Beware of global economic risks, analysts warn Vietnam

“In terms of Vietnam’s external environment, we see slower external demand, higher inflation and tighter financial conditions,” Francois Painchaud, International Monetary Fund regional resident representative for Vietnam and Laos, said at the recent Vietnam Socio-Economic Forum.

While 2022 was expected to be a year of booming recovery for Vietnam after two years of Covid-19 impacts, several geo-political developments like the Russia-Ukraine conflict and surging inflation in developed countries are partly delaying the country’s economic revival, he said.

Vietnam’s monetary policymakers, therefore, need to be increasingly vigilant of inflationary risks, he added

“If sustained inflationary pressure continues to increase, the State Bank of Vietnam (SBV) should tighten further its monetary policy stance and clearly communicate the underlying drivers to help contain inflation.”

Painchaud also proposed that the central bank provides targeted fiscal support for vulnerable households and firms, address bad loans in the banking system, and monitors potential risks in the real estate market.

The IMF, however, still maintains a positive economic outlook for Vietnam after increasing its growth projection for the country by to 7% this year in July, up 1% point over its April forecast.

This was IMF’s only significant upward revision among Asian economies.

The IMF also lowered its growth projection for Vietnam next year by 0.5% point to 6.7%, but that was still in contrast to dimming prospects elsewhere. Vietnam would grow fastest among major Asian economies, it said.

Other analysts at the forum said that to ensure growth, Vietnam needs to streamline its policies, especially for foreign direct investment companies.

Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi, said that data was a key component of Vietnam’s economy, and foreign companies will only invest in a country with transparency in regulations.

It is therefore vital to build a thorough and clear national database, he said.

Clear policies that are in line with international standards will enable companies to calculate the costs of operating in the country, and will help attract strong FDI flows, he added.

Takeo Nakajima, chief representative of the Japan Trade Promotion Organization (JETRO) and vice president of the Japan Business Association in Vietnam, said that Vietnam ranked second behind the U.S. in the top countries that Japanese businesses want to expand, according to a JETRO survey at the end of last year.

But a large pool of qualified human resources needed to be made available, as FDI companies are facing recruitment difficulties, he said.

Local authorities need to issue policies that provide workers with relevant training, accommodation and transportation, he added.

Digital transformation and ensuring energy sources are important, and FDI companies need data centers and logistics hubs, he said.

Takeo also said that developing the supporting industry to reduce imports was key to increasing Vietnamese businesses’ capabilities.

Andrea Coppola, World Bank lead economist and program leader for Vietnam, warned that climate change could cause negative impacts on the majority of local and foreign companies in the country. Exports competitiveness could also be undermined.

“In this context, a gradual decarbonization of the economy could improve the country’s competitiveness and investments in adaptation to climate change would minimize the costs associated with natural disasters,” he said.

Increasing workers skills and expanding job opportunities will enrich the country’s human resources and help achieve its sustainable economic development targets, he added.