This forecast, two percentage points lower than the projection made by the World Bank Group in December 2020, accounts for the negative impacts of the ongoing COVID-19 wave on economic activity.

The mobility measures adopted by the government to contain the pandemic have hit the economy domestically, according to the WB.

Whether Viet Nam’s economy will rebound in the second half of 2021 will depend on the control of the current COVID-19 outbreak, the effective vaccine rollout, and the efficiency of the fiscal measures to support affected business and households, and to stimulate the recovery, said Rahul Kitchlu, World Bank Acting Country Director for Viet Nam.

While downside risks have heightened, economic fundamentals remain solid in Viet Nam, and the economy could converge toward the pre-pandemic GDP growth rate of 6.5 to 7 percent from 2022 onward, he added.

Attention to non-performing loans

The report suggests that the authorities should address the social consequences of the COVID-19 crisis by improving the depth and effectiveness of social protection programs.

They should also watch out for rising risks in the financial sector, with particular attention to non-performing loans. Greater attention should be given to fiscal policy since policymakers will need to find the right balance between the need to support the recovery of the economy and the necessity to maintain a sustainable level of public debt.

Beyond modern infrastructure, three solutions are at play to build the nation’s digital capabilities and the government is at the center of it.

Policymakers need to encourage businesses and workers to acquire the right skills to take advantage of the digitalization transformation, nurture innovative capacity among firms through competition and financial support to local startups and talents, and promote information access, quality, and security.

These three policy directions will require smart government interventions in close coordination with the private sector and in full transparency to avoid their capture by public and private vested interests, the WB noted.