Modernizing, Adapting Institutions Likely to Be Key to Vietnam's Success

9:25:46 AM | 5/23/2022

For Vietnam to realize its aspiration for reaching high-income status by 2045, the country will need to shift its economic growth model and sharply improve the government’s capacity to coordinate and implement economic policy reforms and public investments.

This is a remark of the World Bank Group in its recent Systematic Country Diagnostic Update themed: "How Will Vietnam Blossom? Reforming Institutions for Effective Implementation”.

According to the report, Vietnam's traditional growth model faces major challenges from the COVID-19 pandemic, slowing globalization, and the country’s increasing vulnerability to external shocks, especially climate risks. After identifying a series of policy responses and reform priorities, many of them are not new.

According to World Bank Country Director for Vietnam Carolyn Turk, Vietnam’s GDP per capita has increased fivefold over the past three decades, while its institutions have not adapted at the same speed since the Doi Moi (reform) of the late 1980s. A series of institutional reforms can help the country avoid the middle-income trap by increasing its efficiency to respond to new and complex global and domestic challenges.

Vietnam has implemented its development priorities unevenly over the past 35 years. Therefore, according to the World Bank, Vietnam needs a specific approach to institutional reform following a simple but intuitive methodological model. The starting point is that institutions should be designed to ensure that the country's development priorities are implemented with the greatest efficiency and effectiveness. Institutions need to adapt to new and complex development challenges arising in the rapidly changing domestic and world context. Regrettably, Vietnam's performance outcomes - determined by the gap between aspirations and actual implementations - have been uneven over the past decade. Despite very effectively implementing priorities on trade openness, digital transformation and social inclusion, Vietnam has not made much progress in implementing other priorities such as green growth, financial inclusion and infrastructure upgrading. In addition, since the transition from a low-middle-income status to a high-middle income status is more difficult than the transition from low to middle-income, the overall implementation outcome needs to be more than three times what was achieved in the period from 2010 to 2020 for Vietnam to achieve its development aspirations. Adapting and modernizing existing institutions is a key priority of the socioeconomic development strategy adopted by the Party Congress in February 2021.

According to the report, improving Vietnam’s implementation performance will require five institutional reforms. Vietnam will need to create a solid institutional anchor that will transform development priorities into concrete actions; streamline administrative processes to increase the effectiveness of government at all levels; use market-based instruments to motivate public and private stakeholders; enforce rules and regulations to enhance motivation, trust, and fairness; and engage in participatory processes to secure greater transparency and accountability.

Thanks to these series of five institutional reforms, Vietnam will lay the foundation for its economic development vision, strengthen its capacity to implement national strategies and boost motivations to achieve higher economic growth in several key areas - green growth, digital transformation, financial inclusion, social protection and infrastructure upgrading - thus helping the country achieve its development goals.

The key to Vietnam's future development success is an adapting institution that can implement new and increasingly complex development priorities, said the report authors. For example, green growth currently lacks a clear institutional foundation. Some strategies and plans were developed at the same time but lacked consistency with each other. The relationship between central and local governments is still unclear. Market signals are also not clear when subsidized resource prices are encouraging irresponsible behaviors while legal documents are not always enforceable. In combination, these inadequacies are barriers to the decision-making process and effective enforcement of the national green agenda.

By Anh Mai, Vietnam Business Forum