Vietnam’s GDP achieved a 10-year high growth rate of 7.08% in 2018, but more importantly, the economic growth structure has been transformed in a way that it is less dependent on credit growth while focusing more on reforming the aggregate supply, according to the Central Institute for Economic Management (CIEM).
Overview of the conference. Source: Ngoc Thuy.
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This shows the economy has been undergoing substantial reform focusing on the aggregate supply, instead of expanding aggregate demand and going for fast credit growth as in the previous periods, Cung said, adding that the economic growth quality has been improved towards sustainability.
With the low credit growth rate, Vietnam’s stock market has now become the main source of capital for economic development, as around VND100 trillion (US$4.31 billion) came from state-run companies’ IPOs and private placements, and VND80 trillion (US$3.45 billion) worth of bond issuance in the corporate bond market.
“The way the Vietnamese economy mobilized capital from non-banking sources ensures its long-term development and relieves pressure on the banking system. Moreover, it would facilitate reform in the banking sector, preventing risks and vulnerability of the economy against external shocks,” Cung continued.
Cung noted another positive transformation of Vietnam’s economy in 2018 is the growing role of the private sector. In 2018, private businesses held 43.3% of the economy’s development capital, up 18.5% year-on-year, while both the state and FDI sectors saw a decline in their contributions to development capital.
Vietnam has seen a strong rise in a number of private corporations, not only in the property development field, but also in manufacturing and technology, such as Truong Hai Auto Corporation (THACO) or Vingroup.
The private sector has taken part in major infrastructure development projects, which previously was mainly the playground of state-run corporations, Cung continued.
The high economic growth also reflected in an increase in state budget revenue, according to Cung with the bigger proportion of the domestic revenue, which is encouraging, Cung added. However, the budget deficit still remained high at 3.6% of GDP, while international practice shows that this figure should not exceed 3%, not to mention growing recurrent expenditure.
Regarding the state budget, economist Le Dang Doanh added that revenue in 2018 is equivalent to 23% of the GDP. This rate is quite high compared to Vietnam’s GDP per capita of US$2,500, as the World Bank recommended the budget revenue should be 18 – 19% of GDP.
“Vietnam must focus on reducing expenditure and waste, particularly removing inefficient recurrent expenditure,” Doanh added.
Predictions for 2019
In spite of growing global uncertainties, Vietnam posted a record high trade surplus of US$7.2 billion in 2018, in which the domestic sector's exports grew by nearly 16% compared to the 12.9% growth of the FDI sector.
Cung predicted that the US – China trade war would continue to dominate the global headlines in 2019, and Vietnam must continue to grasp opportunities that come along with it.
“This is also a geopolitical power play between the two largest economies,” Cung said.
Under this context, Vietnam should remain cautious about joining either China’s Belt and Road Initiative or the US's Indo-Pacific strategy.
Nevertheless, the Indo-Pacific strategy would open up more opportunities for Vietnam in infrastructure development, as the strategy is focused on private economic investment compared to government fund from China’s initiative.
Cung expected the government to remove restrictions so that Vietnam’s private sector could attract more funds for development.
Vietnam has been trying to wrap up the EU – Vietnam Free Trade Agreement, however, the country must anticipate a delay in the EU’s ratification of the deal, following its important political changes in the upcoming months and a potential swing to protectionism within the bloc, he said.
In 2019, Vietnam must give priority to finding new growth engines, which could only be achieved through stabilizing macro economy and improving business environment, Cung said.
Nevertheless, the CIEM’s director expected Vietnam’s economy to grow 6.93% in 2019, higher than the target of 6.6 – 6.8% set by the National Assembly. Meanwhile, the economist forecast export growth of 9.4% and a trade surplus of US$2.04 billion.
Economist Pham Chi Lan said Vietnam must turn to internal strength as the main growth engine in the future, in this case the private sector.
Last year, the government set target of removing 50% of business conditions, but nothing has been heard about its outcomes and impacts, Lan stated.
“There must be a different approach to really benefit the business community and transform the business environment substantially. It is unlikely that provincial agencies would enforce reform unless the central government exerts pressure on them,” she added.
