Managing Vietnam’s economic growth: Daunting task for the new leadership

It is very rare to get some positive news about the economic growth anywhere in the world in the period of pandemic. Fortunately, Vietnam’s story of economic progress is one such positive news. In the year 2020, this was one of the very few countries, which recorded positive growth. Despite the disastrous impact of pandemic, Vietnam registered about 3% real growth of GDP. Crucially, it was not only higher than China’s which was around 2.3% but the highest growth rate in Asia in 2020. This achievement was a real miracle for a country which has far less resources than China. The credit for this certainly goes to the Vietnamese leadership of the then PM Nguyen Xuan Phuc and then President and General Secretary Nguyen Phu Trong. It may be mentioned that in the pre-Covid period also, Vietnam’s growth was remarkable around 7% consistently for a number of years.

Notwithstanding the problems arising from the pandemic, in terms of GDP value, Vietnam reached over US$343 billion, surpassing Singapore (US$337.5 billion) and Malaysia (US$336.3 billion), becoming the fourth biggest economy in Southeast Asia, just behind Indonesia at US$1,090 billion, Thailand US$509.2 billion, and Philippines US$367.4 billion. Vietnam’s trade surplus in 2020 was recorded at $19.06 billion, with average consumer prices increasing by 3.23 percent and the processing and manufacturing sector experienced a growth of 3.98 percent. Indeed, a remarkable achievement.

Significantly, the International Monetary Fund (IMF) has predicted Vietnam’s GDP growth to be 6.5 percent in 2021. The IMF also expects that in this year

Vietnam’s fiscal deficit would narrow down compared to that of 2020. The per capita income is expected grow more than $ 3750 in the next couple of years.

In view of the above, it is not surprising to note that Vietnam as a nation desired continuity of the policies as reflected by the election of new leadership. The National Assembly’s election on four important positions clearly suggests this. Significantly, General Secretary Nguyen Phu Trong was given the third term as of the Vietnam Communist Party- a rare exception. Former PM Nguyen Xuan Phuc was elected as the President of Vietnam. Member of Politburo Pham Minh Chinh became the new PM and Hanoi’s Communist Party chief Vuong Dinh Hue was elected as the Chair of the Vietnam National Assembly. Under the newly elected leaders, Vietnam is likely to continue to pursue the multi-directional foreign and security policies as also economic strategy.

However, the country is facing several challenges in the sphere of economy caused by the pandemic. The foreign direct investment inflows to Vietnam reported a decline of 25 percent compared to 2019, having reached US$ 28.53 billion of total FDI registered in 2020. The registered projects in 2020 also declined by 35% as compared to 2019. Besides, the country has to continue its policy to contain pandemic and health related issues, which adversely impacted the economy of the country. The problem of reviving small and medium industries to the pre-pandemic level remains an important challenge.

The IMF’s these positive assessments are subjected to Vietnam taking effective steps to control the COVID-19 pandemic and recover business activities. The economic recovery poses new challenges as other countries are changing their trade policies because of the impact of pandemic and the continued Sino-US trade war. Both China and the US are reviewing their policies demanding adjustment by Vietnam to deal with the emerging environment that offers both opportunities and challenges. The new leadership has the daunting task to ensure its economic progress in the coming period.

As far as the pandemic is concerned, so far, the Vietnam authorities have commendably checked its spread. This aspect would need further precautions as new wave is seen in several countries. The leadership has to review and effectively calibrate the expenditures to support the economic recovery.

The Vietnamese leadership would also be required to deal with the labour related issues. The opportunities demand creation of skilled force in the country. The priorities set by the 13th Congress are appropriate. They focus on six key tasks and three strategic breakthroughs which include national digital transformation, development a digital-based economy, greater stress science and technology development and creating more conducive environment for business development as well as for manufacturing concerns.

The FDI is likely to improve though efforts in this direction have to be accelerated. Manufacturing companies wish to move out from China: they need to be incentivised. There are indications that Vietnam remains a favourite place for such companies. Their demands for land, skilled labour and policies for ease of doing business would need to be constantly monitored for taking appropriate action. Focus should also be on fiscal policies and enforcing more supportive monetary policies. Vietnam would also need to calibrate it’s polices with the proposed Supply Chain Resilience Initiative by India, Japan and Australia.

The current PM Pham Minh Chinh’s past experience suggest that he would be able to handle the situation well to boost economic growth. As the party secretary of Quang Ninh Province, he had overseen transformation of the local economy there. He had also emphasised on the socialist market economy indicating the continuation of economic policies.

However, the difficulties which are emanating from the pandemic and resultant economic policies of other countries make the task extremely challenging. While the current leadership instils confidence of overcoming them, a constant monitoring of developments to reorient its policies would be required.
Vietnam as a non-permanent Member of UNSC has also onerous responsibilities. Besides, in the ASEAN, it is the de-facto leader. These also demand a carefully drafted strategy to play its role in a balanced manner. Vietnam has dealt very well so far and it is expected that it would continue to do so in the coming period. Given its past policies, it can be confidently said that the new leadership is well equipped to deal with new challenges, while ensuring its economic progress. It is noteworthy that in the first quarter of this year, the economic growth was around 4.5%.