Vietnam’s Economy: Will it overcome COVID-19 setbacks?

A survey conducted by the General Statistics Office revealed that almost all businesses were affected by the Covid-19 outbreak. The number of people living in poverty in Vietnam has worsened since the pandemic. Most ethnic and migrant households are affected by the crisis. Beyond the pandemic, Vietnam will have to address persistent problems such as the country's infrastructure, lack of human resources, and inefficient state-owned enterprises.

Impact of Covid-19 on Vietnam’s Economy:

Before the Covid-19 implementation, Vietnam's economic growth was generally high, with an average annual growth rate of around 7 per cent during the last three years. The Covid-19 pandemic wiped out around 3 per cent of the country's gross domestic product in 2020, which was the lowest level in a decade. The impact of the pandemic on the Vietnamese economy can be studied on both supply and demand fronts. The demand front was severely affected by the government's social distancing measures in April 2020. The pandemic has affected many major economies, including the U.S., China, Japan, South Korea, and Europe. This led to a decrease in their import demand. The General Statistics Office stated that the retail sales value in 2020 is expected to increase by 2.6 percent. In 2020, the decrease is expected to be less than the increase recorded in 2019. If the price factor is taken into account, the decrease is still expected to be less than the increase recorded in 2019. The tourism revenue fell by almost 53.2 per cent in the first half of 2020 due to the pandemic. Total investment demand increased by a robust 5.7 per cent in 2020 to reach its lowest level in the 2011-2020 period. This was mainly due to the rise of the state sector's investment, which was 14.5 per cent. Investment demand grew at a steady pace in 2019. It was mainly due to the state sector. The state's role in preventing a decline in overall demand was highlighted in the report's findings. This decline in demand was mainly due to the uncertainty caused by the global economic situation.

In 2020, Vietnam's total export turnover grew by 6.5 per cent compared to 2019. The increase was mainly due to the growth of the foreign-invested sector and domestic exports. In 2019, the total export turnover grew by 8.1 per cent compared to 2018, which was mainly due to the increase in the domestic sector's export sales. The decline in export growth in 2020 was mainly due to the impact of the pandemic on the global value chain. The Covid-19 pandemic has reduced overall demand and slowed down economic growth. The government is currently implementing various measures designed to stimulate demand and restore economic production. These measures have affected the supply chain and the labor supply. Several automobile manufacturers in Vietnam have stopped their operations due to the country's various social and economic policies. Operations will only resume once social distancing restrictions have been lifted and supply chains reconnected. The cost of doing business has increased due to the complexity of the measures needed to prevent the spread of the flu. A survey conducted in 2020 by Vietnam's General Statistics Office revealed that 85.7 percent of businesses were affected by the country's Covid-19 disaster. The construction and services sectors were the most affected. The government is implementing various measures to stimulate the economy. These include the implementation of measures to boost domestic demand and restore economic production. Due to the shortage of key components and the social distancing measures, many automobile manufacturers in Vietnam have stopped their operations. Most companies operating in Covid-19 are still experiencing difficulties in resuming their operations due to the restrictions on social distancing. The cost of doing business has increased due to the various factors that have to be implemented to prevent the spread of the virus. Almost 85.7 per cent of businesses in Vietnam have been affected by the Covid-19 implementation. The construction and services sectors have been hardest hit, accounting for 86.1 and 85.9 per cent of the affected establishments respectively. About 78.7 per cent of the businesses in the agriculture, forestry, and fishery sectors were affected by the pandemic, while the proportion in the other industries was lower. Due to the various factors affecting the industries, their revenue declined significantly. The implementation of social distancing and global supply chain disruptions also affected their operations. Given that most of the businesses in Vietnam are small and micro-sized, the pandemic has affected a wide variety of establishments in the country. Many firms that were affected by the pandemic have found new opportunities in the fast-growing e-commerce market. These firms mainly operate in various industries such as insurance and health care. During the pandemic, consumers stayed home to avoid social distancing, which encouraged them to shop for goods online.

The rise of e-commerce and logistics services has raised the social status of people in Vietnam. This trend is expected to continue. The proportion of households that are income-poor in Vietnam increased dramatically in April 2020. This increase was mainly due to the rise of near-poor households. The survey also revealed that the pandemic has affected various ethnic minority households and migrant families.

According to the 2019 Asian Survey, ethnic minority households saw their income drop by a significant amount in April and May. The report shows that the majority of them experienced a decrease in income loss. The income of non-migrant households dropped by 69.2 percent and 47.5 percent respectively. Macroeconomic stability was significantly affected by Covid-19, which led to a sharp increase in the budget deficit. For 2020, the debt indicators for public and foreign debts all showed an increase compared to the previous year. Covid-19 has affected many aspects of the socio-economic development of Vietnam. It has been identified as one of the main factors that slowed down the country's economic growth. The measures taken to control the spread of the virus have been successful in curbing its spread.

Prospects of Vietnam’s Economy:

In 2020, Vietnam’s economy grew by 2.95 per cent, which is slightly below the target. However, it is still impressive. According to The Economist, Vietnam could close the income gap with some of the developed nations during the Covid-19 pandemic due to its effective management of the disease. The Vietnamese government has been closely studying the twin goals of controlling and promoting economic growth during the upcoming 13th Party Congress, which will be held in 2021. The government has proposed various policies to support businesses and citizens during the Covid-19 shock. These include various social security and monetary policies. This package aims to reduce the interest rates on the outstanding loans and restructuring debt. It also has a favorable interest rate of 1-2.5 percent per year. A fiscal package that included a reduction of taxes and the extension of land rental payments was presented to the National Assembly. This package was valued at around VND 180,000 billion.

Another social security package worth over US$ 2.7 billion was approved by the government on November 14, 2018. It provides financial support for up to three months to unemployed workers and aids those who are facing difficulties in paying their salaries. Although the exact impact of these measures cannot be assessed yet, they have already reached many groups who were previously excluded from the support package. The Vietnamese government has taken various measures to prevent the spread of Covid-19 in the country. These include establishing an infectious disease control unit, establishing quarantine measures, and carrying out surveillance measures. The government's consistent implementation of its containment measures has led to the situation now being under control. This should help avoid further mass outbreaks and stimulate the economy. The impact of the Covid-19 pandemic on the Vietnamese economy is expected to pass, though many uncertainties remain.

One of the most crucial factors that the new US administration will have to consider is its orientation toward Vietnam. Will the country be able to respond to the US' growing trade war with China or will it be subjected to more restrictions? Challenges facing Vietnam in the next few years include the country's infrastructure and human resources shortages. Vietnam had set a target to equitize 127 state-owned enterprises (SOEs) between 2017-2020. As of June 2020, only 28 per cent of this target had been achieved. Although the government has announced various support packages to help businesses, many of them are still experiencing temporary disruptions. As the government works to stimulate the economy and address the various problems it inherited from the previous administration, it will face many difficulties in the coming years.

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(The views expressed are those of the author and do not represent views of CESCUBE.)