## Vietnam—Gearing Up for the Next Transformation -- Speech By Christine Lagarde, Managing Director, IMF

_IMF News, March 17, 2016_

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## Bibliographic details
- Authors: Christine Lagarde
- Published: March 17, 2016

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### Global Challenges and Regional Opportunities
- Vietnam has become one of the world’s most open economies, benefiting from international trade and foreign direct investment but more sensitive to external shocks.
- Major global transitions affecting Vietnam:
  - China’s move to a new growth model.
  - Prospect of commodity prices remaining lower for longer.
  - Tightening of financial conditions due to rising U.S. interest rates and a stronger dollar.
- IMF global growth outlook and regional role:
  - IMF cut its global growth forecast for 2016—to 3.4 percent.
  - Asia accounts for 40 percent of the global economy.
  - Over the next four years, Asia is expected to deliver nearly two-thirds of global growth.
- Impact of China’s growth transition:
  - Short-run slower growth in China reduces demand for intermediate goods and commodities and increases volatility in currencies, equities, and bonds.
  - Vietnam faces a widening budget deficit and growing public debt partly because of lower oil revenues.
- Opportunities for Vietnam:
  - China’s retreat from less sophisticated, labor-intensive manufacturing can benefit Mekong neighbors, including Vietnam.
  - Vietnam’s exports to China grew almost twice as fast as its total exports last year.
  - China accounts for only a tenth of Vietnam’s overall exports; the global market remains the biggest prize.
  - Trans-Pacific Partnership (TPP) potential impact:
    - Could lift Vietnam’s GDP by a cumulative 8 percent over the next 15 years.
    - Could lift Vietnam’s exports by 30 percent over the next 15 years.
  - TPP could spur foreign direct investment and provide impetus for economic reforms, especially in state-owned enterprises.

### Vietnam’s Next Transformation — Policy Recipe and Key Ingredients
- Current growth and demographic concerns:
  - Current growth is projected to remain solid this year—at around 6.3 percent.
  - Growth since 2008 has been slower than in the preceding two decades.
  - Vietnam is on track to become one of the world’s fastest-ageing societies; the working-age population’s share has already started to decline.
- Four recommended policy ingredients:
  1. Safeguard macroeconomic stability
     - Make greater use of exchange rate flexibility to soften external shocks and build external reserves.
     - Create a new monetary policy regime for a rising, more sophisticated economy; that could eventually include using inflation as a nominal anchor.
  2. Generate higher government income by broadening the tax base
     - Reduce tax exemptions and introduce a property tax.
     - These measures would help reduce public debt—currently at about 60 percent of GDP—and create more fiscal room.
     - A fuller public purse is needed to boost infrastructure investment in roads, bridges, and urban transport while protecting health and education spending.
  3. Step up bank reforms
     - Fully address the legacy of non-performing loans through comprehensive legal reforms to resolve bad loans and strengthen capital in viable banks.
     - Bolstering bank balance sheets supports higher-quality credit growth and safer, sustainable medium-term growth.
  4. Promote stronger, more inclusive, and more sustainable growth
     - Accelerate restructuring of state-owned enterprises through governance reform, divestment of non-core activities, and increased private participation in ownership to boost labor productivity and potential growth.
     - Key structural facts:
       - Productivity in foreign-invested companies is five times higher than in state-owned enterprises and domestic private firms.
       - Foreign-invested firms account for 70 per cent of total exports.
     - Encourage technological innovation and learning by increasing investment in research and development—Vietnam is spending significantly less than its peers.
     - Expand vocational training to address skills mismatches and help reduce youth unemployment.
- Social and inclusion priorities:
  - Vietnam reduced its poverty rate from almost 60 percent in 1993 to 13.5 percent (2014 data, latest available figures).
  - Disparities persist between urban and rural areas, within cities and rural areas, and across regions; two thirds of those in Vietnam’s ethnic minority groups are poor and often live in hard-to-reach areas.
  - Reducing poverty and income inequality requires better infrastructure and greater access to education and health care; IMF studies show limiting excessive income inequality supports faster and more sustainable growth.
  - Gender dimension:
    - Vietnam has relatively low gender gaps but must empower women further by bringing more women into the formal workforce and improving access to higher education.
    - For instance, only 40 percent of PhD graduates are female.

### Your Next Transformation — Roles for Students and Young Professionals
- Individual skill development and innovation:
  - Emphasize math, engineering, finance, and economics while embracing diverse experiences in literature, arts, and languages.
  - Opportunities exist in smartphone apps, social media, e-commerce, software, and game development.
  - Encourage ethical behavior and long-term standards of conduct; research indicates unethical behavior can become endemic in highly competitive industries.
- Global engagement and climate change:
  - Vietnam is exposed to climate risks because of population density, geography, and rapidly growing urban centers.
  - A massive increase in urbanization over the next 15 years could require global infrastructure investment of up to $90 trillion.
  - Risk of locking in carbon-intensive infrastructure underscores need for sustainable urban planning and investment.
  - Young leaders should connect globally to raise awareness and act on climate and other macro-critical issues.
- Engagement with the IMF:
  - The IMF offers expertise in fiscal, monetary, and financial policies and focuses on macro-critical issues such as climate change, gender, and inequality.
  - Students and professionals are encouraged to consider joining the IMF to support research, policy advice, and technical assistance to the Fund’s 188 member countries.

### Key Statistics and Indicators (as stated in the speech)
- Global growth forecast for 2016—3.4 percent.
- Asia’s share of global economy—40 percent.
- Asia expected to deliver nearly two-thirds of global growth over the next four years.
- Vietnam growth projection this year—around 6.3 percent.
- Public debt—currently at about 60 percent of GDP (in 2015 public debt was at about 60 percent of GDP, up from about 40 percent in 2008).
- Productivity: foreign-invested firms are five times more productive than state-owned enterprises and domestic private firms.
- Foreign-invested firms account for 70 per cent of total exports.
- TPP potential impacts: GDP cumulative increase of 8 percent and exports increase of 30 percent over the next 15 years.
- Youth unemployment rate—7¼ percent; overall unemployment—2½ percent.
- Poverty reduction: almost 60 percent in 1993 to 13.5 percent (2014 data, latest available figures).
- Female PhD graduates—40 percent.
- Global infrastructure investment need for urbanization—up to $90 trillion.

*Source: Vietnam—Gearing Up for the Next Transformation — Speech by Christine Lagarde, Managing Director, IMF, National Economic University, Hanoi, March 17, 2016.*

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## Content in this bundle

- [Nce Global Report Web (PDF)](/external/pubs/ft/fandd/2015/12/%20http:/2014.newclimateeconomy.report/wp-content/uploads/2014/08/nce-global-report_web.pdf){rel="external" type="application/pdf"}

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## References

- [Vietnam and the IMF](http://www.imf.org/external/country/VNM/index.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Asia and Pacific: Stabilizing and Outperforming Other Regions](https://www.imf.org/external/pubs/ft/reo/2015/apd/eng/areo0415.htm)
- [Blog](https://www.imf.org/external/pubs/ft/fandd/2015/12/stern.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp031716_