Public investment is expected to provide a solid input into the contribution to the GDP growth

This statement was delivered by Madam Carolyn Turk, World Bank Country Director for Vietnam, at an event to release the WB's latest Taking Stock report in Hanoi.

Growth expected at 6.3% in 2023

Vietnam’s economic growth is projected to ease to 6.3% in 2023 from a robust 8.2% last year, as services growth moderates and higher prices and interest rates weigh on households and investors, according to the World Bank's report. Growth is expected to pick up to 6.5% in 2024 as the economies of Vietnam’s main export markets gain strength.

The outlook for Vietnam reflects heightened uncertainty in the global economy. Downside risks include weaker-than-expected growth in Vietnam’s major export markets, which include the United States, China and the Eurozone, tightening financial conditions, higher domestic inflation, weaknesses in the balance sheets of corporate, banking and household sectors, and financial sector vulnerabilities.

Domestic and external headwinds warrant increased vigilance and data-driven policy responses. These include managing the trade-off between growth and inflation and strengthening the supervisory framework for the financial sector. On the upside, stronger than expected recovery of global growth could lift exports and hence growth above the baseline projection is grounded.

Improved growth prospects in China, the U.S., or EU and stronger than expected global demand could lift Vietnam’s exports

Vietnam has the fiscal space to implement measures to boost growth

Ms. Carolyn Turk said, Vietnam's economy can achieve an even better outcome if the fiscal implementation, especially public investment, is made more effective. The role of supportive fiscal policy and effective enforcement will continue to be crucial to Vietnam's economic recovery and growth, especially amid global headwinds. Vietnam's monetary and financial markets were volatile in 2022 while authorities took swift action to restore market confidence, many systemic weaknesses in the financial and banking market were revealed - and they may likely affect Vietnam's macroeconomic stability. Addressing these weaknesses through drastic and consistent reforms will ensure not only stability but also long-term economic performance and growth.

“Vietnam has the fiscal space to implement measures to boost growth, unlike many other countries. Effective implementation of priority public investments is key to support growth, both in the short-term and in the longer-term. Also, fiscal and monetary policies must be synchronized to ensure that support to the economy and macroeconomic stability are achieved effectively,” said Ms. Carolyn Turk

For Vietnam to achieve its objective of becoming a high-income economy by 2045, the country should more effectively leverage its diversified services sector to secure more sustained productivity growth. This would entail undertaking reforms to enhance services sector productivity and its cross-sectoral contributions to the productivity growth of manufacturing and agricultural sectors. Vietnam’s services sector has grown as a share of the economy, employed a greater share of workers, and seen its labor productivity increasing in the decade since 2019. However, Vietnam's performance in this area lags behind peer countries such as Malaysia, the Philippines, and Indonesia. Exports of knowledge-rich services known as “global innovator services” constitute only 9% of total services exports, and only 6.4% of total employment in the services sector is in this sub-sector, which includes information and communications technology, finance, and professional services, which are among the most productive services areas in the economy. The small scale of firms, restrictions to services trade, low technology adoption, and scarcity of inter-sectoral linkages affect productivity, suggesting that there is room for improvement through appropriate policy actions.

To accelerate growth of this sector, Vietnam could consider reducing restrictions to services trade and foreign investment in this area and implementing reforms to enhance competition and access to finance for domestic firms; encouraging firm-level product and process innovation and technology adoption; strengthening skills and capabilities of workers and managers; focusing on services that can promote further growth of other sectors, particularly processing and manufacturing.