Growth Model Transformation Driven by TFP and Public Investment

To join the group of high-growth economies with GDP growth above 10%, Vietnam must shift from an extensive growth model to an intensive, productivity-driven one. Key strategies include strengthening institutions, raising total factor productivity (TFP), and reforming public investment.

Public investment is being strongly focused on strategic infrastructure projects to create new development opportunities

According to a report by the National Institute for Economics and Finance (NIEF) under the Ministry of Finance, after five years of implementing National Assembly Resolution 31/2021/QH15 on the Economic Restructuring Plan for the 2021-2025 period, evaluation data are available for only 23 of the 27 targets. Of these, 10 are likely to be achieved, nine are unlikely to be achieved, and four are expected not to be met. The targets projected to fall short include labor productivity growth; the number of enterprises; the number of high-tech agricultural cooperatives; the share of agricultural cooperatives linked with enterprises along value chains; and the proportion of spending on science and technology.

Regarding the five key task groups for the 2021-2025 period, the Government issued Resolution 54/NQ-CP with 102 tasks. To date, 86 out of 102 tasks have been completed (accounting for 84.3%). The reasons why the economic restructuring plan has not delivered the expected results include the slow progress in developing institutions and policies that has not met development requirements in a timely manner; improvements in economic structure and growth model that have not yet generated significant changes; limited shifts toward productivity enhancement across economic sectors, particularly in industry and services; and the slow restructuring of state-owned enterprises and public service units, which has fallen short of expectations.

According to Dr. Le Xuan Ba, former Director of the Central Institute for Economic Management (now the Institute for Policy and Strategic Studies), for Vietnam to join the group of high-growth economies with GDP growth exceeding 10%, it can no longer rely on an extensive growth model that mainly depends on capital and natural resources. The decisive factor in transforming the growth model is total factor productivity (TFP), which measures the overall efficiency of institutions, national governance, corporate governance, and science and technology.

Dr. Le Xuan Ba said that although TFP’s contribution to GDP growth has been rising, reaching about 46.4% in 2024, sustaining double-digit growth requires this share to increase to more than 50%. “A breakthrough in TFP demands a comprehensive and coordinated set of solutions, with the core being the improvement of economic institutions so that they no longer represent the bottleneck of bottlenecks,” he added.

In addition, it is necessary to strongly promote new economic models, particularly the private sector, in order to fully unleash its role as a growth driver. In the fields of science and technology and productivity, strategic investment programs in research and development (R&D) and high-tech application should be developed, thereby significantly increasing the contribution of TFP to economic growth. In particular, deep restructuring is required by concentrating resources on industries and sectors with high value added, especially high-tech processing and manufacturing.

At the same time, it is essential to accelerate the development of the green economy, digital economy, circular economy, and data economy. This model requires the quantification of measurement indicators, ensuring macroeconomic safety, and enabling deeper participation in global value chains.

Notably, according to Dr. Le Xuan Ba, the Government needs to further accelerate institutional improvement and human resource development to create synergistic strength. A key solution is to build a developmental and integrity-based State (impartial, objective, and accountable) and establish institutions for development. Reforms must create an open legal corridor, strongly promote new economic models, particularly the private sector, in order to maximize its role as a growth driver.

According to Dr. Can Van Luc, Chief Economist of the Bank for Investment and Development of Vietnam (BIDV) and a member of the National Financial and Monetary Policy Advisory Council, to achieve a 10% growth rate in the coming period, Vietnam must continue to increase capital investment in addition to improving total factor productivity (TFP). Capital is expected to contribute around 45-47% to economic growth, labor about 5-6%, down from the current level of around 8%, while TFP is projected to rise to above 50%, compared with approximately 47% at present.

According to BIDV’s calculations, during the 2021-2025 period, public investment accounted for 17.2% of total social investment, and every additional unit of public investment capital generated 1.61 units of private investment capital. However, the structure of public investment remains insufficiently rational, and capital use efficiency is an alarming issue, creating significant pressure on high and quality growth objectives. Specifically, about 80% of total investment capital has flowed into infrastructure, while only 20% has been allocated to sectors that generate TFP breakthroughs such as science and technology (0.45%), education (10.3%), and healthcare (4.2%). This is an imbalanced allocation that constrains the capacity for intensive growth. In addition, delays in public investment disbursement have persisted, with nearly 3,000 stalled projects facing unresolved obstacles and unable to be implemented, resulting in waste of resources and time.

According to Dr. Can Van Luc, the core solution is to change the structure of public spending toward serving intensive growth objectives, adjusting the structure of public investment capital by reducing the share allocated to transport and energy infrastructure from the current 80% to around 50-55% of total public investment capital; sharply increasing spending on TFP-generating areas such as education and training to about 20% of total capital (approaching international levels), raising investment in healthcare to 10-12%, and in science and technology to 3-5%.

At the same time, it is necessary to complete a scientific and up-to-date set of criteria for evaluating the effectiveness of public investment projects, with support from international organizations such as the IMF and the World Bank; control the number of projects more effectively; and review and adjust capital plans by reallocating funds from slow-disbursing projects to those with strong disbursement performance. In particular, the financial market needs to be developed in a more synchronized and balanced manner, international cooperation strengthened, and capital mobilization channels diversified, toward the formulation of a comprehensive financial sector reform scheme.

By Anh Mai, Vietnam Business Forum