Although Vietnam’s economy is set to grow  2.8% in 2020, the lowest growth rate over the past 35 years, it will ensure the position as the fifth fastest-growing economy in the world, behind a small group of African countries, according to the World Bank (WB).

By 2021, Vietnam’s GDP growth is expected to rebound to 6.8% in 2021, stated the WB in its latest Taking Stock report released today.

Nevertheless, the report also suggested with less favorable external conditions, the economy will expand by only 1.5% in 2020 and 4.5% in 2021.

According to the report, the main challenge for Vietnam will be finding new drivers of growth to consolidate the expected recovery. The country’s traditional sources of growth–foreign demand and private consumption–are unlikely to return to their pre-crisis levels soon, amid continued uncertainties both at home and abroad.

Moreover, Covid-19 has also caused a surge in inequality as the pandemic affects businesses and people differently as, for example, workers in the service sector has seen a bigger decline in their income than farmers.

Overview of the launch. Photo: Nguyen Tung.

“To adapt to the new normal, policymakers must find new ways to compensate for the weakening of the traditional drivers of growth while managing rising inequality,” said the WB’s Acting Country Director for Vietnam Stefanie Stallmeister at the launch of the report. 

“However, by being ahead of the curve of the Covid-19 crisis, Vietnam has the unique opportunity to increase its footprint on the global economy and become a leader in tomorrow’s digital world.”

The report suggested three complementary measures for the government to act today so that the country can avoid the Covid-19 economic trap and return to its historical trajectory of rapid and inclusive growth.

First, it should consider removing mobility restrictions on international travel, gradually and carefully to balance with safety concerns, as Vietnam’s economy is dependent on foreign visitors and investments.

The second measure is to accelerate the execution of the existing public investment program to enhance domestic demand. However, the effective implementation of this action will require significant improvements in the allocation of resources and financial management.

Indeed, the authorities will need to ensure that their resources are directed to the projects with the biggest positive impact on the economy and jobs, while minimizing technical and financial losses during implementation.

Third, it should provide targeted support to the private sector, particularly to the hardest-hit industries such as tourism and manufacturing exports, through a combination of financial assistance and smart incentives.

Jacques Morisset, WB Vietnam’s lead economist, said Vietnam can also exploit several global trends, which have been accelerated by Covid-19, to push ahead its domestic agenda.

For example, in a new global trading system, Vietnam can consolidate its existing footprint by developing strategic alliances with countries that have also low rate of Covid-19-infections and boosting promotion efforts to attract companies planning to diversify their supply chains.

Similarly, Covid-19 presents a unique opportunity to move toward a more “contact-free” economy by promoting digital payments, e-learning, telemedicine and digital data sharing and, by so doing, help respond to the fast-expanding demand for quality services by the middle-class in the country, he added.