Vietnam: Successfully Navigating the Pandemic
IMF News, March 10, 2021
Source details
- Canonical URL
- Vietnam: Successfully Navigating the Pandemic
Other formats
Bibliographic details
- Authors: Era Dabla-Norris, Yuanyan Sophia Zhang IMF Asia, Pacific Department March
- Published: March 10, 2021
Key findings
- Vietnam’s economy expanded by 2.9 percent in 2020.
- Growth is projected to be 6.5 percent in 2021.
- Strong economic fundamentals, decisive containment measures, and well-targeted government support underpin resilience.
- Early rebound of domestic activities and robust export performance, particularly higher-tech electronics exports, supported 2020 growth.
Public health and containment measures
- Swift introduction of containment measures, aggressive contact tracing, targeted testing, and isolation of suspected COVID-19 cases kept recorded infections and death rates notably low on a per capita basis.
- Successful containment reduced both health and economic fallout and limited the size of the emergency response package.
Pre-pandemic fundamentals and buffers
- Since the advent of market-oriented “Doi Moi” reforms in 1986, Vietnam transformed from one of the poorest countries to lower middle-income status.
- Structural transformation toward foreign direct investment-led manufacturing and a focus on “leaving no one behind” boosted living standards.
- Strong foreign investment and current account surpluses strengthened external resilience.
- The banking system improved with higher profitability, liquidity, and fewer non-performing loans than in the past.
- Considerable progress in consolidating public finances prior to COVID-19 built fiscal, external, and financial buffers that increased resilience to the shock.
- Despite progress, significant room remains to boost productivity and improve economic resilience.
Macroeconomic policy priorities (near-term)
- Macroeconomic policies should remain supportive in 2021 to ensure a resilient and inclusive recovery.
- Near-term policy focus:
- Sustain employment while fostering reallocation of resources.
- Use hiring subsidies and active labor market policies to incentivize job training.
- Permanently scale up coverage of the existing social safety net and improve its efficiency.
- Over time, policies should aim to reduce labor informality by improving labor skills, lowering hiring/firing costs for formal workers, and encouraging firm formalization.
Financial stability and corporate sector
- Corporates entered the crisis with relatively weak balance sheets, particularly small and medium enterprises that dominate the hardest hit sectors.
- COVID-19 has further deteriorated liquidity and solvency positions, raising financial stability concerns through bank exposures.
- Monetary, fiscal, and financial sector policies implemented by the government helped mitigate immediate risks of a surge in corporate defaults and mass layoffs.
- Policy guidance:
- Better target support to illiquid but viable firms until the recovery is firmer.
- Continue strong supervision and timely efforts to address problem loans.
- Strengthen regulatory and supervisory frameworks to address financial system risks.
Structural reforms to boost productivity
- More decisive reforms are needed to tackle pervasive low productivity and realize Vietnam’s growth potential.
- Reform priorities:
- Improve the business environment and ensure a level playing field for small and medium-sized enterprises.
- Reduce regulatory burden faced by firms.
- Improve firms’ access to resources, governance, technology, and innovation.
- Reduce skills mismatches.
- These reforms would help Vietnam reap greater benefits from participation in global value chains in the post-pandemic world.
IMF News — "Vietnam: Successfully Navigating the Pandemic", March 10, 2021.