Talking to The World and Vietnam Report, the Country Director of the Friedrich Naumann Foundation (FNF) Institute in Vietnam, Prof. Dr. Andreas Stoffers, said the Vietnamese government's economic growth target of 6-6.5% in 2022 is regarded attainable as Vietnam is on the right track in terms of fiscal, monetary and free economic environment, along with investor-friendly policies still being applied.

Prof. Dr. Andreas Stoffers. (Photo: Linh Chi)

Vietnam's economy is gradually "returning to the racetrack" after a year of struggling against the COVID-19 pandemic. How do you assess the recovery momentum of the economy in the first 4 months of 2022?

The recovery momentum of the Vietnamese economy in the first months of 2022 is impressive.

According to the General Statistics Office, GDP is estimated to increase by 5.03% in the first quarter of 2022 compared to the same period last year. Vietnam has made significant progress in all areas. Agriculture increased by 2.45%. Industry rose by 6.38 per cent, with the manufacturing and processing industry, which is a key driver of growth, increasing by 7.79 per cent.

Notably, the service sector, which is the most "worrying" industry, grew by 4.58 per cent in the first quarter of 2022, about 1.5 times higher than the same period last year.

Besides, the business registration situation has prospered throughout the first four months of 2022. In comparison to the same period the previous year, the number of newly founded and re-operated businesses climbed by 12.3 per cent. Every month, around 20,000 new businesses are established. This is a good sign that the economy is recovering.

International trade has become the driving force of Vietnam's economic growth. Imports climbed by 15.7 per cent, while exports increased by 16.4 per cent in the first four months of the year, though not higher than the same period in 2021.

The State Bank of Vietnam did not follow the global trend of loose monetary policy. Vietnam does not apply a risky 0% interest rate policy, nor does it print excessive amounts of money. As a result, inflation is only a small concern for the economy.

In your opinion, what is the growth driver of Vietnam's economy for the rest of 2022?

According to my prediction, the economy will grow faster in the third and fourth quarters of 2022 as it did in 2021, especially when the tourism industry is moving into a dynamic state. The factors that create the driving force for Vietnam's economic growth this year include:

Firstly, the tourism and service sector. According to the General Statistics Office, revenue from tourism, catering and accommodation services and retail activities remained at high growth rates, at 10.5 per cent, 5.2 per cent and 7.6 per cent respectively.

Second, let's talk about trade. Vietnam has emerged as a prospective trade partner around the world. Trade, on the other hand, can be a contributing factor to the world's high inflation rate, which has hampered domestic economic recovery.

It can be seen that the growth prospect in 2022 is quite optimistic. What about the potential risks? What should be kept in mind in order for Vietnam's economy to continue to recover and achieve the growth target of 6-6.5 per cent set by the government?

The economic hardships caused by the impact of global efforts to prevent the COVID-19 pandemic still exist. The question is whether the lockdown measures in some countries are too harsh and have too much of an effect on the economy?

The consequences of steps taken to prevent the spread of COVID-19 are becoming apparent in Western countries. Besides, inflation is increasing worldwide. In some countries of the European Union (EU), inflation has hit double digits.

Many governments and central banks in major countries, especially the US, have had to tighten monetary policy due to inflation concerns. This will cause the fiscal and monetary policies to support economic recovery to be narrowed, affecting the ability to operate domestic policies.

Not only that, there is a possibility of stagnant inflation in developed countries. This could have an impact on Vietnam, notwithstanding the Southeast Asian country's solid fiscal and monetary policies.

Besides, the recovery of Vietnam's economy may be affected by geopolitical events. The Russian-Ukrainian conflict, for example, would have far-reaching consequences, since much of North Africa's food trade depends on Eastern Europe. The COVID-19 situation in China could also affect the global economy.

It can be seen that the escalating world political instability and the sharp increase in the price of oil and other basic commodities could pose dangers to the global recovery momentum, thereby affecting the Vietnamese economy, particularly in terms of trade and investment.

Inflation in Vietnam is expected to remain at 4.2 per cent in 2022 and 5.5 per cent in 2023, according to Standard Chartered. The bank believes that the supply component will lead to an increase in the risk of inflation, particularly in light of current geopolitical concerns.

Furthermore, the financial and monetary sector's vulnerabilities, such as poor credit quality, rising bad debt and the stock market, have not been fully addressed. These difficulties may have a negative impact on other sectors, especially the economy's medium and long-term growth and recovery potential.

Vietnam's economic growth rate of 6-6.5 per cent in 2022 depends on many external factors.

However, this goal can be considered realistic because Vietnam is on the right track in terms of fiscal policy, monetary policy and a free economic environment, with free trade agreements (FTAs), especially the Vietnam-EU FTA (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and investor-friendly policies still being applied. Vietnam can become a safe haven for foreign direct investment flows.

How do you think the EVFTA will affect Vietnam's economic recovery and development in 2022?

The positive effects of EVFTA are clear. In 2021, bilateral trade turnover reached 57 billion USD.

The economic cycle index (BCI) in the first quarter of 2022 has increased to 73. European businesses expressed more optimism after Vietnam eased restrictions related to the fight against the pandemic and continued to accelerate economic development.

The EVFTA Agreement's pressure to improve the business environment and competitiveness has proven to be a useful "tool" to carry out the mission of improving the business environment set forth by the Vietnamese government in their Socio-economic recovery program.

The EVFTA is one of the aids to help Vietnam recover in general, but it is important to pay attention to the existing challenges. Vietnam and the EU should not overlook a number of issues affecting bilateral relations and the implementation of this historic agreement. Specifically as:

The drastic worldwide response to the COVID-19 pandemic and the complicated development of the global pandemic has reduced purchasing power in the two markets of Vietnam and the EU. This problem can disrupt and change the production chain (labour shortage, affect the supply of raw materials for production...).

In addition, travel restrictions have a significant impact on the organizing of trade promotion activities in foreign markets, forcing enterprises to take advantage of existing mechanisms. Vietnamese enterprises still have difficulties in understanding the commitments and regulations of the EVFTA and still have problems with the procedures for issuing certificates of origin.

Simultaneously, Vietnamese enterprises still face difficulties in a number of key areas in the Agreement, such as textiles and garments (difficulty in meeting the rules of origin to enjoy incentives), agricultural products, and food (lack of facilities), irradiation, product quality testing in accordance with EU standards before export).

What do Vietnam and the EU need to do to take full advantage of EVFTA’s benefits after nearly two years of implementing it?

To fully benefit from the EVFTA, the EU needs to provide technical assistance and resources to Vietnamese authorities and organizations in order for them to effectively utilise the EVFTA (through dissemination, communication, consultation, and trade promotion). This also involves technical support and infrastructure to assist Vietnamese enterprises in complying with TBT, sanitary, and phytosanitary regulations (SPS).

Moreover, Vietnam needs to handle the removal of the IUU yellow card for fishing as quickly as possible.

Working with relevant agencies on infrastructure, enhancing connectivity, reducing logistics costs; working with border provinces to simplify customs procedures in the import and export of goods, and mitigating port infrastructure challenges are some important issues outlined by the Ministry of Industry and Trade for 2022.

At the same time, raise awareness of key and niche market developments; create favourable conditions for digital transformation and information technology application; propose trade remedies to protect the interests of domestic industries.

All these obstacles can be overcome if parties remain committed to free trade and multilateral collaboration. Especially in the situation of a global crisis, close economic cooperation can have numerous benefits for both sides.

Thank you!