Vo Tri Thanh

There is only one month left of the year and it's safe to say it's been a successful one for Viet Nam with all major socio-economic tasks likely to be achieved.

In 2019, the Government defined key tasks focusing on macroeconomic stability, inflation control, and production and trade facilitation to promote growth and boost the economy’s competitiveness.

In a presentation to the National Assembly in late October, Prime Minister Nguyen Xuan Phuc said Viet Nam was expected to achieve all 12 major socio-economic objectives and surpass five.

This will be the second consecutive year the country has fulfilled its annual goals.

Gross domestic product (GDP) is forecast to grow 6.8 per cent this year, completing the target of 6.6-6.8 per cent set for 2019.

Ending November, the consumer price index (CPI) had reached 2.57 per cent and yearly inflation would likely be maintained at 2.7-3 per cent, lower than the target.

Other major macroeconomic balances associated with trade, investments and savings and the State budget had also performed well.

Viet Nam is among the fastest growing economies in the world and these results are remarkable amidst challenges from both internal and external factors such as the US-China trade tensions, volatile commodity prices and epidemics. This demonstrates the endeavours made by the Government, businesses and the entire nation.

However, if we judge the results from the 2019 slogan “discipline, integrity, action, creativity, breakthrough, efficiency”, some priorities have fallen short.

Viet Nam needs to make breakthroughs in institutional reform and improvements to the business environment; innovation and productivity growth; and economic restructuring. These are important for the country’s economic take-off in the next decade.

In reality, 2019’s results have reflected some improvements in these areas but the outcomes fall short of being considered breakthroughs.

Regarding institutional reform, Viet Nam has reviewed and is planning to introduce and modify some important laws for businesses but the process of drafting the law has not been smooth.

Some laws are controversial and have been delayed such as the private public partnership (PPP), enterprise and investment laws. Some laws have faced difficulties in implementation including the master planning and public investment laws which were issued recently but need changing.

Viet Nam has also invested great efforts and resources in boosting its economy’s competitiveness.

In the Government’s Resolutions 19 (Resolution 02 in 2019), the country has targeted to reach the ASEAN-4 average on business environment quality, so starting a business is in the top 70 economies, protecting minority investors among the top 80, and transparency and access to credit among the top 30.

Though many positive changes have been recognised the results are far from being satisfactory.

The country slipped one place from last year to 70th among 190 economies in the World Bank’s Ease of Doing Business 2020 report released last month. This is the second consecutive year Viet Nam has fallen down the ranking.

Apart from making improvements to paying taxes and getting credit, Viet Nam dropped in all other areas including trading across borders, starting a business, enforcing contracts and resolving insolvency. The Government’s targets for these areas have not been reached.

The country has also made progress in gearing the economy towards innovation and high productivity. However, we have yet to see substantial and in-depth changes in the transition.

Given the switch to the digital economy, Viet Nam’s Government has specified the necessity of a change in its growth model from labour-intensive to capital and knowledge-intensive, and that requires the development of technological and innovative capacity and entrepreneurship.

Development of the private economic sector is a bright spot this year. The number of newly-established enterprises rose every month with more companies going global. Investment from the private sector also accounted for more than 45 per cent of the country’s total social investment capital.

Labour productivity had also improved, according to statistics from the Government, but was still much lower than in other regional countries.

Recent reports showed that Viet Nam’s economic growth still relied on the old model and the transition to the new one was taking place slowly. One reason was the way the National Assembly had set major objectives which did not clearly demonstrate qualitative growth.

Government reports also showed unsatisfactory results in creative indicators. In addition, the new-generation strategy on foreign direct investment (FDI) attraction has not made clear breakthrough given pressure of achieving high economic growth.

With regard to the restructuring of the economy, progress has been below expectations.

Even in the banking sector which has performed well with many banks declaring they have met Basel II standards and bad debt being kept under control, many problems still exist.

So far, 14 banks have reported they satisfy Basel II standards but some have yet to adopt them while others do voluntarily.

The overall bad debt situation is good but non-performing loans in some areas have increased and cash flow in risky areas is still high. To better handle bad debts, it is necessary for the whole system to invest more resources in the Vietnam Asset Management Corporation (VAMC) – the state-owned buyer of bad debts.

Another problem that has caused pain this year is the slow disbursement of public investment. By the end of October, disbursement of public investment had met 50 per cent of target, making it unlikely the target set for the whole year will be met. The reason is fear of taking responsibility among some leaders.

Other key issues such as State structural reform, the civil servant system, the reform of State-owned enterprises and judgements of big corruption cases have also progressed very slowly.

The failure to achieve breakthroughs is partly due to the confusion of balancing the expectations of running the economy smoothly and making substantial changes in State structural and institutional reforms.

Besides, the key growth targets set by the National Assembly are considered unsuitable and not strong enough in the new context.

For 2020, these three areas remain the most important part of the Government’s socio-economic development objectives. Next year, the Government is expected to set tougher targets for better quality growth for us to have real breakthrough results in priority areas. – VNS

* Vo Tri Thanh is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thanh mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.