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As world faces uncertainties, Vietnam tries to resolve economic challenges

Inflation pressure, low productivity and tardiness in launching economic stimulus packages are the major challenges for Vietnam’s GDP growth in 2022.

The Vietnam Economic Annual Report 2022 "Improving the digital platform for the service sector" of the Vietnam Institute for Economic and Policy Research (VEPR) says that the global economy is predicted to grow by 3.6 percent in 2022, lower than the 6.108 percent of 2021. The global geo-political environment in 2022 shows more uncertainties, causing new difficulties for the world’s economy.

In 2022, the global economy continues facing outstanding problems which have not been settled, such as Covid-19, energy price increase, labor shortage, energy crisis in Europe and the congestion at supply chains.

Also, macroeconomic risks have increased in 2022: inflation rates increased, countries raised interest rates and tightened monetary policy, economic stimulus policies stopped suddenly, and geo-political risks are increasing with the Russia-Ukraine war.

For Vietnam, VEPR said the economy is recovering, but is still facing challenges. First, the risk from the pandemic and the possible appearance of new coronavirus variants. The risk exists despite improvement in pandemic control all over the globe. 

Second, pressure on inflation caused by the sharp increase in production costs.

Third, risk from Russia-Ukraine conflict.

Fourth, the growth slowdown of the global economy and the economies which are important partners of Vietnam, especially China, which continues to apply ‘zero Covid’ policy with very strict pandemic control measures.

Fifth, the phase difference in Vietnam’s economic stimulus policy and the world.

VEPR comments that the digital transformation has been accelerated in Vietnam, which is a positive point of Vietnam’s economy in 2022. The pandemic has helped speed up the process in all fields, from e-commerce to finance and banking, logistics and healthcare. 

Digital transformation is not a temporary solution in the current difficult period, but will be a part of the business plan of enterprises in the new normal.

A survey of Base.vn found that more than 60 percent of Vietnam’s enterprises intend to combine work-from-home and work-at-office modes, and 77 percent of businesses plan to combine online and offline business after the pandemic.

VEPR has designed three scenarios for Vietnam’s GDP growth in 2022. With the basic scenario, Vietnam will obtain a growth rate of 5.7 percent. Meanwhile, the 6.2 percent growth rate has been projected for an optimistic scenario and 5.2 percent for a pessimistic scenario.

Concerns

Economists have every reason to warn of high inflation, as Vietnam is applying a loose financial policy to support economic recovery. The pressure on inflation will put difficulties for macroeconomic management. It would be difficult for the Government to both curb  inflation and obtain high GDP growth rates, according to Vu Tien Loc, Member of the National Assembly’s Economics Committee.

Can Van Luc, a respected economist, commented that the achievements of the digital transformation in Vietnam in the last two years is equal to that of the 20 previous years combined, but productivity is not high.

According to the General Statistics Office (GSO), productivity increased by 6.2 percent in 2019, and only 5.4 percent in 2020 and 4.71 percent in 2021. In principle, when digital transformation goes fast, productivity will increase. Therefore, he believes that it’s necessary to re-assess the efficiency of digital transformation.

Nguyen Minh Cuong from the Asian Development Bank (ADB), noted that digital transformation in Vietnam is insubstantial, and enterprises just follow the crowd. In order to digitize, it’s first necessary to reform administrative procedures. If the procedures remain complicated, it will be difficult to do this successfully.

Meanwhile, Vu Sy Cuong from the Finance Academy, showed his concern about institutional weaknesses in digital transformation. The Law on Electronic Transactions still has not been amended, and the building of a legal framework, including a sandbox for digital business, and digital assets, as well as regulations on data management and information sharing have very slow.

The tardiness in launching economic stimulus packages is also a problem. The size of the support packages under the 2022-2023 economic recovery program is much larger than 2020-2021. Of these, the public investment package is extremely important, and hoped to be the driving force for economic growth.

However, the disbursement of the public investment package will be made no sooner than mid-2022 because of problems related to investment procedures, project licensing and resources arrangement. 

The policies on supporting laborers, which are under implementation, have seen some problems arising, related to  procedures. The 2 percent interest rate subsidy program still has not run, because agencies are still busy building a legal framework for it, and it’s unclear when it would be launched.

The support package was launched at the beginning of the year, but so far, many components have not been put into practice. The tardiness will reduce the effectiveness of the economic stimulus policies on which people and businesses put high hopes.

Tran Thuy

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