Vietnam economy research

1. Tran Ngoc Huyen Trang - IFF20-3

2. • Major economic-related events: A timeline
• Commonly-known strengths
• Main Economist in VN - Nguyen Xuan Oanh
• A new model for Vietnam’s economic growth
in 2021-2030 (investment targeting based
on regional comparative advantages) and
vision to 2050: Quantitative scenario
assessment
2

3. • In Vietnam, the market-oriented reforms began with the
first transition stage from 1990 to 1999.
• In the second transition stage between 2000 and 2009,
Vietnam entered the phase of fast export-led growth.
• Since 2010, this economy has experienced economic
recovery and post-crisis growth. These stages are delimited
by the Asian financial crisis and the great global recession.
• On average, capital increases five times faster than labour
during the transformation period. The higher growth rate of
capital in comparison with that of labour is assumed to have
affected the capital-labour ratio, which in turn has triggered
changes in the elasticity of factor substitution.
2

4. • Vietnam’s real gross domestic product (GDP) has been
experiencing positive growth for the past five years since 2017, and
is projected to continue to do so through 2027. In 2020, Vietnam’s
real GDP increased by around three percent compared to the
previous year.
• As indicated by the positive growth rate of its real GDP, Vietnam’s
economy is expanding due to growth in exports, domestic
demand, and the manufacturing sector. As the economy expands,
so does the total expenditure of Vietnamese consumers. The
average monthly income per capita in Vietnam increased to almost
3.8 percent in 2018, and is spent on fast moving consumer goods
from popular brands like Vinamilk and P/S.
2

5. • To achieve the real possibility of endogenous growth, Vietnam
must combine capital accumulation with enhancement of
technical progress. For this purpose, this country needs to
strongly encourage investments in physical and human capital,
as well as expand technology transfers.
• Despite rapid investment growth in Vietnam over the last 30
years, private capital now accounts for a minor share in the
aggregate capital and should be encouraged more, while
public capital must be reduced to a necessary minimum.
• Domestic firms should more enhance technology transfers,
raise production capabilities, and carry out their own R&D. A
comprehensive and selective policy of FDI attraction ought to
be focused on high-quality investments.
• Besides, it is necessary to overcome the negative
consequences left from a centrally administered economy
such as ineffective state-owned enterprises and the state’s
excessive interference in the economic processes.
• So, importantly, overall institutional reforms should be
implemented effectively. Furthermore, a reasonable policy of
international integration considerably contributes to economic
growth.
2

6. 2
• Before 2010, the contribution of TFP to growth was very low, from 2010 TFP increased gradually. In the period 2011-2018, TFP had a
higher increase, especially from 2014 up to now. For example, the period 2011-2015 reached about 33.6%, the period 2016-2018 reached
about 44.2%. But countries in the region are basically already above 50%, for example Korea is 51.5%, China is 52%, Thailand is 53%, etc.
That shows the contribution rate of TFP and increases Vietnam's leader still has a long distance for other countries in the region.
• The labor productivity gap of the country compared to the
Philippines has barely changed. Labor productivity of Vietnam is
only 90% of Myanmar, 88.7% of Laos and only higher than
Cambodia. This shows that the Vietnamese economy will face
great challenges in the coming time to catch up with the labor
productivity of other countries. Although knowing that,
increasing labor productivity depends on many factors, such as
technology level, labor skills, organizational and administrative
capacity, etc. In fact, development requirements require Vietnam
to make a further breakthrough.

7. 3
• The supervision of macroprudential in Vietnam has not been really
focused before. Financial management agencies in Vietnam (SBV, State
Securities Commission, Insurance Department) only perform the function
of management, inspection, examination and supervision in each banking
and securities sector. , specific insurance; which mainly focuses on micro-
safety monitoring based on compliance monitoring rather than risk-based
monitoring.
• However, in recent years, macroprudential supervision has been gradually
improved, the Government of Vietnam has realized the importance of
macroprudential supervision for the stability of the financial system. main.
With the help of many experts (IMF; World bank;...), issues related to
macroprudential policy have been gradually determined according to
international practices and in accordance with Vietnam's conditions.
Planning and Forecasting the Macrofinancial stability policy

8. 3
• Thus, with an effort to improve the capacity of macro-prudential
supervision through the organization and restructuring of operations and
the establishment of a number of financial and monetary market
management agencies in the past year, in order to improve To further
improve this work, Vietnam needs to focus on developing:
• 1. Comprehensive assessment of the current situation and the ability to
implement macroprudential supervision in Vietnam.
• 2. Developing a legal framework for macroprudential supervision:
• - Building a macro-prudential supervision system to monitor risks and
risks to the stability of the banking system from the perspective of the
whole banking industry (monitoring risks to the stability of the financial
market). main) and the economy (macrofinancial linkages)
• - Develop an early warning system, including policies, processes,
procedures and solutions to detect, prevent and handle systemic risks.
Accordingly, it is necessary to have a backup plan or program in case of
an emergency.
Planning and Forecasting the Macrofinancial stability policy

9. • Rapid economic growth and escaping the middle-income trap are a
top-priority objective of Vietnam. To achieve this objective, Vietnam
has adopted the ‘dual economy’ model where some geographical
regions and economic sectors have been prioritised, and they can
have a higher level of development compared to the rest of the
economy.
• The dual economy model in Vietnam, while showing some initial
success, has caused significant issues for example: income is uneven
across regions, the contribution of high-quality labor and science is
limited, causing harm to the environment, etc... . the dual economy
model, with its consequences of uneven development, might be the
underlying reason for socio-economic and environmental crisis or even
political instability.
• To address this challenge, the Central Ideology Theoretical Council of
Vietnam (CITC) has been assigned responsibility for a new economic
growth ideology model for Vietnam in the 2021-2030 decade. 2

10. 3
• Unlike most developing countries, Viet Nam
managed to sustain economic growth during the
most difficult years of the pandemic. Although the
average pace of growth slowed, and vulnerable
groups and individuals suffered periods of real
hardship, a major reversal of human development
progress was avoided. Viet Nam’s HDI value of
0.703 in 2021 was essentially unchanged from 2019
(0.704), and Viet Nam climbed two places in the
global ranking from 117 in 2019 to 115 in 2021.
• Forecast of Government believe that HDI of Vietnam
will increase in future.
• Importantly, Viet Nam’s social protection system
must be modernized to help all citizens to
manage economic and natural disaster risks and
sustain living standards even during difficult
times. The experience of the Covid-19 pandemic
demonstrated that gaps have opened up in
national social protection and social assistance
programs. Digitalization of social assistance
registration and delivery and basing these
systems on universal citizenship rather than
local residence will enable them to respond
more equitably and quickly during times of

11. 2
• Vietnam stock market is still under penetrated. These years, Vietnam Increasing foreign capital inflow &
introduction of new products
• The last ten years witnessed a rapid growth in the local bond market with the outstanding value increasing from
~USD13bn in 2010 to ~USD53bn in 2020. Nonetheless, the market size is still relatively small, making up only
~23% of GDP. The government has approved a roadmap for bond market development, under which the ratio of
outstanding value to GDP is expected to be 45% in 2022 and 65% in 2030.
• The local bond market is dominated by government and government linked issuers with total outstanding value
standing at 21.5% of GDP as of Sep 2020.
• Corporate bonds’ outstanding value only stands at ~1.5% of GDP, while the bank loan to GDP ratio has reached
~130%.
• In the secondary market, there are only 585 companies/institutions
• having bonds listed on HSX and HNX. Average trading value per month stood at only ~USD420M in the first 10
months of 2020.

12. 2
• Vietnam managed to control public debt within a safe level with gradually slowing year-on-year increases.
However, according to the Ministry of Finance, the economy was severely hit by the COVID-19 pandemic in the
past three years.
• The finance ministry said that the process of raising capital from public debts for the socio-economic recovery
program needed to pay attention to efficient use of capital and safety and the sustainability of the State budget
and public debt in the medium and long term.
• Statistics of the ministry's Department of Debt Management and External Finance showed that the public debt of
Vietnam dropped from 63.7 percent of GDP in 2017 to 55.9 percent in 2020. When the GDP was revised, the
public debt stayed at 43.7 percent.
• The finance ministry said that it was necessary to ensure the efficient use of capital and State budget safety and
sustainability.
• Under the recently approved public management program for 2022-24, the Government planned to borrow a
maximum sum of VND 646.8 trillion (USD 27.5 billion) to cover overspending and debt repayment
• The ministry would be flexible in using appropriate tools to raise domestic and foreign resources to meet the
capital demand, including Government bond issuance, ODA and foreign concessional loans.
• The focus would be placed on raising capital from domestic sources first. If domestic sources were still
significantly short of the demand for covering overspending for development investment and debt repayment,
the Government would study the issuance of international bonds when the market conditions are favorable

13. 2

14. 8. Macroeconomic analysis of trends, Planning and Forecasting the Monetary policy
• In 2020, the State Bank has adjusted to reduce the operating interest rate by 1.5-2.0%/year, ready to support
liquidity and create conditions for credit institutions to access low-cost capital from the State Bank; reduce 0.6-
1.0%/year ceiling deposit interest rate in VND for terms of less than 6 months, reduce by 1.5%/year in VND short-
term lending rate ceiling for priority sectors to support reduction borrowing costs of businesses and people.
• In the context of the COVID-19 pandemic, a series of customer support solutions, policy credit programs at VBSP,
loans to support people and businesses to minimize negative impacts from the epidemic have been directed by the
State Bank of Vietnam (SBV). timely implementation. As a result, although credit demand declined severely due to
the impact of the COVID-19 epidemic, from September 2020 credit increased again, until December 10, 2020, credit
of the whole system increased by 9.02% compared to the end of the year. 2019.
• Accordingly, monetary policy management must be proactive, flexible, closely follow macroeconomic and monetary
developments, COVID-19 epidemic situation, closely coordinate with fiscal and other macroeconomic policies. in
order to remove difficulties, support growth recovery in line with the goal of controlling inflation, stabilizing the
macro-economy, ensuring the safety of banking operations, and increasing the State foreign exchange reserve when
market conditions change.
2

15. Macroeconomic analysis of trends, Planning and Forecasting the Balance of payments
and Foreign exchange policy
2

16. Macroeconomic analysis of trends, Planning and Forecasting the Balance of payments
and Foreign exchange policy
• Vietnam Current Account recorded a deficit of 4.9 USD bn in Jun 2022, compared with a deficit
of 2.0 USD bn in the previous quarter. Vietnam Current Account Balance: USD mn data is
updated quarterly, available from Mar 1996 to Jun 2022, with an averaged value of -128.0 USD
mn
• Vietnamese government should issue some appropriate policies that stabilize the
economy, because one of the necessary conditions to attract sources from foreign
investors is a stable and effective economy.
• The State Bank of Vietnam is trying to build a controlled devaluation policy, but it
ensures not affect integrative policies among Vietnam and other countries. In recent
years, Vietnam’s balance of payments is unbalanced because the import value is still
greater than the export value, causing foreign currency reserves to decrease. To solve
this problem, the government could implement a devaluation policy to stimulate
exports and restrict imports. 2

17. 3
• Vietnam is a country with a young population and people of high working
age. The aging population is low, but the pension is still at an average level.
• In recent years, the Government has focused and introduced new laws to
support people of pension age. Specifically, in 2023 will:
• In addition to increasing the base salary to 1.8 million dong/month, there will
also be an increase of 12.5% in pensions and social insurance allowances
guaranteed by the state budget and additional support for those who retire
before the year. 1995 has a low level of benefit. In 2022, although the base
salary did not increase, many subjects received an increase of 7.4% in their
pensions and social insurance benefits
• Due to the adjustment of the base salary in 2023, the minimum pension will
increase from 1,490,000 VND/month to 1,800,000 VND/month from July 1,
2023.

18. 3

19. 3
• Implementing the discussed carbon tax could help Vietnam decarbonize and raise revenues, thereby funding its
climate goals. A carbon tax would also help stimulate low-carbon industries targeting growing value pools while
discouraging investment in sunsetting, emission-intensive ones. This would set the stage for Vietnam to
eventually implement an emissions trading system.
• More broadly, a national committee on climate change could allocate funding and support to industries and
technologies that require a kick-start to create a base in Vietnam. In addition, a green-tech fund, investing in
specific climate technologies to bring to Vietnam, could provide both positive returns and reduced emissions. By
supporting climate-friendly technologies, Vietnam could help its industrial base access new value pools that will
be worth between $9 trillion and $12 trillion by 2030, growing the country’s GDP.
• Renewable energy. Vietnamese construction and real-estate players can use their expertise in developing large
local capital projects to build renewable-energy installations. For instance, Fecon, a local construction company,
has partnered with Corio Generation, Macquarie Green Investment Group's offshore-wind portfolio company, to
develop offshore wind.
• Green steel. There is significant commercial demand for green steel across industry sectors, and many leading
steel manufacturers have launched green-steel plants. By making this shift, Vietnamese companies will avoid
relying on high-emission manufacturing assets as regulations and shrinking demand eliminate markets for dirty
steel.
• Transport. Vietnamese transport companies could follow early pioneers—from large-scale companies such as

20. Conclusion
• Vietnam’s exports will continue to grow
• Despite the pandemic Vietnam still managed to maintain significant export growth in 2019
of 19 percent. This is expected to continue moving forward with export growth projected to
reach 14.5 percent this year, according to the report.
• Vietnam also maintained an average inflow of foreign direct investment (FDI) of 4.5
percent over the 2019-2021 period. This is likely to continue with FDI in 2022 predicted to
hit 4 percent of GDP.
• AMRO also suggests there may even be an uptick in FDI because of “supply chain
dislocations”.
• Notably, China’s zero-COVID policy has seen several manufacturers adopt a China plus
one policy in which part of their supply chains are diversified out of China and into
neighboring countries.
• Vietnam, as one of China’s closest geographical neighbors, possessing competitively
priced labor, and a strong network of trade agreements, is well positioned to be a key
beneficiary of this new paradigm.