Public investment is likely to become the major driving force behind Vietnam’s economy in 2023, said Dr. Vo Tri Thanh, director of the Institute for Brand and Competitiveness Strategy, at a conference on Tuesday.
Thanh clarified 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.
The disbursement target of 95% remains challenging, but Thanh said public investment will improve and help the country reach economic growth of the 6.5% goal set by the National Assembly.
The economist noted other supporting factors for Vietnam’s economy, particularly improved liquidity in the banking sector, which is indicated by lower interest rates and growing foreign currency reserves. Another factor is the State Bank of Vietnam is drafting changes to a circular on credit institutions buying and selling corporate bonds in order to facilitate the money flowing into the real estate sector.
Last month, Prime Minister Pham Minh Chinh required ministries, state agencies and localities to disburse at least VND675 trillion ($28.46 billion) in public investment, or 95% of the target, in 2023. The global situation continues to evolve in a very complicated, fast and unpredictable way, Chinh noted.
The government leader said that one of the solutions is to promote public investment, which is a driving force for development.
Economic challenges await
In his speech, Dr. Nguyen Anh Tuan, vice chairman of Vietnam's Association of Foreign Invested Enterprises (VAFIE), noted four economic challenges facing Vietnam this year, including the credit crunch, complicated legal procedures, shortage of export orders, and hurdles blocking foreign direct investment (FDI).
Tuan, also editor in chief of The Investor, said official reports show there are worrisome signs of FDI declines.
Disbursed FDI reached $22.39 billion in 2022, up 13,5% year-on-year, but newly-registered FDI was only $27.71 billion, down 11%.
In this year to March 20, disbursed FDI in Vietnam fell 2.2% year-on-year to $4.3 billion, while registered capital, which includes newly registered capital, additional capital, and capital contributions for stake acquisition, dropped 39% to $5.45 billion.
Furthermore, the global minimum tax (GMT) initiative is set to negate Vietnam’s current tax preferences for FDI businesses, posing challenges for the nation in retaining foreign investors. Meanwhile, Vietnam’s attractive sectors, such as renewable energy and infrastructure, are struggling with unclear planning and working mechanisms.
Tuan proposed ameliorating the legal framework to speed up administrative procedures, boosting the implementation of government resolutions to support corporate bonds and real estate, pushing the post-pandemic economic recovery program, and upgrading the business environment.
The VAFIE leader stated the GMT working group, led by the Ministry of Finance, has been slow in processing the GMT initiative. For the additional tax revenue gained from the GMT, Tuan proposed that authorities establish a fund to aid businesses in developing the workforce and infrastructure.
Dr. Bui Quang Tuan, head of the Vietnam Institute of Economics, said the world is facing three problems of "irregularity, instability, uncertainty." As Vietnam is an open economy, the volatility of the global economy will impact the country, he added.
Tuan elaborated the Russia-Ukraine conflict is unpredictable and escalating, which could quicken political fragmentation, further disrupt the supply chain, push back globalization, and worsen instability, leading to problems in energy, food, and financial security.
Another trend is the re-emergence of nationalism and the cold war, forcing international organizations to reevaluate their roles in the world, while the rise of new alliances such as the Russia-China partnership is turning the world into a multi-polar landscape.
The world is also under pressure from high inflation. The US Federal Reserve (Fed) has raised interest rates nine consecutive times to a new high, impacting exchange rates, trade, and investment in many nations. This financial instability has negatively impacted investor confidence, indicating the risk of financial crisis similar to 2008.
He also pointed out that green growth and digitalization have become the key trends of the post-Covid-19 recovery.