Looking at Vietnam's economic prospects in 2021, many experts believe there are some risks. They include the accessibility of the Covid-19 vaccine; uneven economic recovery in partner markets; the trend of monetary easing and devaluation of the domestic currency in many Asian countries; and increasing trade remedies in importing countries. Therefore, Vietnam will continue to focus on improving itsmacroeconomic foundation and reforming the economic institutional system in a direction more creative and friendlier with the environment, associated with the effective treatment of risks, especially associated with Covid-19, in the context of the "new normal" will be the "guideline" in the right direction.

Many opportunities for economic development in Vietnam in the coming time.
Source: Internet. 

Two scenarios for Vietnam's economy 2021

According to the Report "Vietnam Economy 2020 and Prospects of 2021: Innovation to Adapt" by the Central Institute for Economic Management (CIEM), the global economy in the second half of 2020 continuedto be affected by complicated and unpredictable developments of the Covid-19 pandemic. International organizations updated their global economic outlooks for 2020 and 2021 with a more optimistic assessment than in mid-2020, though with caution. However, therisk exists that the major economies may not recover at the same time, as the timing of the Covid-19 exit may be different.

Tran Thi Hong Minh, Director of CIEM, said at present, the number of Covid-19 infections as well as Covid-19 variants is still developing very complicatedly. This will be a major obstacle for economic growth in 2021. Therefore, despite being optimistic, the Government still needs to be very cautious when setting growth targets for 2021 and beyond.

Commenting on economic growth in 2021, CIEM forecasts twoscenarios. Accordingly, economic growth in 2021 could reach 5.98% under scenario oneand 6.46% under scenario two. Exports for the whole year are forecast to increase 4.23% in scenario oneand up 5, 06% in scenario two.

In scenario one, world GDP increases by 4% in 2021. The price of agricultural exports increases by 12.6% and world crude oil prices by 11.4%. On the Vietnamese side, the VND/USD exchange rate of commercial banks decreasesby 0.5%. Total means of payment increase by about 13%. Credit increasesby 12%. Import prices of goods decrease by 0.5%. Population increasesby 1.08%/year and employment increased by 0.86%. The quantity of exported crude oil is assumed to remain unchanged compared to 2020. The real effective exchange rate is assumed to decrease by 1%. On the balance of payments, government and private transfers (net) are both down 5%. The realisised capital of the FDI sector (including both foreign and Vietnamese sides) increases by 2% compared to 2020. Investment disbursement from the state budget will be 420,000 billion VND.

Scenario twomaintains most assumptions as in scenario one and only adjusts prices of agricultural exports to increase by 15%; world crude oil prices by 20%; total means of payment by 14%; 13% credit growth; the realisised capital of the FDI sector (including both foreign and Vietnamese sides) increasesby 5% and investment disbursement from the State budget is 477,300 billion VND.

Analysingmore carefully about the above two scenarios, Nguyen Anh Duong, Head of General Research Department (CIEM) said these scenarios are influenced by a number of factors such as the world economy is uncertain, risk; the Covid-19 pandemic and variations are complexand unpredictable; many economies carry out large-scale assistance packages, while lacking coordination at the global level, can pose significant risks to the world financial markets and global debt; technology revolution 4.0 and digital transformation continue to change rapidly, affecting the development of both enterprises and the domestic market. In addition, the tendency towardsmonetary easing and domestic currency devaluation in many other countries in Asia in the context of Covid-19, together with the increase in trade remedies in importing countries also are risks.

“At home, the ability to sustain substantial reforms to the business-investment environment will influence the decision to expand investment by many foreign firms.Domestic consumption demand may increase faster, and businesses can focus more on exploiting the domestic market. And despite high expectations for the positive impact of EVFTA, Vietnam may face many trade defence lawsuits, investigation against tax evasion and origin fraud not only in the US market," Nguyen Anh Duong emphasisised.

Review the pillars

According to CIEM Director, the Covid-19 pandemic is an important "warning" for Vietnam to pay more attention to quality reforms for sustainable development. The complexand prolonged development of the pandemic forced us to acknowledge the reform requirements deeply enough, instead of thinking "wait for pandemic and everything will be normal again". In addition, to achieve the growth target of 6-6.5% in2021, the Government needs to continue to maintain the disbursement rate of public investment capital as it was in Q4/2020 because this is a very growth engine. According to Tran Thi Hong Minh, to catch the wave of foreign investment, seize the existing opportunities from the trend of shifting production globally, the Government needs to make it soon. Basic solutions such as promoting infrastructure, improving the quality of human resources andespecially continuing to reform institutions, policies and improve the business and investment environment.

However, Assoc.Prof.Dr. Bui Quang Tuan, Director of the Vietnam Economic Institute, said we are a bit subjective and too optimistic, since we need to consider whether the economy really innovates compared to last year, because mainly we make a good barrier, so the economy is affected less than other economies. Basically, the economic structure and competitiveness have not changed substantially. If we do not control the Covid-19 pandemic, the economywill fall into a crisis like 2020. Therefore, it must be determined that 2021 is still a crisis period when vaccines imported into Vietnam are not enough. We are still facing Covid-19. Therefore, there must be special solutions to face the crisis, both in-depth solutions based on science and technology foundation and innovation in economic development strategy. The Government should not be subjective and satisfied with the fact that Vietnam has entered the group of countries with the highest growth in the world. We must be very careful, otherwise it will fall into a situation that does not want to consider defects and limit promoting reform.

Recognisising that 2021 is still risky and unpredictable, Director Bui Quang Tuan said it is necessary to review the pillars that help us succeed in 2020 to see which factors play a decisive role, whether it will be continuously promoted in the year 2021, if any, maintain and promote more.

“Only in the context of pandemics and crises can we see the drasticness of the entire political system, from disease control to improving business environment, building e-Government andadministrative reform. These are important factors that need to be strengthened in the coming period,” he said.

On the other hand, Vietnam has many opportunities for digital transformation. However, it is necessary to createa specific solution, because digital transformation is only provocative, only 2% of startups survive. Tuan proposed the need for specific solutions, special policies to attract investment from the non-state sector in this field. In particular, “due to the lack of vaccines, in 2021, along with a solution facing crisis, it is necessary to have in-depth solutions in a 10-year and longer vision, based on science – technology,reform and creation - creating a new pillar for the next period,” Tuan said.

In the context of the crisis, increasing public investment to maintain the growth target through massive public investment disbursement is also a good thing, but it is merely a timely solution. In the long run, it is not based on radical solutions, but on private resources, the non-State sector.