The World Bank (WB) released its Taking Stock report for Vietnam on March 13, entitled “Harnessing the potential of the service sector for growth”.

In reviewing Vietnam’s economic situation, the report notes that GDP growth in 2022 was high from a low base the previous year, while consumption recovered from Covid-19 and solid results were posted from export-oriented manufacturing in the first nine months of the year.

Ms. Dorsati Madani, Senior Country Economist at the WB, emphasized that the financial sector came under increased pressure in 2022. The initially-planned expansion of fiscal policy was affected by development challenges generated in budget revenue and expenditure.

“The short-term outlook is still favorable, but Vietnam is facing risks,” she said. Prolonged inflation in the US and the Euro area could lead to further tightening of financial mobilization conditions, affecting Vietnam’s financial sector. Vietnam’s key export markets, such as the US and China, etc., are also forecast to be weaker than expected.

In terms of Vietnam’ economy this year, the report noted that economic growth is estimated to come in at 6.3 per cent, after reaching a high of 8 per cent last year. This is due to slowing growth in the service sector and rising prices and interest rates. Growth in 2024, meanwhile, will be 6.5 per cent as economies that are key export markets for Vietnam recover.

Ms. Carolyn Turk, WB Country Director for Vietnam, said the country still has room to implement measures to promote growth, unlike many other countries. “Effective implementation of key public investment projects is key to growth in both the short and long term,” she said. “Vietnam’s fiscal and monetary policies must be synchronized to ensure economic support and effective macro-economic stability.”

Referring to the collapse of Silicon Valley Bank (SVB) last week, Mr. Andrea Coppola, Lead Country Economist and Program Leader for Equitable Growth, Finance and Institutions at the WB in Vietnam, said this is a global problem and not just in one country. It is clear that banking supervision and financial risk reduction are very important. He also assessed that SVB had liquidity problems when bonds it invested in suffered heavy losses.

He added that there are certain similarities in Vietnam, where the financial sector plays an important role in the national economy. “Therefore, effective supervision and immediate action in banking activities are extremely important so that financial problems do not affect other social issues,” he said.

The WB report also points out measures that could help Vietnam realize its potential, create more jobs, and boost added value. To achieve the goal of becoming a high-income economy by 2045, Vietnam needs to more effectively exploit the diversified service sector to maintain sustainable productivity growth. This entails implementing reforms that enhance service sector productivity and make cross-sectoral contributions to productivity growth in the manufacturing and agriculture sectors.

The report also recommended that Vietnam remove barriers to foreign trade and investment and conduct reforms to boost competition and access to finance for domestic enterprises. At the same time, it is necessary to encourage the application of technology and innovation in products and processes, and strengthen the capacity and workplace skills of both employees and managers. The country also needs to focus on services that can drive further growth in other industries and sectors, particularly manufacturing.