A look back at Vietnam’s economy in 2016: 4 bright spots

We need to choose the actual content associated with public investment, SOEs reform, handling the weaknesses and bad debts of the banking system, as well as consider the significant changes in the integration process. This is an oppinion of Dr. Vo Tri Thanh (photo), former Deputy Director of the Central Institute for Economic Management, in a conversation with Customs News.

Looking back at 2016, could you tell us about the “bright spots” of Vietnam’s economy for the year?

In my opinion, economic growth in 2016 had 4 positive signs. Firstly, the Government remained set on the target of economic stability, promoting reform, restructuring and determining in institution reform, taking advantages of the extensive integration and improving the business environment. This determination was confirmed strongly by the Government of the new term.

Secondly, in fact, we developed the economy in the context of difficulties both domestic and foreign, therefore, in some points, we kept the macroeconomic stability quite good, controlled inflation, not allowed the financial markets to fluctuate.

Thirdly, ecnomic growth in 2016 still had areas which lead the economic activity and excitement of business and production. Despite not achieving the target of 6.5%, this is an acceptable result in the current context.

Fourthly, the business environment in 2016 rose by 9 levels, according to the World Bank. This result also reflected efforts to improve the legal framwork as well as practical implemention, though the gap between the actual implemention and the text.

What do you think about the economic development results of Vietnam in 2016?

In the context of the global economic recovery with difficulties and risks, the Vietnam economy showed signs of improvement both in terms of production and business as well as in terms of macroeconomic stability. However, the economy still has many challenges, such as macroeconomic stability is not sustainable, economic recovery is inequal, growth is mostly in processing industry associating with exports and behind is foreign direct investment (FDI) and other sevice areas. The remaining areas such as agriculture, minerals, and many sevice areas showed signs of decline, reform, restructuring of the ecnomy is still incomplete. About integration, meanwhile Vietnam is pushing the integration process to deeper levels, the world economy and politics witnessed many unwanted changes.

In general, if compared to the average levels of the world, Vietnam’s growth rate of 6% is an acceptable result. But the most important thing is to concentrate on what needs to be done next, in 2017 and the coming years. They are the issues related to microecnomic stability, inflation, monetary policy, budget disciplines. I think that we should continue to choose the actual contents associated with public investment, SOEs reform, handling weaknesses and bad debts of the banking system, as well as consider significant changes in the process of integration, new trends in the world such as technology, finance, ensure stable development and growth. Therefore, there are 3 issues to be concerned with: commitments, looking for new direction and enforcements.

We still talk about the fingures of growth are not as important as quality of growth, especially in the context that we are aiming for sustainable growth. Do you think Vietnam’s growth has more quality or efficiency than the last years?

This issue needs further research, but the economic results show that, over 2-3 years, including 2016, growth has started to recover, at above 6%. We all know that the rate of investment in Vietnam in terms of GDP has fallen sharply compared to the previous 5-7 years, the rate of economic development investment was at around 40% of GDP, but the current total social investment for economic development is only at 30-31% of GDP. Obviously, the rate of investment reduced but growth rate showed signs of recovery, this is an acceptable result in the current context. Many supposed that investment efficiency is much better. Another issue is very clear is that, in the past we achieved economic growth in the condition of 30% credit growth, money was “thrown around” a lot, but now credit growth is at 15-16%. That shows the effectiveness of good cash flow, if it does not improve, the cash flow to invest also decreases.

Thus, firstly, we are not to mention the strength of creativity, technology, management skills improvement… if we use that current flow reasonably and supervise closely public investment, operation of the market is less distorted, the business environment is improved, and we can improve economic growth. This is a very important lesson. Secondly, an important thing for Vietnam in the current context is to improve budget discipline, and reduce the budget deficit. Many supposed that the target of reducing the deficit from 6% of GDP to 3.5% of GDP was very hard. I do not want to talk about the numbers, I just emphasize if we can do as said above, along with strengthening budget discipline, we absolutely can reduce the budget deficit, contributing to restricting and reducing public debt. They are both very important lessons.

What is the challenge and motivation for Vietnam’s economic development in 2017, Sir?

To make it easy to understand, we have 2 ways to look at it. First of all, a look at how the fields leading to growth will look like in 2017. In 2016, the sector which led growth is the manufacturing industry, tied to exports from FDI. However, exports depend heavily on the world demand, but the world demand in 2017 is predicted to rebound strongly, not to mention the shocks and risks due to the uncertainty from geopolitical, financial and monetary policies, and prices of goods, all related to the global trade and emerging investment protectionism. Another area has also played the role of leading growth over the year is construction. The construction industry has a high drag coefficient for other economic sectors. It involves two very important areas 1. infrastructure (following is the public investment) and 2. real estate. Meanwhile, for public investment, the current budget is very limited. With limited resources, Vietnam must choose priorities. Thus, there may be difficulties, although the ODA in 2017 is still persisting, or issue bonds, there are still limitations. For real estate, there is still much controversy, many questions are asked but many supposed that the market is recovering, but the speed will reduce during the year.

The third is the service sector, especially tourism. In 2016, Vietnam attracted 10 million foreign visitors, a figure considered to be the largest ever. However, the question is about Vietnam's ability to absorb it? First of all, for infrastructure conditions, if Vietnam gets a higher number of tourists in the short-term, the ability to absorb is not easy. Therefore, the number of tourists may increase but will not increase sharply. In addition, the world economy remains in difficulties, tourism expenditure may be affected, particularly the US dollar price increases will affect the solvency of tourists.

Thus, the sectors which have led the economy are also having problems, but we can hope to be better in some other areas. For example, agricultural growth rate is at 22.5%, contributing to 16% of GDP, with an increase of the agricultural sector contributed about 0.4% to economic growth. We hope this year will have favourable conditions for agriculture back to the normal trajectory, despite low growth but not minus growth as in the first 6 months in 2016.

The second way is to look at the overall consumer demand. The report shows that consumption in Vietnam is still good, the survey indicators for consumer demand in Vietnam are still very optimistic. Consumption growth of Vietnam is expressed by a strong increase in retail sales, this is a positive factor. However, the growth rate of consumption through retail deducts price factors, the increase this year is positive but lower than last year. In the context of the uncertainty and increased risks, we must be more careful.

Thanks Sir.

Meanwhile Vietnam is pushing the integration process to deeper levels, the world economy and politics witnessed many unwanted changes.