Motivation for economic growth

Linking the private sector and the FDI sector are important growth drivers for Vietnam. Photo: S.T.

Two scenarios for 2018 economic growth

With GDP growth in 2017 reaching 6.81%, the highest level in the past 10 years and entering the first quarter 2018, the economic growth continues to set a record with a rise of 7.38%, many experts think that these signs show that the economic growth in 2018 is likely to reach and exceed the target.

Reliable research institutions are also optimistic about the economic prospects of Vietnam. A report by the Asian Development Bank (ADB) shows that in 2018, Vietnam's economy is expected to continue its strong growth with a GDP growth of 7.1% before dropping to 6.9% in 2019. The Institute for Economic and Policy Studies (VEPR) recently released its forecast for economic growth in 2018. Accordingly, with a sharp increase of 7.38% in the first quarter, the VEPR said that the growth target of 6.5-to-6.7% in 2018 proposed by the National Assembly is feasible, with current favorable conditions continuing to be maintained. According to the VEPR, in the next quarters of 2018, economic growth is expected to be at 6.51%, 6.84%, 6.75%; respectively, and economic growth of the entire year will be around 6. 83%.

In the latest analysis, the National Economic and Social Development Center (of the MPI) has given two scenarios for Vietnam's economy in 2018. Accordingly, the average scenario is the base scenario that will be more likely to occur. In the hypothesis, investment in the public sector keeps a steady growth rate that plays a role in regulating the economy. The economic model has been transformed in depth, but fundamentally it is a growth economy based on capital and export. The financial system is relatively stable, financial and monetary management is relatively flexible. Then, economic growth in 2018 may reach 6.83%, while inflation remains low, about 4.5%.

With the high scenario, the NCIF thinks that this scenario can be achieved if the economy gets the same expectations as the average scenario. In addition, the Government's efforts in reforming and managing the economy, removing the bottlenecks of the economy (such as land policy, credit, and administration), creating a favorable business environment for the development of business community. Under this scenario, economic growth is expected to be around 7.02% in 2018, and average inflation may reach 4.8%.

In this regard, Dr. Dao Van Hung, Director of the Institute for Policy and Development (MPI), said: "Based on stable macroeconomic fundamentals and growth momentum in 2017, the 2018 economy will continue to develop and the economic growth will reach 6.7-6.8% and I personally believe it will reach over 6.8%”.

Before warnings about the crisis cycle may return, Dr. Dao Van Hung said that, the crisis cycle is usually around 10 years. However, the signs of the economic crisis in 2007 are unclear in 2017 and 2018, so there will be no possibility of economic crisis as worries.

"Vietnam's economy is developing in the context of a healthy financial system compared to 2007, the inflation is under tight control and is believed to be under 4%. In 2007, Vietnam was in a crisis when the interest rate was over 20%, but now the interest rate has been well managed by the State Bank, much lower than in 2007. And most importantly, after 10 years of experience, the Government has a lot of experiences in macroeconomic management under the market mechanism, so I believe there will have stable economic growth, creating momentum for sustainable growth for 2018 and the next years”, Dr. Dao Van Hung emphasized.

Things to must do right now

At present, the motivations, fiscal spaces for 2018 economic growth have been identified. This is a matter of institutional reform aimed at improving the business environment, developing the private economy, improving labor productivity, attracting and managing foreign investment, manufacturing industries. Along with that are opportunities from major trade agreements such as CPTPP, Vietnam-EU and other agreements have been signed. However, these are also problems, challenges for Vietnam because only when these motivations and fiscal spaces are improved quickly and effectively, will they create spillover effects and promote economic growth.

Over the past year, institutional reform has progressed slowly, leading to "it’s hot at the central levels, cold at local levels". Therefore, the hot issue now is the movement of the whole system, rather than just the leaders, needing strict punishment and this is an urgent matter. For the development of private sector, making it become an important driving force of the economy, Dr. Bui Tat Thang, director of the Institute for Development Strategy (MPI), said that it is necessary to improve the quality of legal documents. These are two things that need to be done quickly to help the private sector develop.

The Minister of Planning and Investment affirmed that the private sector is a long-term driving force, ensuring the sustainable development, increasing the flexibility and dynamism of the economy, contributing to the good adaptation with the international fluctuations, so it needs to create motivation and peace of mind for businesses and investors to be free to do business under the law. In addition, it is necessary to raise the question of how to make the domestic private sector develop faster, catch up with the pace of development of the FDI sector, join the global value chain and create the close link between the two regions, complement each other, develop together. It is necessary to connect domestic and foreign enterprises in a unified manner, to jointly develop and contribute more and more to the common prosperity of the country.

In connection with the domestic private sector and the FDI sector, an important driving force for Vietnam’s growth, Dr. Nguyen Mai, Chairman of the Vietnam’s Association of Foreign Invested Enterprises (VAFIE), said that after 30 years, the foreign investment has become an increasingly important contributor to the Vietnamese economy. By 2017, the FDI reached a record of $US 17.5 billion and is now securing 25% of the social investment. This is an important growth, and together with the domestic private sector, FDI and the private sector play the role of two legs of a healthy body that will help the Vietnamese economy to be more stable.