Given the IMF’s recent forecast indicating a slower-than-expected economic growth for Vietnam in 2023, but a potential increase in 2024, could you highlight some positive aspects that could aid Vietnam’s post-pandemic economic recovery?

The Vietnamese economy faced global and domestic headwinds in 2023. Weak external demand for manufacturing exports and financial market jitters took a toll on growth in the first half of the year. The economy started to rebound in the second half, and we project this momentum to carry over into 2024 with full year growth reaching 5.8%, driven by the continued recovery in domestic consumption and external demand. Nevertheless, there are risks that could undermine the recovery. Weaknesses in the real estate sector remain. On the external side, an unexpected downturn in demand from Vietnam’s trading partners is a risk.

Vietnam has many advantages that will help it navigate future challenges. The country continues to be an attractive destination for Foreign Direct Investment (FDI). Vietnam has a young, motivated, and well-educated workforce. The domestic private sector is developing and integration with the large FDI sector is progressing. In case of negative growth surprises, there is room for fiscal policy to stimulate the economy, thanks to prudent fiscal management in previous years. Provided that structural reforms to improve the business environment and enhance economic governance are implemented, Vietnam is in a good position to maintain strong and sustainable growth in the medium-term.

How would you assess the strategies implemented by the State Bank of Vietnam and the government to stabilize the financial sector and the macroeconomy?

The State Bank of Vietnam (SBV) has been nimble in achieving various goals within its mandate. Monetary policy has taken the lead so far in supporting the economy with policy rate cuts and the maintenance of abundant liquidity in the banking system. At the same time, inflation has remained in check, below the government’s target. The SBV acted decisively in late 2022 to protect financial stability within its legal framework. It took control of Saigon Commercial Bank in October 2022 using the special control regime and provided it with funding. The authorities also took several ad-hoc measures to support corporates under financial distress due to the problems in the real estate market and deteriorating economic conditions at the time.

While the authorities successfully contained financial risks, underlying weaknesses remain. The weaker economy and the crisis in the real estate sector weakened asset quality for banks, resulting in a steady increase in troubled loans. The corporate bond market reopened after its de facto freeze in late 2022. However, financing remains limited for real estate developers and their business models continue to be highly levered. The situation of Saigon Commercial Bank remains unresolved.

Looking ahead, the resilience of the banking system and domestic capital markets should be strengthened. Upgrading the effectiveness of the debt enforcement and insolvency framework would help deal with corporate debt overhang and reduce risks to the economy and the financial sector. If there is a need to stimulate the economy, fiscal policy should take the lead as room for maneuver on monetary and credit policies is limited.

Can you elaborate on Vietnam’s initiatives to enhance the business environment and attract investment, particularly in the context of climate and sustainable development goals?

Vietnam has done very well in the last decade on the back of market-oriented reforms, integration in world trade, and structural transformation as employment has shifted from agriculture to services and industry. Further reforms to sustain growth and manage risks are required for Vietnam to achieve its ambitious longer-term growth target and to eventually reach advanced economy status. At the current juncture, Vietnam still benefits from a growing workforce and the reallocation of labor from low to high productivity sectors, but increasingly the focus needs to shift to raising productivity.

Improvements to the business environment are needed to achieve this. There is a need to address legal uncertainty due to complex and sometimes inconsistent laws. Scaling up and upgrading public infrastructure, including to ensure reliable energy supply, would also support economic activity. Meeting Vietnam’s large infrastructure needs will require improvements in the quality of infrastructure spending.

Efforts to promote economic development will need to align with climate objectives. Vietnam is one of the countries most vulnerable to climate change, and at the same time, Vietnam’s natural endowment of plentiful sunshine and a long coastline with ample wind offers many opportunities to benefit from the transition to net zero emissions. Protecting the environment has tangible economic benefits through better health outcomes, higher productivity, and attractiveness to tourists and foreign investors.

People are at the center of Vietnam’s success story. Further investment in education would help to spur productivity and reduce pervasive informality in the labor market. Improvements to the social protection system to address incomplete coverage and fragmented delivery are warranted, especially given the high share of informal workers.

Thank you very much!