Reform Is Prerequisite for Economic Recovery

9:54:04 AM | 1/25/2021

The Central Institute for Economic Management (CIEM) said that Vietnam’s GDP growth may reach 5.98% or 6.46% in 2021 under a more positive scenario. The economy will, nevertheless, still face many risks.

Two economic scenarios for 2021

Dr. Tran Thi Hong Minh, President of CIEM, said, Vietnam’s GDP expanded 2.91% in 2020, with the second-half performance showing a marked recovery of the economy. The last six months of 2020 witnessed quite exciting developments in international economic integration, including the official enactment of the EU - Vietnam Free Trade Agreement (EVFTA) and the signing of the Regional Comprehensive Economic Partnership (RCEP) and the UK - Vietnam Free Trade Agreement (UKVFTA).

2021 has just begun with many optimistic forecasts. Most recently, CIEM gave two scenarios for economic growth in 2021. According to CIEM, the economic growth could reach 5.98% in 2021 under Scenario 1 and 6.46% in Scenario 2. Exports were forecast to rise by 4.23% in Scenario 1 and 5.06% in Scenario 2. The trade surplus was estimated at US$5.49 billion and US$7.24 billion in two respective scenarios. Inflation in 2021 was projected to rise by 3.51% and by 3.78%, respectively. The two scenarios are based on assessments on world economic outlook, Vietnamese economic progress and the likely use of domestic economic tools by expert agencies.

Mr. Nguyen Anh Duong, Head of the Integrated Research Department - CIEM, said, these growth scenarios will be influenced by external risk factors such as Vietnam's access to COVID-19 vaccines, risks of uneven economic recovery in partner markets (the US and EU may recover more slowly than China); monetary easing and currency depreciation trends in many other Asian countries in the context of COVID-19; and increased trade remedies in importing countries.

In addition, Industry 4.0 and rapid digital transformation will affect domestic business and market development. The continued substantial reforms of the business and investment environment will affect the psychology and decision of investment expansion by many foreign enterprises. Domestic consumer demand may increase faster and businesses can focus more on tapping the domestic market. Especially, despite high expectations on EVFTA, Vietnam may face many trade defense and origin lawsuits.

Taking the chance for digital transformation

Despite positive forecasts, many economists warned that Vietnam should not be too subjective and complacent. COVID-19 is an important alarm for Vietnam to pay more attention to quality reforms for sustainable development.

According to Dr. Tran Thi Hong Minh, Vietnam must focus on improving microeconomic foundation and economic institutional reforms to be more creative and environmentally friendly, and effectively deal with risks - especially COVID-19. These efforts are not separate, but a prerequisite of Vietnam's economic recovery plan.

Given complicated pandemic developments, the Government’s direction and administration in 2020 showed our appropriate and flexible moves, she said. In the first six months of the year, we assigned priority to good disease control, we witnessed changes in approaches to active uncertainty management to create the basis for economic recovery. The business community and the people also agreed with the Government's policy and actively adapted to the "new normal".

Agreeing with this point of view, Dr. Le Xuan Ba, former President of CIEM, said that the most radical solution, both immediate and long-term, is further fostering institutional innovations to restore and sustain economic development. In particular, institutional reforms cover legal reform, administrative reform and business environment improvement.

Emphasizing opportunities for businesses in the coming year, Dr. Minh said that the biggest opportunity for businesses in 2021 is to grasp digital transformation opportunities to survive and develop sustainably. Vietnam has focused on innovation and seen it as the foundation and new driving force of the economy.

By Thu Ha, Vietnam Business Forum