The Hanoitimes - Vietnam’s journey to become a modern, industrial economy has only just begun, and past achievements are no guarantee for future success, the World Bank (WB) country director said.
At the Vietnam Reform and Development Forum 2018 in Hanoi on December 5, World Bank Country Director Ousmane Dione said Vietnam’s economy has seen a boom over the past two decades, but more reforms should be made to guarantee rapid and sustainable growth.
Past achievements are no guarantee for future success
World Bank Country Director Ousmane Dione (center) speaks at the Vietnam Reform and Development Forum 2018 in Hanoi on December 5. Photo: Minh Tuan
Since the first consultative group meeting for Vietnam was held in Paris in November 1993, Vietnam’s socio-economic achievements have been remarkable. Over the course of thirty year, the economy has expanded at an average of nearly seven percent annually. As a result, per capita income has increased almost fivefold.
Vietnam today has emerged as a thriving lower middle-income economy and an export powerhouse. Growth has also been inclusive, with poverty falling of just below 7%, compared to more than 60% in the late 1980s.
But Vietnam’s journey to become a modern, industrial economy has only just begun, and past achievements are no guarantee for future success, Dione noted.
Domestically, Vietnam will have to tackle rising structural headwinds, including a rapidly aging population, slow productivity growth and weak investment as well as an increasing environmental toll on development. Vietnam will also need to navigate a changing terrain abroad where shifting global trade patterns and the digital economy are both reshaping opportunities and creating new risks.
Four key priorities
For Vietnam to realize its aspiration of becoming a successful upper middle-income country as envisioned in the Vietnam 2035 Report, the WB director suggested four key priorities that Vietnam needs to take into account.
First, reforms to promote domestic private sector development will need to be significantly stepped up, making it a primary driver for improved productivity and economic growth. This entails continued effort to remove obstacles to private business and strengthen regulatory environment.
In parallel, SOE reforms should focus on the adoption of international best practice in governance, including through the newly established SOE management committee while accelerating and deepening equitization and divestment especially from commercial assets.
Attraction of FDI should also shift away from quantity to quality with a focus on high-tech and high value-added investments with technology transfer to harness stronger linkages between domestic and foreign firms. This would ultimately help domestic private sector effectively join the global value chains.
Second, notwithstanding current fiscal constraints, continued investment in infrastructure is critical for future growth. Again, not only quantity, but quality matters. While priority will be given to national backbone infrastructure projects such as the north-south expressway, railways, Long Thanh Airport, and key sea ports, individual investments should be driven by an overall multimodal transport connectivity strategy.
Given fiscal constraints, unlocking private investment could hold the key to meeting Vietnam’s significant investment needs. While a robust framework for PPPs can contribute in this regard, deep structural reforms in key infrastructure sectors, such as power generation, can help build competitive markets for infrastructure services and crowd in private financing.
Third, investment in human capital is importance, especially in the context of fast-changing disruptive technologies and a digital era. As such, investment in human capital will require a life-cycle approach which entails effective coordinated efforts to improve health care and nutrition, especially in early childhood, lifelong education and skill training.
According to the recent launch of the World Bank Group’s Human Capital Index, Vietnam ranks 48 out of 157 countries. This is remarkable, and the country has done particularly well in basic education. But a new set of knowledge and 21st century skills are needed to contribute to stronger productivity growth. This would require focus on the quality and relevance of the tertiary and vocational education. In addition, creating an effective institutional and incentive framework for innovation - with private firms at the center - is critical for future growth.
Fourth, Vietnam’s rapid growth is taking an increasing environmental toll. This is evident in land degradation and soil erosion, rapidly growing green-house gas emissions and air pollution, increasing water degradation, deforestation and pressure on bio diversity. Green-house gas emission are outpacing Vietnam’s rapid economic growth, reflecting in large part a rising dependence on carbon fueled power generation.
According to the Yale Environmental Performance Index, which ranks 180 countries worldwide, Vietnam ranked 132nd. These growing environmental stresses do not only have direct impact on the quality of life, but also potentially affect long term growth. Managing Vietnam’s natural assets and building resilience against climate change are crucial for sustainable growth in key sectors, such as agriculture, food processing, and tourism.
Delivering on these four priorities -private sector, infrastructure, human capital and green growth- will require capable and effective state institutions. “We all know that effective market institutions, and a transparent, clean and accountable state are lynchpins of development,” he stressed.
Moreover, as Vietnam has become a middle-income country, development challenges are increasingly sophisticated and cross-sectoral in nature. Hence, effective coordination across ministries and agencies as well between central and local authorities are now more important than ever.
Vietnam will also have to mobilize and use its scarce public resources efficiently to finance this ambitious development agenda. Improving domestic revenue mobilization, complemented by efforts to enhance expenditure efficiency and debt management capacity will be important to ensure development objectives can be achieved without raising debt to unsustainable levels.
Last, but not least, available ODA resources will need to be used more strategically and effectively to complement domestic public resources and aim to leverage non-financial benefits, know-how and private investment, Dione said.