The Vietnamese economy remains on track despite the impact of the COVID-19 pandemic, but greater attention should be paid to maintaining the fiscal and financial stability, according to the World Bank in its September 2020 update.

Manufacturing electronic components at Samsung 
Electronics Vietnam Plant in Bac Ninh province.

The WB says the COVID-19 outbreak in Da Nang has been brought under control, with infection rates falling to single digit since late August. The outbreak forced the authorities to restrict mobility in a targeted manner and to increase other mitigation measures. This targeted approach has affected the economy less than the April nation-wide lockdown, but has created a new sense of uncertainty.

In August, the domestic economy continued to expand but at a slower rate than in recent months and far below the pre-COVID-19 trajectory. While the industrial production index grew by 2.1% year on year in August, slightly slower than in July, growth in retail sales moderated to 2.3% year on year in August compared to 5.2% in July.

The balance of payments remained positive in the first eight months of 2020. The central bank has been able to accumulate about US$12 billion more in international reserves. 

In August, Vietnam’s export performance remained resilient, growing 1.42% month on month, but foreign direct investment (FDI) inflows moderated significantly as they reached about US$720 million in August compared to US$3.1 billion in July. Overall, Vietnam received US$19.5 billion in FDI during the first 8 months of 2020, a 14 percent decline compared to the same period of 2019.

Inflation remained subdued at 3.2% year on year in August, slightly lower than in recent months due to the stability of food prices.

Credit to the economy continued to moderate at 9.4% year on year in July, reflecting the decline in economic activity despite the central bank’s policy to reduce interest rates and encourage commercial credit.

However, the WB warns government balances are worsening and should be watched. The government has appropriately responded to the crisis with accommodating fiscal policy, but this has gradually reduced fiscal space. In the first eight months of the year, revenues reached 58.3% of estimated collections, 12.4% lower than the same period in 2019, due to the economic slowdown and deferred taxes for businesses and individuals to support economic recovery. 

Concurrently, public expenditure was 8.2% higher than during the same period in 2019, reflecting fiscal accommodation to support economic recovery. 

In short, the WB says most economic and financial indicators continued to demonstrate Vietnam’s resilience, but the domestic rebound moderated in August, partly as the result of the COVID-19 outbreak in Da Nang. 

In the coming months, the WB says the pace of economic recovery will depend on how well domestic demand recovers in the wake of the Da Nang outbreak. Greater attention should be paid to the impacts of the crisis and on fiscal and financial stability in the medium to longer terms, and policies to address them.