Economy of Vietnam: 2024 and beyond

Feedback from the IMF

Earlier this month, Vietnamese Prime Minister Pham Minh Chinh received Mr. Paulo Medas. He is the Head of the delegation of the working delegation of the International Monetary Fund (IMF) who were on a periodic assessment mission in Vietnam. According to a report from VTV1 on 26 November 2024, the IMF found that the economy of Vietnam has the potential to grow by 6.8% – 7%. It stated that thanks to adaptive monetary and fiscal policies, the economy of Vietnam has recovered since the third quarter of 2023. Mr. Medas noted that Vietnam is among the countries with the highest growth rates globally. As main driving forces he mentioned strong exports to markets such as the United States, Europe, and China. Foreign investment has also grown steadily.

The IMF recommends that Vietnam closely monitors inflation risks, exchange rate fluctuations, and credit growth. Furthermore, Mr. Medas noted that the Vietnamese Government and the State Bank of Vietnam have worked hard to diversify the capital market. But also to ensure transparency, efficiency, and to create favorable conditions for investors. He suggested that the Government focuses on ensuring a healthy banking system. Which should be capable of providing sufficient capital for the economy, promoting credit, and being prepared to effectively manage risks such as bad debts.

World Bank report on the economy of Vietnam

On 17 November 2024, the World Bank issued a report with the title: “Vietnam 2045: Trading Up in a Changing World”. This is a comprehensive report, where the World Bank assessed and provides a range of recommendations for Vietnam to become a high-income countries in the future. Here you will find the link to the full report, which we think is worth reading. There is also an official summary to be found via this link. And here below, we have highlighted some eye catching points from the report.

For starters, the report noted that over the past three decades, Vietnam has been one of the biggest beneficiaries of global trade. However, if Vietnam’s economy continues to rely on exports at its current growth rate, it will not be enough to achieve the goal of becoming a high-income country by 2045. Structural reforms and higher investments are necessary to transition to higher value-added manufacturing and services, propelling the country forward. The report continues to explore how Vietnam can navigate the evolving global trade dynamics. And to enhance its participation in global value chains (GVCs) to drive sustainable growth and create high-quality jobs for a high-income economy. According to the World Bank, structural reforms and increased investments are necessary to shift toward higher value-added manufacturing and services.

Key policy actions:

The report offers five interconnected policy reform packages essential for upgrading Vietnam’s role in global value chains (GVCs) to drive sustainable growth and create high-quality jobs for a high-income economy. Here below is an overview of these 5 recommended policy reforms, and right below you will find a set of “key actions” for each one of them:

1. Deepening Trade Integration
   • Move beyond tariff reduction to address non-tariff barriers
   • Liberalize services trade and strengthen regional integration
   • Take an active role in shaping regional and global trade frameworks
   • Deepen commitments on digital trade, standards harmonization, and connectivity
   • Leverage growing Asian middle-class markets
2. Connecting Domestic Value Chains
   • Strengthen the business environment by reducing compliance costs and embracing digitalization
   • Implement comprehensive supply chain finance mechanisms
   • Establish a supplier development program
3. Upgrading to High-Value Activities
   • Remove barriers to trade in services, including access to capital
   • Rationalize data flow regulations
   • Strengthen intellectual property protection
   • Reduce state-owned enterprise dominance in key service sectors such as energy, finance, and telecommunications
4. Developing a High-Skilled Workforce
   • Expand the high-skilled manufacturing workforce
   • Increase tertiary education attainment
   • Invest in STEM education and research infrastructure
   • Strengthen industry-academia collaboration
5. Transitioning to Low-Carbon and Resilient Production
   • Reduce non-tariff barriers on environmental goods
   • Invest in green power infrastructure
   • Implement electricity tariff reforms and carbon pricing with targeted support for transition
   • Build resilience to climate shocks in export manufacturing zones

Conclusions regarding the economy of Vietnam

Looking at the feedback from the IMF, the economy definitely seems to be on the right track, and it is even competing for the title of fastest growing economy in the World. The World Bank report, although also optimistic, focuses more on the future and concludes that if Vietnam wants to successfully transition to a high-income economy by 2045, there needs to be focus on inclusive and equitable policies. This includes improving labor mobility, providing better access to vocational training, supporting disadvantaged workers, and encouraging skills acquisition, especially for disadvantaged students and low-skilled workers. Meaning that for the economy of Vietnam to achieve its goals for 2045, bold reforms are required, as well as continued investment in higher value-added industries, and effective implementation of recommended policy reforms. By addressing these challenges, Vietnam can unlock its full economic potential and secure a prosperous future.

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