Growth is mainly driven by rising global demand, rising investment in the private sector and FDI, as well as the shift of labour from agriculture to services and the manufacturing-processing industry.
Ousmane Dione, WB Country Director for Vietnam, said the country’s impressive economic growth in 2017 and the first quarter of 2018 gives the country a firm foundation to move forward. It is a great opportunity to invest in human resources, thereby addressing the challenges to sustainable growth. Vietnam’s real GDP growth increased by 7.4% in the first quarter of 2018 thanks to a favourable external environment with the global GDP expected to peak at 3.1% in 2018.
Vietnam’s medium-term outlook has improved further since the last Taking Stock in December 2017. Inflation is expected to remain around the 4% mark this year as the Government has targeted. The current account balance is projected to remain in a surplus, but could start narrowing next year, reflecting the widening deficits on the income and services accounts. Fiscal deficits and public debt are expected to remain under control.
The current favourable economic conditions, such as high growth and low inflation, offer Vietnam a special chance to boost reform. The WB suggested that prudent macro-economic policies should be implemented in parallel with profound and comprehensive structural reforms, including the reform of regulations to remove barriers and reduce operational costs for the private sector, investment in high-quality human resources and infrastructure, and increased productivity at State-owned enterprises.
Despite improved short term prospects, the risks remain significant. Domestically, slower progress in restructuring state-owned enterprises and banking sectors could adversely impact the macro-financial situation, undermine growth prospects, and create large public-sector liabilities.
Besides being optimistic about the Vietnamese economy, the WB also stated that the immediate prospects have improved, but there are still more risks. In terms of the domestic sector, the pace of restructuring of the SOE and banking sectors is slow. External risks include rising trade protectionism, geopolitical tensions, and the tightening of monetary policy that could lead to turmoil in financial markets.
According to the WB, Vietnam has made great progress in reducing tariffs but there remains significant potential to reduce trade costs through the rationalisation of non-tariff measures or specialised controls, and more efficient border management and logistics. That can be done through a four-pillar master programme focused on reducing trade costs related to time spent on complying with specialised inspection procedures and measures at border gates; improving the quality of connectivity and infrastructure related to trade; forming competitive logistics services; and strengthening inter-sectorial and private sector coordination.
The above recommendations of such a prestigious international organisation as the WB also coincide with many contents that the Government and the Prime Minister are trying to implement such as developing private enterprises; reducing costs for businesses; simplifying administrative procedures, reducing unnecessary business conditions; and developing a synchronous logistics system.
Accordingly, ministries and sectors at all levels and localities must remove all barriers related to administrative procedures and specialised inspection; as well as devise measures to reduce transport costs and informal expenses for businesses in order to promote production, business, and exports. It is also a great opportunity for economic growth that Vietnam needs to take full advantage of.
