What is the current state of Vietnam's economy?

From an external perspective, international organizations such as the World Bank, IMF, ADB, and OECD all have said that Vietnam is growing well, and the macro economy is guaranteed. The IMF even said that Vietnam is a bright spot in the "gray picture" of the global economy.

But the domestic perspective is different. The Government's report recently submitted to the National Assembly said that Vietnam has opportunities, intertwined advantages and challenges, but has more challenges.

What are the challenges? The Vietnamese economy is in transition, with large openness, a modest scale, limited resilience and competitiveness, and low labor productivity, so it is subject to strong external influences in many fields, especially export, trade, investment, finance, currency, exchange rate, and interest rate. 

Also, supply chains are broken; FDI attraction is affected by a decline in global investment; and competition in the international market is increasing.

Meanwhile, the internal limitations and inadequacies of the economy that lasted for many years are now more evident in difficult conditions such as real estate markets, corporate bonds, and weak banks.

The Government's report is quite similar to the assessment made by National Assembly deputies at a recent session.

Thus, the situation of Vietnam's economy from the domestic perspective is different from the international perspective.

What does the statistical report show?

According to the socio-economic report for the first five months of 2023 of the General Statistics Office, the Index of Industrial Production (IIP) decreased by 2%; exports were down by nearly 12%; imports fell by nearly 18%; and the number of enterprises withdrawing from the market reached 88,000, up 22.6% compared to the same period in 2022.

While industry decreased, agriculture contributed only 12% of GDP, and the economy now relies on services.

According to the report, total retail sales of consumer goods and services increased by 12.6% year-on-year. This index achieved the highest growth rate over the same period of the years from 2015, and increased by 28.3% compared to the first 5 months of 2019 - the year before the Covid-19 pandemic.

The figures were surprising given the current consumption reality. Electricity consumption increased by only 0.8%, a very low level during the peak hot season. The CPI increased by only 3.55% over the same period while electricity and gasoline prices both increased.

Another example is the sharp increase in passenger transport, which was over 21% up year on year. However, at the same time, both airlines and the Vietnam Railway Corporation reported losses. The number of international arrivals to Vietnam was 63% in the same period in 2019.

These examples show that even the service sector - which is the engine of growth - is facing difficulties. 

Notably, in Vietnam, services are mainly for personal consumption, which fluctuate positively with income growth and inversely with inflation. 

Overcoming difficulties

According to a recently released report from the Private Economic Development Research Committee (Board IV), more than 82% of enterprises planned to reduce their scale, suspend business, or stop doing business in the remaining months of 2023.

The biggest challenges Vietnamese enterprises are facing include: lack of new orders (59.2%); access to capital (51.1%); administrative procedures and legal provisions (45.3%); and risk of criminalizing economic transactions (31.1%).

In that context, the support of local governments has not met requirements as 84% of enterprises rated the operation and support of local governments as inefficient.

Identifying problems in order to solve them is a constructive spirit. Below are some solutions:

Extending support policies for businesses that were effective during the Covid-19 period, including a 2% reduction of value-added tax (VAT) until the end of 2025 instead of 2023; accelerating tax refunds for businesses; 

Pumping money into the economy through the implementation of the 2% interest rate support package; sharply reducing lending interest rates for people to buy houses; and facilitating domestic manufacturing sectors need access capital.

It is also necessary to quickly reform the business environment, especially in the field of registration and fire prevention; minimize the inspection of enterprises; and remove certain visas to attract tourists.

The economy is facing difficulties, but if solutions are issued and implemented effectively and quickly, no matter how difficult the challenge is, then worries will be lessened.

Tu Giang