Vietnam’s Economic Growth and Future Challenges

In 2024, Vietnam’s economy experienced a remarkable growth rate of 8.32%, marking the highest GDP increase since 2020. This surge was fueled by a significant rise in exports and a rebound in foreign direct investment, maintaining macroeconomic stability against earlier negative predictions.

Despite these achievements, Dr. Nguyen Dinh Cung, the former Director of the Central Institute for Economic Management, cautions that the growth is fragile. He emphasizes the need for comprehensive reforms to sustain this momentum.

In a recent discussion with VietNamNet, Dr. Cung shared insights on the current economic landscape, the critical need for institutional reform, and the opportunity to redefine Vietnam’s future.

Reflecting on the past year, he noted that Vietnam’s economic success in 2024 surpassed expectations, mainly due to a robust recovery in industrial production and an increase in exports driven by global demand. Industrial output rose by 8.32%, registering the highest growth rate in four years, while foreign direct investment inflows grew by 10.6% year-on-year.

However, toward the end of 2024, Dr. Cung observed signs of slowdown in industrial production and export growth. This decline suggests that Vietnam’s economic growth cannot rely solely on external factors.

Domestic investment continues to be a concern. Although foreign direct investments are flourishing, local private sector investments grew only by 7.7%, significantly below the pre-pandemic average of 13.6%. Moreover, public investment decreased sharply to a growth rate of just 3.3%, contrasting markedly with the averages seen in 2022 and 2023.

Looking to 2025, Dr. Cung warns of increasing global uncertainties that could adversely affect Vietnam’s economy, including potential tariffs on exports if Donald Trump returns to the U.S. presidency. Additionally, there are risks associated with Vietnam being perceived as a conduit for Chinese exports to the U.S., potentially triggering trade restrictions.

The strength of the U.S. dollar and rising interest rates could hinder Vietnam’s ability to lower borrowing costs, while global supply chain disruptions and geopolitical strains create further uncertainty.

Nonetheless, Dr. Cung points out that Vietnam has a unique chance to attract supply chains relocating from China. He stresses the urgent need for decisive institutional reforms.

Bureaucratic inefficiencies and regulatory challenges have long constrained Vietnam’s economic growth potential. With newfound political will and public backing, there is an opportunity to address these long-standing issues.

To leverage this moment, he advocates for deregulation and reducing red tape. The government should move away from the restrictive mindset of banning rather than regulating and embrace a model that encourages business innovation. A shift to post-implementation oversight would allow companies to operate with enhanced flexibility.

Streamlining existing laws and eliminating conflicting regulations is crucial. Dr. Cung proposes establishing a comprehensive investment law to replace the myriad of overlapping regulations that currently hinder economic activity.

Enhancing decentralization is another critical factor in maximizing Vietnam’s economic potential. He calls for local governments to have more autonomy in economic decision-making under the principle of accountability: “local governments decide, local governments act, local governments take responsibility.”

This shift would enable localities to drive growth in ways that are better suited to their specific contexts. Transitioning to market-driven land and investment policies would ensure efficient allocation of resources.

Dr. Cung emphasizes the need to eliminate excessive business regulations, suggesting that at least two-thirds of the current conditional business sectors should be dropped to create a more vibrant and competitive market.

Abolishing the long-standing “ask-and-give” process for business permits is paramount. Dr. Cung argues that removing bureaucratic hurdles will enable businesses to focus on growth rather than navigating complex regulations.

Furthermore, he supports setting clear growth targets for provinces, holding local leaders accountable for economic performance. By assigning GDP growth, job creation, and per capita income goals to each province, local leaders would be incentivized to pursue innovation and actively drive economic progress.

However, Dr. Cung believes that further decentralization is necessary, granting provinces greater leeway in policy formulation and investment choices. Local governments should be evaluated based on their overall economic impact rather than penalized for the failure of specific projects.

In conclusion, Dr. Cung posits that Vietnam stands at a crucial juncture, where today’s policy choices will profoundly influence the nation’s future. With appropriate reforms, Vietnam can unlock its full economic potential and emerge as a significant player in Asia.