A country can be stuck in the middle-income trap when its economy gains a certain middle income level, while other nations have made considerable progress.

According to the World Bank (WB) standards, an economy is listed as lower middle income country if it has GDP per capita of $1.036-4,045 per annum. 

An economy is listed as higher middle income country if it has GDP per capita of $4,046-12,535. And when GDP per capita exceeds $12,536, it is a high income country.

Vietnam’s income per capita reached the $1,000 threshold in 2008 and the figure has been increasing steadily, but it remains a lower middle income country. In 2022, the figure was $4,100.

This means that Vietnam has been listed among lower middle income country over many years. According to the Ministry of Planning and Investment (MPI), Vietnam’s economic growth in recent years has not been rapid enough to narrow development gaps and catch up with advanced countries in the region. 

Its GDP growth rate is lower than that of other countries in the first period of modernization. The risk of falling into the middle-income trap is high.

Over the last 50 years, only a few countries moved from being middle income countries to high income countries. South Korea was a success story, with income per capita increasing from $1,000 in 1977 to $31,761 now.

In Southeast Asia, Malaysia had the same starting point as South Korea with income per capita of $1,000 in 1977. However, its income per capita has reached $11,414 only. Meanwhile, Thailand’s income per capita has increased from $1,000 in 1988 to $7,500 now.

Studies have found that the average time that a country needs to switch from a lower middle income country into high income is 30-40 years.

Meanwhile, under Vietnam’s national development strategy in 2021-2030, with a vision towards 2050, the country strives to obtain income per capita of $7,500 by 2030 and $27,000-32,000 by 2050, when it would become a developed country with high income.

Therefore, experts point out that now is an important time for Vietnam to gear up to escape the middle income trap and develop into a high-income country.

To obtain growth, Vietnam has been advised to focus on six priority tasks: 1/ increasing the added value of exports and promote service trade (which means increasing the complexity of the production process and joining more deeply into the global value chain), 2/ step up the digitization of the economy, 3/ shift from ‘growing at any cost’ strategy to a ‘building green and sustainable economy’, 4/ accelerate investment in infrastructure and 5/ balance the stability of the banking industry with the expansion of financial inclusion and the development of capital markets, and 6/ switch from partial poverty alleviation efforts to a nationwide social sponsoring program.

To implement the tasks, accelerating institutional reform is the most important. With practices in Vietnam and lessons from the world, five institutional reforms need to be promoted: 1/ strong institutional framework 2/ simplified administrative procedures 3/ smart market tools 4/ increased enforcement capability and 5/ consultancy use.

In the past, Vietnamese, when necessary, took daring steps to develop the economy. These included the historic decision of ‘khoan muoi’ (contract 10) or ‘khoan ho’ (household contract) in agriculture in 1981, and the decision to shift from a centrally planned economy to a socialist-oriented market economy in 1986.

Tran Thuy