Vietnam needs to learn how to "overcome risks and take advantage of opportunities" while sticking to its reform process and keeping pace with leading trends, said Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy.
Vietnam's economic recovery momentum after Covid-19 has slowed since the middle of last year’s third quarter, despite a growth rate of 8% for the whole of 2022. Difficulties and obstacles have become more and more apparent, coming from both unfavorable external factors and problems within the economy.
The economic slowdown has been seen in many of Vietnam's main trading and investment partners. High inflation and more stringent financial and monetary conditions have put great pressure on the management of monetary policy, exchange rates and interest rates in Vietnam. The financial market, the banking system and the real estate market have been struggling, with eroding confidence.
Gradually easing external pressure and policy efforts have improved the financial-monetary situation. The State Bank of Vietnam has made four interest rate cuts this year. However, the economy still faces numerous difficulties, with plunging trade and exports. The role of the manufacturing and processing industry as an economic growth driver has declined. The Purchasing Managers' Index (PMI) has been below the threshold of 50 since last October, except in February 2023 - the month of the traditional Lunar New Year holiday (Tet).
The consumer goods sector, according to total retail revenue data, has grown quite well, but has still slowed. Besides weak private investment, foreign direct investment (FDI) disbursement is unlikely to increase significantly, while public investment has improved but failed to meet expectations. GDP growth in the first six months of 2023 was low at only 3.7%.
Based on the first-half economic picture, many international and domestic organizations have revised Vietnam's GDP growth forecasts down for 2023 compared to those made in late 2022 and early 2023. At that time, most think Vietnam's economy could grow from 5.8-6.7% this year.
Fulfilling the growth target of 6.5% in 2023 as set by the National Assembly, the legislature of Vietnam, will be extremely challenging. Even a goal of 6% would not be easy to achieve. Most recent forecasts suggest a growth rate lower or much lower than 6%. Calculations show that to achieve the yearly growth target of 6-6.5%, Vietnam needs to expand 8-9% in the last six months of the year.
Positive forecasts show Vietnam’s yearly growth will be higher than the first-half figure. In other words, the economy will improve in the last six months of the year. Furthermore, the level of economic growth improvement, in addition to depending on external developments that may be more favorable, is also significantly influenced by the harmonious and effective combination of easing monetary and fiscal policies and reform efforts to cut transaction costs for businesses and restore market confidence.
The three scenarios offered by the Central Institute for Economic Management (CIEM) reflect this view. No matter what, policy efforts to support the economy are very important, including drastically continuing to handle financial and monetary issues, creating more room for monetary policy to reduce interest rates, removing difficulties facing the corporate bond and real estate markets, and restoring market confidence and operations. It is necessary to further accelerate the disbursement of public investment and implement the recovery and development program with adjustments to support packages, considering this a pillar for growth in 2023.
The government needs to support businesses with monetary policy (rescheduling debts, reducing interest rates, and implementing a number of preferential credit packages) and especially fiscal policy (extending payment deadlines and reducing taxes and fees).
Vietnam should also stimulate consumer demand through reducing value added tax (VAT), promoting domestic tourism, and attracting foreign tourists by effectively implementing its new visa policy. We should be flexible in our relations with partners and markets; take advantage of free trade agreements (FTAs), and seize opportunities from economic recoveries in countries such as China, along with new demand for agricultural products of Vietnam’s strength.
Vietnam needs to promote FDI attraction through improving the business and investment environment, and keeping pace with the digital era and green economy. Another issue I mention here is our forecasting capacity. Forecasting itself always has certain limitations such as the authenticity of the data or the method/model used.
In the context of unpredictable uncertainties and rapid developments, forecasting is even more difficult. Therefore, specific numbers may not be as important as recognizing the assumptions, explanations or reasons behind the forecast. Keeping abreast of the situation, processing and analyzing information, and building forecast scenarios and ways of managing risks and "shocks" become increasingly meaningful. Looking more broadly, in a world full of uncertainties and risks, there are still major trends that cannot be reversed. These are sustainable development, green growth, and digital transformation.
Facing countless difficulties ahead, we should not only know how to "overcome risks and take advantage of opportunities", but also stick to the reform process and keep pace with those big trends. If we only deal with immediate problems, in the long term we will always be struggling with them. If we know how to create good development platforms, in the long run we won't have to deal with such immediate problems anymore. This is also the way to create confidence in the Vietnamese economy that will continue to grow stably and sustainably.