Digitalization, growth model shift musts for recovery

Economist Dr. Tran Du Lich

What is your assessment of opportunities for Vietnam in 2021?

Vietnam’s economy grew 2.91 percent in 2020 despite the pandemic and natural disasters. This is a miracle, promoted by export activities, developed social and public investment especially in infrastructure construction, and restructuring by leading enterprises in all almost all fields to adapt to the pandemic-induced changes.

However, the complicated developments of the Covid-19 pandemic augur unprecedented challenges in 2021. In 2011, Vietnam faced challenges related to domestic macroeconomic instability even as the global economy was in a growth recovery period thanks economic stimulus packages of major economies including the US, Japan, China, and the EU. And nowadays, the Covid-19 pandemic has been challenging the global economy and making it unpredictable, while free trade is strongly influenced by trade protectionism and politicization in trade disputes between major economies.

Could you tell us about challenges that Vietnam will face?

I think the Vietnamese economy will face three challenges in the medium term.

First, the economic achievements of the 2016-2019 period are being eroded, as reflected in the significant decline in 2020 of gross domestic product (GDP) growth, while public debt and bad debts are increasing once more and the unpredictable developments of the pandemic have slowed down the economic restructuring process.

Second, Vietnamese enterprises are lagging behind in bringing into full play the opportunities presented by bilateral and multilateral free trade agreements, particularly the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU-Vietnam Free Trade Agreement (EVFTA) and the Regional Comprehensive Economic Partnership (RCEP) agreement. Most enterprises, even those with foreign investment, are using outdated production technologies.

Third, efforts to reform economic institutions have brought about certain results but not in a systematic manner, making it difficult to form significant competitive institutions according to ASEAN-4 criteria and causing conflicting regulations, limiting the positive impact on public administration digitalization.

Top priority should be given to economic digitalization

What would you suggest the government do to achieve the targets?

I think the next five years will be an unpredictable period in politics, economics, and international trade. Top priority should be given to economic digitalization while shifting the growth model in a sustainable manner during the 2021-2025 period.

In the short term, it is necessary to focus on improving overlapping and contradictory economic laws, enact new laws to help businesses recover - such as the National Assembly’s resolution on dealing with bad debts, and expand decentralization to localities.

It is necessary to evaluate leading enterprises in specific economic sectors, which face the risk of collapse due to loss of liquidity, especially businesses borrowing a large amount of capital from credit institutions.

In the medium term, I think that it is necessary to quickly adopt a growth recovery program for economic restructuring, especially to encourage enterprises to restructure their markets, minimize their dependence on the Chinese market and take advantage of opportunities offered by the CPTPP, EVFTA and RCEP agreements. The government’s determination to “fight the disease like fighting the enemy” should yield innovation in the “post-pandemic” period with specific policies.

Despite the challenges, Vietnam’s economy will have many opportunities to achieve socioeconomic targets in the 2021-2025 period.