam’s urban centers, leading to traffic congestion and pollution. The country is also becoming increasingly vulnerable to climate change and as such must build more resilient infrastructure.
The limitations of Vietnam’s domestic capital markets to fund both public and private sector infrastructure and investments are also becoming more acute. Rising government borrowing has revealed a limited local market appetite to fully finance government debt issuance and it is clear that the local currency bond market will have to develop considerably if it is to play a more significant role in infrastructure finance.
At the same time, in spite of continued commitments to develop public-private partnerships (PPPs), the country continues to lack a credible PPP project pipeline. The private sector has voiced concerns about the government’s “stop and go” approach when it comes to PPP policy and actions. The private sector also views the PPP bidding and negotiation processes as unpredictable and lengthy and there is a perception that uncertain enforcement of foreign arbitration will hinder investors’ appetites to invest in Vietnam.
Let me highlight three areas where development partners think the government could take immediate action to begin to make progress. Firstly, more effectively utilizing available ODA. Secondly, after many years of stop and go attempts we need to elevate the role of PPPs in Vietnam. Finally, more coordinated efforts are needed to promote faster rates of capital market developments.
Mr. Eric Sidgwick, Country Director, Asia Development Bank (ADB)
Vietnam has completed the first five years of the strategy of socio-economic development phase 2011-2020 and is preparing for the strategy and the next important decision. In the past five years Vietnam has achieved many significant achievements in development, with growth rates averaging 6 per cent, while in other countries in the region it is 5.6 per cent, and the poverty rate has fallen sharply and infrastructure has improved markedly.
However, Vietnam faces many challenges, the first of which is labor productivity. In recent years Vietnam made good growth recovery after the global recession. But labor productivity growth is declining, which is a matter of concern. Labor productivity growth in Vietnam has reached just 4 per cent and tended to decrease, while labor productivity growth in China was 7 per cent and in South Korea was 5 per cent at a time when these countries had similar development levels like Vietnam now. The growth rate of labor productivity in Vietnam will not ensure sustainable growth for Vietnam to follow the development path of South Korea or Taiwan.
What to do to resolve this situation is to create a framework for an equal playing field for all economic sectors, encourage real competition and protect the rights of property ownership. It is also necessary to have clear distinctions between the management and trade activities of the State. The government also needs to withdraw from areas in which the government does not need to participate, in order to create opportunities for the private sector to get involved. The decision to divest completely from Vinamilk is a step that is suitable with the commitment to reform. And if it continues to implement the same steps, the level of confidence in the government’s reforms will be raised. All such actions will help form a dynamic private sector that the State considers an important objective in the coming period.
Ms. Victoria Kwakwa, World Bank Country Director for Vietnam
Vietnam has made commendable progress in reducing poverty and stabilizing the economy in recent years. Policy actions that capitalize on these achievements and Vietnam’s favorable demographics will support a continuation of robust, inclusive growth and strengthen domestic and external buffers. Greater exchange rate flexibility while focusing on monetary policy on maintaining low and stable inflation, along with growth-friendly fiscal consolidation, will provide greater stability for Vietnam’s economy and ensure fiscal sustainability in the face of uncertain external shocks. Bolder structural reforms in the financial sector and State-owned enterprises will release resources to productive sectors and improve the overall business environment. These macro-critical structural reforms are essential to boost productivity, which has been falling in recent years, and to develop strong domestic industries that can take full advantage of opportunities created by the TPP and other free trade agreements.
Mr. Jonathan Dunn, IMF Resident Representative, Vietnam