Accelerated public investment can boost Vietnam’s economic growth: WB

Further public investment disbursement can support Vietnam’s aggregate demand and economic growth in the short run, the World Bank said in its May edition of Vietnam Macro Monitoring.

According to the WB, Vietnam's disbursement of public investment increased 16.4% year-on-year in April. As a result, the January-April public investment reached 19% of the whole-year plan of VND707.4 trillion ($30.14 billion).

By end-April, the government had issued VND140 trillion ($5.97 billion) of government bonds, equivalent to 21.7% of the total planned borrowing for 2023.

The WB added that investments in human capital and resilient and green infrastructure can bolster long-term economic development.

Vo Tri Thanh, a well-known economist, told a conference on Vietnam macroeconomy in March that public investment would see major developments this year thanks to authorities’ efforts to draft a comprehensive portfolio of investments.

Another factor is that the National Assembly, the highest legislative body, has updated its investment mechanism, and officials in charge of public investment are now motivated to implement projects on time for fear of reprisals, he noted.

Challenges remain

The WB stressed that potential further tightening of global financial conditions may prompt Vietnam to apply flexible foreign exchange (FX) management to accommodate external conditions.

Vietnam’s economy is facing external headwinds as weakening external demand continues to weigh on exports, leading to weakening industrial production, it pointed out. Besides, domestic consumption remains robust, credit growth slowed, reflecting weak credit demand.

Vietnam’s Purchasing Manager Index (PMI) fell to 46.7 in April from 47.7 in March, indicating continued pessimistic business conditions. Meanwhile, exports and imports of goods dropped 17.1% and 20.5% year-on-year in April, respectively. Such figure demonstrated the weakened final demand from the U.S. and the EU, to which export slumped 22.1% and 14.1% in the first four months of 2023, respectively, the bank argued.

Vietnam’s credit growth was 9.2% in April, worse than 9.9% in March and 12.2% in February, amid the central bank’s policy and lending rate cuts in March, showing the economy’s weak absorption capacity, it highlighted.

The institution also warned although the inflation went down to 2.8% in April from 3.4% in March, the recent electricity price hike of 3% and upcoming public salary increase may impact inflation in the latter half of this year.

Registered foreign direct investment (FDI) capital declined 17.9% to $8.88 billion in the first four months of 2023. The WB atributed the underperformance to investors' cautions caused by global uncertainties.

Vietnam posted economic growth of 3.32% in the first quarter of 2023 compared to a year earlier, the General Statistics Office reported. The first quarter’s performance came amid current global economic headwinds, with the U.S. and European banking sectors facing a crisis of confidence, and significantly lower than the 5.92% growth rate reported in the last quarter of 2022.

The National Assembly set a target of GDP growth at 6.5% this year. Foreign institutions have projected Vietnam's growth in line with the figure.

Standard Chartered Bank lowered Vietnam’s 2023 GDP growth forecast to 6.5% from the previous 7.2% and got more cautious on the external front. The country’s April macro indicators show moderation, the global bank said in its latest macro-economic updates about Vietnam, a global production base.

Vietnam is likely to achieve GDP growth of 6.5% in 2023 and 6.6% in 2024, according to a report released by OECD in April. According to the OECD, the country's growth this year can be driven by growth in private consumption (6.3%), private gross fixed investment (6%), net exports’ contribution to GDP growth of 1.1 percentage points, and others.

According to the International Monetary Fund (IMF), the country’s GDP growth might slow down to 5.8% in 2023 and then rebound to 6.9% in 2024, among the highest figures in Asia.

In its April edition of the “World Economic Outlook,” the IMF added that Vietnam’s GDP growth can reach 6.7% in 2028. The IMF stressed that global FDI is becoming more responsive to geopolitical factors, indicating that “FDI is increasing concentrated among countries that share similar geopolitical views.”