Vietnam Needs Structural Reforms to Foster Growth in Business Environment: IMF Representative

The Forum is an opportunity to add scientific and practical arguments, refer to international experience, consult with domestic and foreign experts, and closely follow developments and the actual situation. This will be an important "input" information channel for National Assembly, National Assembly delegates, and relevant agencies to have more data.

Thus, it will be analyzed, forecasted, and promptly have policy solutions to strengthen the macroeconomic foundation, minimize negative impacts, seize opportunities, especially for fiscal, monetary, and social security policies...... have an inspection and supervision mechanism to support the economy in overcoming difficulties, recovering and promoting growth and sustainable development.

Ensuring macroeconomic stability as a "constant" factor to respond to "universal changes"

In his opening speech, National Assembly Chairman Vuong Dinh Hue emphasized that reinforcing and strengthening the macroeconomic foundation and enhancing the economy's resilience and self-reliance are always the top goals, especially when our country's economy is very open and the world and regional situation always has unusual fluctuations that are difficult to forecast.

Practical lessons learned through more than 35 years of innovation, even in difficult times and harsh challenges such as during the past 2 years of dealing with the COVID-19 pandemic. It can be said that ensuring macroeconomic stability is a "constant" factor in responding to the "universal changes" of the international economic situation.

Stemming from that situation, the Standing Committee of the National Assembly considered and decided to select the issue "Reinforcing macro-economic foundation, promoting sustainable recovery and development" as the theme for the 2022 Forum and adjusted the name to 2022 Socio-Economic Forum to ensure comprehensiveness and compatibility with the functions and tasks of the National Assembly.

To achieve the forum’s goals, National Assembly Chairman Vuong Dinh Hue asked delegates to mull over regional and global economic, financial, and monetary situations, give mid and long-term forecasts for Vietnam, and assess opportunities and challenges to the economy in 2022, 2023 and the next period.

Along with that, objectively and comprehensively analyze and evaluate the socio-economic situation of Vietnam, especially the macroeconomic situation, the resilience capacity of the Vietnamese economy, and forecast for the whole year 2022, 2023; points out the achievements and results achieved and warns about the risks of macroeconomic instability and financial instability both in the real economic sector (economic growth and inflation in the non-financial business sector, real estate market), foreign economic sector (exchange rate, current balance, foreign exchange reserves), financial and monetary sector (scale and structure of financial markets, banks, insurance market) and risks and uncertainties in fiscal policy (scale, public debt structure, state budget balance...)

Vietnam socio-economic forum 2022. Photo: quochoi.vn

Vietnam needs structural reforms to foster growth in business environment

IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud said, besides fiscal, monetary and financial policies to support growth, Vietnam needs to focus on policies on structural reforms that can help promote the business environment.

IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud shared about the external factors affecting the economic prospects of Vietnam.

He said that 2022 has witnessed complicated developments, world economic shocks such as high inflation worldwide, financial tightening measures, low expectations about China's economic prospects, and the complicated geopolitical situation in Ukraine.

These developments show that the economic outlook is declining, and the inflation outlook is increasing. The international environment is witnessing high inflation, difficult financial conditions and many risks.

On that basis, the IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud said that in 2022, Vietnam has made an impressive economic recovery, forecasting economic growth prospects to 7%. This is relatively impressive growth compared to other developed economies in 2023.

Although this growth contrasts with the economic outlook in other countries, Vietnam has the highest growth rate among Asian economies.

However, Francois Painchaud realized that Vietnam's economic outlook still has risks, and inflation may still increase rapidly.

Vietnam's recovery will be hit by slowing global growth and tighter financial conditions.

The IMF Resident Representative for Lao PDR and Vietnam said that monetary policy needs to be careful against inflation risks. If inflationary pressures continue to increase, the State Bank needs to tighten monetary policy and communicate clearly because policy drivers help curb inflation.

The State Bank also needs to consistently implement current monetary policies and tools such as interest rates, credit growth and foreign exchange interventions.

IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud. Photo: quochoi.vn

For example, Vietnam's exchange rate fell, but less than other countries in the region because the State Bank sold foreign exchange reserves to maintain exchange rate stability and limit inflationary pressures, while allowing domestic short-term interest rates to rise. The IMF Resident Representative said that these two policies are consistent with monetary policy, focusing on controlling inflation.

In the current context, raising the credit growth ceiling will not be consistent with the exchange rate and interest rate policy.

Fiscal policy needs to be quick and flexible. When facing inflationary pressures, fiscal policy should play a larger role without additional monetary policy support.

The policy needs to provide clearly targeted fiscal support to household enterprises and enterprises in general so that it can reduce the trade-offs the State Bank faces when implementing monetary policies on a large scale.

The State Bank should continue to handle bad debts in the banking system, closely monitor possible risks in the future and in the real estate market.

With Vietnam's credit-to-GDP ratio at 125 percent in 2021, the IMF Resident Representative for Lao PDR and Vietnam Francois Painchaud said that increasing GDP credit to around 100 percent could increase negative risks to macroeconomic growth and stability.

Therefore, the State Bank of Vietnam needs to increase the resilience of the banking system by increasing capital, strengthening the macroprudential framework, developing capital markets and managing risks.

Besides fiscal, monetary and financial policies to support growth, it is also necessary to pay attention to structural policies, structural reforms need to be implemented.

It can help promote the business environment, access to finance and land, and reduce regulatory burdens, especially for SMEs.

Vietnam needs to make more efforts to improve the quality of workforce management and reduce the mismatch in labor skills.

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