Vietnam is expected to grow by almost 3 percent in 2020 while the world economy is expected to contract at least by 4 percent amidst the biggest global shock of the past decades, according to the latest World Bank’s economic update for Vietnam “Taking Stock”.
The report, released today, attributes Vietnam’s good economic performance to the resilience of both its domestic economy and external sector. Beyond the containment of the pandemic by bold, early and innovative measures, the government has also used its fiscal and monetary policies to provide breathing space to the private sector and jump start the recovery. For example, public spending started rising again after three years of fiscal consolidation. The first nine months of 2020 saw a 40 percent year-on-year increase in the disbursement of the public investment program.
The external sector—the main driver of economic growth in Vietnam over the past decade—has performed exceptionally well since the beginning of the COVID-19 crisis. The country is on the verge of reporting not only its highest merchandise trade surplus ever but also an increase in international reserves. The continued inflows of foreign investment and the steady rise in merchandise exports more than compensated for the losses in foreign exchange earnings from decreased tourism activities and shrinking remittances. The report suggests that foreign investors have continued investing and/or shifting production activities to Vietnam due to the country’s good management of the pandemic.
Looking ahead, Vietnam’s prospects appear positive as the economy is projected to grow by about 6.8 percent in 2021 and, thereafter, stabilize at around 6.5 percent. This projection assumes that the COVID-19 crisis will be brought gradually under control, notably through the introduction of an effective vaccine. Yet, the magnitude and duration of the pandemic as well as its economic implications are hard to predict and, for this reason, a lower-case scenario cannot be discarded. The report emphasizes that Vietnam might be exposed to fiscal, financial, and social risks that should require greater attention from the authorities.
In addition to analyzing the recent trends of the Vietnamese economy, this edition, titled “From COVID-19 to Climate Change: How Vietnam can become the Champion of Green Recovery”, questions why Vietnam has not been as effective in dealing with environmental and climate challenges as it has been with the COVID-19 crisis, which are arguably different but have also many similarities. Like a pandemic, when environmental and climate disasters strike, they hurt people, cause economic damages, and ultimately show how fragile human lives are.
“Vietnam is standing at a crossroads of post-COVID-19 recovery. It has an opportunity to set itself on a greener, smarter, and more inclusive development path that will bolster resilience to future shocks from both pandemics and climate-related disasters,” said Carolyn Turk, World Bank Country Director for Vietnam. “The authorities must tackle the environmental and climate challenges with the same sense of urgency as they have done with COVID-19 because the costs of inaction are already visible and will become increasingly irreversible. The recent tropical storms in Vietnam’s central region and rising air pollution in the country’s major cities are good illustration of this fragility.”
Two lessons from the successful management of the COVID-19 crisis could be extended to the environmental agenda. The first lesson is that the best way to cope with an external shock is to be prepared in advance and move with early and bold actions. Second, beyond vision and capacity, the ability to embrace innovation and experiments is instrumental to change individual and collective behaviors, which lays at the root of strategies to cope with health and climate threats.
The report provides a detailed look at the policy toolbox that could help Vietnam stabilize the economy, reduce investment needs in the coming austerity period, and achieve climate targets in both the short and longer terms. It argues that Vietnam’s ambition to become a high-economy will be determined not only by its capacity to exit successfully from the COVID-19 crisis but also how it will manage its natural resources and climate risks. After all, the objective of economic development should be as much as to create wealth as not to destroy it.
Taking Stock is the World Bank’s bi-annual economic report on Vietnam.