Australia supports Economic Reform in Vietnam (Aus4Reform)

15/7/2019

Reform needed to create new drive for economic growth: experts

Keeping the growth rate of 6.8-7.0% as the set target for 2019 requires a stronger reform effort to improve the business environment and enhance the resilience of the economy in handling risks amidst a volatile international economic environment, experts have said.

Reform needed to create new drive for economic growth: experts

Keeping the growth rate of 6.8-7.0% as the set target for 2019 requires a stronger reform effort to improve the business environment and enhance the resilience of the economy in handling risks amidst a volatile international economic environment, experts have said.

They made the suggestion at a conference held in Hanoi on July 12 by the Central Institute for Economic Management (CIEM) and the Australian-funded Australia Supports Economic Reform in Vietnam (Aus4Reform) programme. Running from 2017 to 2021, the US$6.5 million programme, funded by the Australian Department of Foreign Affairs and Trade, will support Vietnam to achieve its targets for improving the business environment.

The Hanoi workshop aimed at analysing and evaluating macroeconomic developments in the first half of 2019, updating macroeconomic prospects for the whole year of 2019 and proposing a number of orientations for economic innovation and policy solutions for macroeconomic administration in the second half of 2019 and the following years.

Bright spots in H1 socio-economic picture

The first half of 2019 witnessed uncertainties in the world and domestic economy, including challenges to the implementation of socio-economic development objectives, but during the government’s main economic administration and reforms they also showed multiple bright spots, thereby contributing to the positive results in regards to economic growth and macroeconomic stability.

According to CIEM's report, Vietnam's economic growth is still relatively high compared to other countries in the region. In the first six months of the year, GDP increased by 6.76%, higher than the same period during 2011-2017 and higher than the world average. This result is not far from the growth target set for 2019 (at 6.8-7.0%). Vietnam's economy continued its ongoing momentum, with relatively rapid growth recorded in the industrial sector.

The industry - construction sector achieved an increase of value added at 8.93% in the first six months of the year, in which the second quarter recorded a positive growth again in the mining sector (at 1.78%) for the first time in three years after a continuous decrease. Vietnam has received additional foreign investment into the processing and manufacturing sectors, especially from China. In addition, some industries still have a lot of development potential, such as information technology and communications and science and technology.

The total export value of goods is estimated at US$122.72 billion, up 7.3% in the first six months. The financial situation has been significantly improved, reflected in the increase in State budget revenues, as of June 15, it reached 46.8% of the estimate, faster than the same period of the previous years. Meanwhile, the State budget expenditure increased slower, reaching only 37.5% of the estimate by June 15, of which spending for development investment reached only 26.1% of the estimate.

Total social Investment capital in the first six months was estimated at VND822.9 trillion, up 10.3%. The ratio of investment to GDP was 33.1%. The private sector still holds the leading position with investment growth in six months at double digits (16.4%). The structure of investment sources continues to shift towards reducing the proportion of investment from the state sector and increasing the proportion of investment from the FDI sector and especially the private sector.

Total registered FDI reached US$18.5 billion in the first six months. Manufacturing and processing enterprises have been more optimistic about their production and business circumstances in the second quarter and many foreign investors have also recognised Vietnam as their favourable destination in the context of the US - China trade war.

Nguyen Anh Duong, Head of CIEM's Macroeconomic Policy Department, analysed that increasing FDI as a favourable factor in the current context. The relatively positive assessments mentioned above not only stem from the context of the US-China trade war, which causes the investment capital flow to shift to Vietnam, but also shows the investment-business environment in Vietnam continues to be improved in the context that Vietnam has entered the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and is preparing for the implementation of the Vietnam-EU Free Trade Agreement (EVFTA).

However, Vietnam still retains a serious view on the country's socio-economic situation. Although the economic growth was relatively high in the first quarter, the Prime Minister has drastically directed to focus on removing obstacles for business and production since the beginning of the second quarter. Requirements for proactive monitoring, updating and forecasting developments from outside have been carried out more often.

On that basis, CIEM forecasts that Vietnam's economic growth in 2019 could reach 6.82%. Export growth for the whole year is forecast at 8.02%. Trade surplus is forecast at US$0.8 billion. Average inflation in 2019 is predicted at 3.38%.

Promoting reforms, creating new momentum for economic growth

Reform will continue to be the
Reform will continue to be the "backbone" to create new growth momentum for Vietnam, experts have said.

According to Dr. Nguyen Dinh Cung, Head of CIEM, in the context of the world economy tends to decline, Vietnam's economy in the first six months of 2019 still achieved a positive growth rate. Indicators have been achieved at a relatively high level, which proves that domestic reforms have had a positive impact in mobilising resources to compensate for negative impacts from outside.

However, macroeconomic developments in the last six months of the year may be influenced by some factors, such as the risk of recession of the world economy and trade tension in the region that has not cooled down, especially the uncertain variables that US-China trade war that could happen in the future. As a small economy in its opening and deep integration, it is hard for Vietnam to avoid the effects of this war, and therefore making a policy choice to respond is necessary.

Therefore, maintaining the momentum of growth on the set targets requires extremely important reform efforts. Dr. Cung said that in the current context, Vietnam's growth momentum would depend greatly on reforms, especially reforms on business environment improvement, support and development of private economic sector, reform of State-owned enterprises, removing barriers to mobilise more capital and disbursing more public investment capital.

In the context of trade tensions among superpowers that accelerates the shifting of capital from other countries into Vietnam, it is forecast that Vietnam would be benefiting, but without continuous reform, Vietnamese enterprises would only enjoy a small part of them (mainly thanks to the cheap labour advantage), while most of the dividends fall into the hands of foreign investors in Vietnam. Therefore, internal strength and competitiveness of domestic enterprises need to be enhanced. Reforms should continue to focus on supporting the capacity of building Vietnamese businesses, so that Vietnamese businesses are ensured to make long-term investment and more investment in technology and management to reach the globe. "Institutional reforms must be promoted to support private economic development. Only when the private economy develops and participates in this process will Vietnam benefit more,” Dr. Cung affirmed.

Sharing the same view, Nguyen Anh Duong said that, in order to ensure economic growth as forecast, the need is to prioritise macroeconomic stability to consolidate a foundation for reform, focusing on building scenarios for responding to unfavourable external developments and reforming microeconomic platform by timely issuing guidelines for implementing laws and legal documents to implement CPTPP and prepare for EVFTA implementation.

Source: Nhan Dan