The head of the International Monetary Fund’s representative office in Vietnam, Mr. Francois Painchaud, said that when the world economy enters a recession, it is impossible for Vietnam to be unaffected by global challenges.
It is necessary to look at the global economic picture to imagine that Vietnam cannot escape the influence of the current “gloomy” world economic landscape, is the opinion of economic expert Nguyen Huy Vu from Norway in an email to RFA:
“Inflation in many countries shows no signs of cooling down quickly. The US Central Bank intends to raise interest rates until inflation is under control. Central banks of countries will follow that direction. As a result, the world economy could quickly enter an increasingly high recession.”
“Vietnam depends a lot on the world economy, from FDI (direct investment from abroad) to exports and imports. Therefore, when the world economy declines, Vietnam will be greatly affected.”
Associate Professor, Dr. Ngo Tri Long, former director of the Price Market Research Institute under the Ministry of Finance, said that the IMF’s assessment is reasonable:
“In general, the second quarter’s growth was recorded as the highest compared to the past 10 years, especially in such a context it increased by 6.7%. That shows the possibility of exceeding the target set by the National Assembly by over 7% this year is within reach. Therefore, the International Monetary Fund’s comment is consistent with the current situation of Vietnam.”
For 2023, Francois Painchaud said that despite the downgrade, Vietnam’s GDP growth forecast is still the highest among key economies in Asia.
From this point, the next recommendation from the head of the IMF is that Vietnam needs to closely monitor inflation risks and needs flexible fiscal policy in the context of constantly fluctuating economic conditions.
The biggest risk behind the IMF’s recommendation according to Assoc. Prof. Dr. Ngo Tri Long is that growth often goes hand in hand with inflation.
Currently, he said, according to the target set by the National Assembly on inflation below 4%, eight months is 2.6-2.8%, the ability to control is possible. The biggest risk for Vietnam is that growth is not effective:
“It means investing in breadth, not investing in depth. Investing in breadth is very risky. High growth but not paying attention to efficiency and quality but only paying attention to quantity. As a result, spending one but getting less is a loss. Careful or not careful, the risk lies in the trap of high public debt. If you want to grow, you must increase investment, if it is not enough, you must borrow, and if you borrow, you must repay. Finally, if it is not effective, it is impossible to repay the debt. That’s the biggest risk.”
Most importantly, a high growth rate must be associated with efficiency and quality, is the conclusion of economist Ngo Tri Long.
Not only the IMF but also the World Bank has a similar assessment of Vietnam’s economy. Dr. Khuong Huu Loc, CFO for several large US corporations, lecturer in MBA program for several universities in the US, analyzes:
“Vietnam’s GDP in 2020-2021 increased by 2.6%, which is almost very low because of the raging COVID-19 pandemic. In the first few months of 2022, they assessed Vietnam’s GDP as low, but by the end of 2022, Vietnam’s GDP will increase by 7.5. That is, they used to expect 6.5% but now they increase it by 1%. Both the IMF and the World Bank assess the same.”
The reason Vietnam’s economy shows signs of increasing more than the current stagnation from the previous year. For Vietnam, a GDP increase of 2.6% is stagnation, Dr. Khuong Huu Loc explained:
“For a developing economy, it’s quite common to grow 7, 8 or 9%. A mature and large economy like the United States or a European monolith that grows 3% is too good, so it has to be viewed in a relative way.”
Therefore, it is undeniable that Vietnam’s economy is on the rebound thanks to the following factors:
“Vietnam has now become one of the countries that immunize the people the most, the highest, and vaccinated with advanced drugs from the US and Europe, becoming a way of living with COVID to expand the economy of Vietnam more firmly.”
Vietnam exports the most to the United States, followed by Europe and China. The United States and Europe, according to Dr. Khuong Huu Loc, are facing the situation of “stagflation” which means “stagnation of the economy and rising inflation.” This is very difficult to solve in the short term:
“But Vietnam is now benefiting because many companies such as Intel is investing an additional $500 million in Vietnam, and then Samsung leaves China to completely invest in Vietnam.”
“Then the supply chain in Vietnam is not affected much at the moment. Although oil and gas prices have had some influence, Vietnam is almost self-sufficient in food while other countries depend on food from Ukraine and Russia. So this growth of 7.5 can be trusted.”
To avoid the risk of high economic growth, has Vietnam followed the IMF’s warning to closely monitor inflation as well as apply the flexible fiscal policy in a volatile economic situation? Dr. Khuong Huu Loc said that inflation in Vietnam is currently at 3.8%, but there was a warning that Vietnam measured inflation incorrectly:
“Vietnam does not follow every sample. They use rough numbers which can be very misleading. For example, in the United States, when they say pork, chicken, beef… or gasoline or all, they follow each region they do the proportions, so it’s very accurate. Even so, sometimes they make mistakes and after a few months have to correct them. Vietnam does not have the ability to closely track each item. For example, prices of beef and pork in Da Nang are different in Saigon and different in Can Tho. They do not have correct measures so inflation in Vietnam could be higher than 3.8%.”
Without an accurate measure of inflation, fiscal flexibility will not work:
“When Vietnam thinks that 3.8% inflation means less than 4%, they don’t worry. Second, Vietnam follows the same economic model as China. And China is now insolvent because the real estate market blows up prices. Currently, the inflated price of real estate in Vietnam may be a symptom of cancer for the Vietnamese economy.”
Along with that, still, the words of Dr. Khuong Huu Loc, Vietnam’s public and private debt levels are inaccurate and unresolved.