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Vietnams economy reveals weaknesses
Date: 6/26/2023 9:47:38 AM
The World Bank’s latest forecasts show that Vietnam’s economic growth will reach 6% in 2023, but this prospect still contains many potential risks.
Weakening global demand coupled with tight monetary policies in many countries have affected Vietnam’s exports. In order to promote growth in both the short and long term, experts said, the Government needs to focus on promoting more effective and more focused public investment.
Why is Vietnam’s economy weak?
Dr. Andrea Coppola, the World Bank’s chief economist in Vietnam, analyzed a number of bases for Vietnam’s GDP growth, the causes of the weak economy, and outlined some solutions that Vietnam needs to work towards in the future. next time towards becoming a high-income country.
Accordingly, assessing the current economic situation in Vietnam , Dr. Andrea Coppola, Chief Economist and Program Manager for the Equal Growth, Finance, and Institutions Program of the World Bank in Vietnam, Vietnam’s economy has grown strongly in 2022 thanks to three factors of strong export growth, strong private consumption and low base effect.
The GDP growth rate in 2022 is calculated based on the increase compared to 2021. Since the total GDP in 2021 is affected by the COVID-19 epidemic and has a low level, even a small growth rate in 2022 will lead to the growth rate. high growth rate.
However, in the late 2022 period, Vietnam’s economy begins to face many external challenges. In an exchange with VNA, Dr. Coppola noted that weak global demand along with tight monetary policies in many countries have affected Vietnam’s exports.
He analyzed that the economic growth rate in the first quarter of 2023 has slowed to 3.3% due to the decrease in external demand affecting Vietnam’s export-oriented manufacturing industry, causing the industry’s production to fall to 3.3%. down 0.4% in the first quarter.
According to the World Bank’s expert, in general, external challenges will create impacts that make Vietnam’s economic growth rate only moderate in 2023.
“The World Bank’s latest forecasts show that Vietnam’s economic growth will reach 6% in 2023, but this prospect still contains many risks," said Dr. Andrea Coppola emphasized.
Vietnam needs to take many measures to grow
Discussing solutions to solve the current economic difficulties , the World Bank’s experts said that Vietnam has considered implementing many measures such as practicing thrift, fighting waste, reducing value tax. increase (VAT).
In-depth assessment of these solutions, Mr. Coppola said, reducing the value-added tax rate (VAT) by 2% can help Vietnam promote domestic consumption.
"However, Vietnam needs to take more measures to maintain economic growth," the World Bank expert recommended.
Mr. Coppola reiterated that the important role of monetary policy is to support economic activity while keeping inflation under control and adjusting the pressure of the exchange rate.
“The State Bank of Vietnam has cut interest rates several times in 2023 to boost economic growth, however, it is still necessary to monitor the impact and pressures of these policies on capital flows and exchange rates. exchange rate in the following months due to the widening interest rate gap between Vietnam and other countries”, said the expert frankly.
The World Bank’s chief economist also said that Vietnam should closely monitor fluctuations in inflation.
Weaknesses in public investment
As for fiscal policy, according to Dr. Coppola, Vietnam can rebalance public investment projects to promote growth.
The World Bank representative emphasized, though, that strong investment is necessary to promote growth and strengthen the ability to withstand economic shocks.
“Public investment in Vietnam has declined in recent years,” noted Mr. Coppola.
In fact, over the past time, many experts and financial institutions have also talked about this weakness of the economy, and at the same time, recommended that Vietnam should promote public investment and consider this an important growth engine. .
“To promote growth in both the short and long term, more effective and more focused public investment is part of the solution to achieve the goal,” said Dr. Andrea Coppola said.
Mr. Coppola also said that exports, investment and consumption are the three pillars determining demand both at home and abroad. The growth of each of these pillars on aggregate demand has a direct impact on Vietnam’s economic growth.
The expert further explained that, for exports, the biggest challenge is the influence of external factors such as the demand of trading partners in the US and Europe . In particular, personal consumption is a very important pillar and it is a driving force for Vietnam’s economic growth in 2022.
However, according to the expert: “Promoting investment will be the key to Vietnam’s economic growth this year and the years to come, while helping Vietnam realize its ambition to become a high-income economy. will be high by 2045 in the face of many challenges related to climate change today”.
In fact, Vietnam’s investment needs are huge. According to the World Bank’s Country Development and Climate Report, it is estimated that Vietnam will need to invest an additional 6.8% of GDP each year, between now and 2040, to adapt and reduce the harmful effects of climate change. Climate Change.
Therefore, the World Bank has been supporting Vietnam to achieve its development goals through three main channels.
The first is lending to meet financial needs.
The second is to support research and analysis to help Vietnam identify effective reform and technical solutions to meet development challenges in a rapidly changing world. Currently.
The third is to organize and connect events to help Vietnam access international experts as well as the best technologies of other countries to promote knowledge exchange and help Vietnam achieve its economic expectations. economy and development.
Earlier, as Sputnik mentioned, when the "OECD Economic Report: Vietnam 2023 " was released by the Ministry of Planning and Investment, the Organization for Economic Cooperation and Development (OECD) and the Asian Development Bank. (ADB) in coordination with ADB, economist Nguyen Minh Cuong of ADB also noted about promoting public investment.
According to Mr. Cuong, Vietnam is an economy that receives a lot of attention from investors, especially in the field of digital transformation and green transformation. A lot of resources from outside are wanting to support Vietnam in these areas. However, resources into Vietnam are facing two obstacles: one is the ability to absorb capital, the other is the quality of institutions.
Regarding capital absorption, according to Mr. Cuong, the story of slow disbursement of public investment in Vietnam shows the limitation of capital absorption.
"According to the medium-term public investment plan, on average, Vietnam has to disburse $16 billion annually, but the actual number of implementations is much lower," said Mr. Cuong and wondered if the economy could only capacity to absorb public investment at 11-12 billion USD/year?
Improving the quality of institutions, thereby improving labor productivity, improving the quality of infrastructure and improving the ability to absorb capital is an urgent issue of Vietnam today.
According to calculations, in Vietnam, a 1% increase in public investment disbursement will increase GDP by 0.06%, making a positive contribution to economic growth.
In addition, if public investment disbursement is accelerated, it will have a great impact on the economy; which affects liquidity to the economy, to credit institutions, to enterprises’ access to capital.
In 2023, the Government committed to disburse US$30 billion of public investment capital, of which 90% has been allocated to ministries, branches and localities, which is not a small amount.
"If the disbursement process is successful, this will be a factor to help Vietnam’s GDP grow by 6.5% this year," the expert said.
(Source:Sputniknews)
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