World Bank Bi-Annual Assessment: Vietnam

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Dec. 4 – The World Bank (WB) released its bi-annual assessment of Vietnam’s economy Monday, projecting that the country’s macroeconomic stability will continue to improve considerably in the medium-term.

The report entitled The Taking Stock estimates that Vietnam’s GDP will continue to grow 5.5 percent by 2015. If the country continues to move forward with planned structural reforms aimed at strengthening its market economy, however, Vietnam’s economy can expect even larger gains.

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According to Victoria Kwakwa, the WB’s Country Director for Vietnam, “Vietnam has done well in ensuring macroeconomic stability over the past year, which has been underpinned by moderating inflation and strengthening external accounts. Focus should now be made on the slow moving structural reforms to reposition Vietnam on a higher growth trajectory.”

The report noted that Vietnam’s restructuring of state owned enterprises (SOEs) has been slower than expected this year. Changes to Vietnam’s constitution last week disappointed many investors when it reaffirmed both the central role of SOEs and the Vietnamese government in the marketplace.

“With rising pressure on the budget, the government is faced with some crucial policy choices, as it seeks to balance the twin objectives of faster growth and macroeconomic stability,” noted Sandeep Mahajan, the World Bank’s Lead Economist for Vietnam.

While Vietnam’s less than 20-year transition from a centrally planned economy to a market economy is now a textbook-case of success, a number of additional policy reforms are needed for its economy to be considered modern and industrialized by 2020. Key priorities that must be addressed to meet this goal include improving infrastructure, creating a skilled labor force and strengthening market-based institutions.

Another report released by the World Bank last week highlighted the need for Vietnam to invest in a more highly skilled workforce. As employer demands change, Vietnam’s workforce will need to be modernized to fill jobs requiring specific technical skills that are already beginning to be established in the country.

“Literacy and numeracy among Vietnam’s adult workforce is widespread and more so than in other countries, including wealthier ones, but a more skilled workforce will be key to Vietnam’s successful economic transition,” said Kwakwa.

Christian Bodewig, the labor report’s leading author, observed that “these new jobs can already be found in today’s labor market, but Vietnam’s employers struggle to find the right workers for them. Equipping its workforce with the right skills will, therefore, be an important part of Vietnam’s effort to accelerate economic growth and further its economic modernization in the coming decade and more.”

Risks to macroeconomic stability that the report identifies include low foreign exchange reserves, fragile private sector demand, the possibility of departure from fiscal and monetary discipline, slow progress on structural reforms and a loss of confidence in the fragile banking sector.

Despite these risks, however, the report notes that Vietnam’s economy performed unexpectedly well in 2013 amidst an increasingly difficult external environment. By shifting Vietnam’s economic emphasis from low value products to a greater focus on greater value added – via a strengthening of transport infrastructure and logistics, regulatory procedures for trade and supply chain organization – Vietnam can further boost its competitiveness and facilitate trade.

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