Digital economy - decisive factor to realize 6.5%-GDP growth target: Expert

Economist Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV) shared with Hanoitimes his thoughts on Vietnam’s economic prospect and solutions to help the country realize the 6.5%-growth target this year.

Economist Can Van Luc

What do you think about Vietnam’s economic performance in the first five months of this year?

On my view, Vietnam is on the right track to realize the twin target of both containing the pandemic and boosting economic recovery. In this regard, trading activities have been positive, while inflation was kept under control despite growing inflationary pressure from hikes in prices of goods and products.

Vietnam continues to remain an attractive destination for foreign investors with a high amount of foreign direct investment (FDI) inflows. 

However, there are issues that the government should pay attention to. And the first would be the decline in retail sales of goods and services in May by 3.1% against the previous month and 1% year-on-year. This shows that consumer spending is still weak, not to mention the latest Covid-19 outbreak that makes people think twice before spending.

In May, industrial production expanded by 9.9% year-on-year, but it should be noted that such growth came from a low base of last year as a result of a nationwide social distancing in April. In fact, the Vietnam Manufacturing Purchasing Managers’ Index (PMI) in the month [indicator of the economic health of the manufacturing sector] was down to 53.1 from 54.7 in April.

Public investment, identified as key measures to boost economic growth, has been on the rise but stayed below expectation. A key reason for the issue was a sharp increase in prices of input materials on the global market.

And the final point is a surge of 32% in the number of enterprises subject to dissolution in the first five months of this year, around 10% higher than the rate of those applying for market entry.

What steps should Vietnam take to realize the growth target of 6.5%?

The utmost priority continues to be combating the pandemic and accelerating the vaccination program. I suppose the government should continue to provide support programs for the business community, including financial means for enterprises and people affected by the pandemic.

Vietnam should also find new driving forces for growth to offset the negative impacts of the pandemic on the economy. For example, more drastic measures are needed to spur public investment.

Moreover, a transparent and fair business/investment environment is essential to promote domestic and foreign investment activities at a time of supply chains being disrupted in the region.

Along with state-owned enterprises, the private sectors should continue to receive support from the government to play a greater role in advancing the economy forward and creating a platform for sustainable development.

A lesson that needs to be learned from the pandemic is that the domestic market is of huge potential and should be the focus of domestic enterprises.

In long term, the government should maintain its efforts in improving the business environment and reforming administrative procedures via digitalization.

What are the most important factors to keep the economy growing?

With the high level of economic openness, exports no doubt would continue to be the key factor to keep the economic growth. Under this context, the country should continue to take advantage of the free trade agreements that it is a part of.

Public investment, on the other hand, still makes up a major part of GDP growth and should be channeled into priority fields with high spillover effects.

Another positive point is that Vietnam has been able to absorb a large amount of FDI inflows into the country. It is imperative for Vietnam to draft a development strategy that could strengthen the linkage between domestic and foreign firms so that we can better utilize this important source of capital for growth.

Once the pandemic is put under control, domestic consumption will recover, so measures are needed to further expand the local market, including policies to stimulate demand and domestic production.

During and after the pandemic, the digital economy would be an important driver for growth and should be at the center of economic policies for Vietnam in the post-pandemic period.

A strong push for the digital economy, e-distribution, and non-cash payment not only help Vietnam prevent the spread of the pandemic but also diversify markets and save costs for enterprises.

How can we reduce the inflation risks as prices of goods in the global market are rising?

It is important that we should not underestimate inflation risks, but too cautious management of inflation may hinder economic recovery.

During the process of inflation control, the government should take into consideration what it takes to support economic growth in both the short- and long-term, along with a flexible combination of fiscal and monetary policies.

The government needs to carefully manage prices of goods and products under state administration and avoid disruption to movements of goods and products during the pandemic.

In the January- May period, the consumer price index (CPI) expanded by 1.29% year-on-year. I expect the CPI would increase by 1.85-2% year-on-year for the first half of 2021, and around 3.4-3.6% for the whole year, staying below the government target of 4%.

Thank you for your time!