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COVER STORY

south suffered the largest share of job losses, control both domestically and interna-
at 52 per cent, and experienced two waves tionally. Under such conditions and with
of migrant workers leaving the area and the easing of mobility and health restric-
their jobs. One group of migrants left before tions, the services sector is expected to
the lockdown, creating a labor shortage, partially recover as consumer and investor
while a second group left right after re- confidence firms up during 2022.
opening, which exacerbated the shortage. A measured restart of foreign tourism
According to the General Statistics is also expected from mid-2022, helping
Office (GSO), as of December 15, a total support the gradual recovery of the tourism
of 2.2 million people had returned to their sector. Manufacturing exports will benefit I am glad to hear that the National Assembly
hometown, and about half of them departed from steady demand in the US, the EU, approved a $7.75 billion economic stimulus
from Ho Chi Minh City and other southern and China, as they continue to grow, albeit package that, among other measures, cuts VAT
provinces. As the lockdown was lifted and at a slower pace. Fiscal policy should be by 2 per cent. This is expected to stimulate
the economy re-opened, labor market con- more accommodating, at least in the first demand and help businesses recover faster,
ditions improved in the fourth quarter but part of 2022, as authorities are considering further develop the healthcare system, and
have a long way to go to fully recover. the adoption of a new recovery package, boost investments in sectors and infrastructure
Enterprises were also severely affected by but fiscal consolidation should resume in facilities that are essential for the country’s
continued economic growth. Looking forward,
the third-quarter lockdown, but business 2023. Monetary policies adopted to support this [Taking Stock] report describes what we
confidence began to recover in the closing businesses during the crisis are expected think will be the prospective growth for the
months of the year. to be unwound starting from mid-2022. country and the potential risks the government
The World Bank Business Pulse Survey Monetary policy is to resume its prudent may need to tackle. Recovery will face serious
conducted from September to November approach to balancing between supporting downside risks, including the lingering effects
found that enterprise closures in Ho Chi economic growth and managing inflation, of the 2021 crisis on worker and household
Minh City - the epicenter of the crisis - while closely monitoring the health of the incomes that could affect the recovery of
domestic demand.
were especially high, at 35 per cent, and of financial sector. The current account is New Covid variants such as Omicron can
those that remained open, 57 per cent cut expected to register small surpluses in the affect Vietnam and its trade partners’ economic
their hours. Overall sales fell 39 per cent medium term thanks to a strong export prospects. The financial sector faces heightened
in the September-November period com- performance and resilient remittances. risks because of non-performing loans that may
pared to the same period in 2019. Cash Given the strong dependence of Viet- transmit this risk to the real, broader economy.
flow, however, deteriorated only slightly namese exports on imported inputs, this Good policies could mitigate these risks to a certain
thanks to support policies and enterprises’ surplus will be modest, at about 1.5-2 per extent and help the economy return to a pre-crisis
growth path. The report offers some policy
more cautious management. Fifty-seven cent of GDP in the medium term. Remit- suggestions in several areas, including on financial
per cent reported having received some tances are expected to contribute a steady policy, on safety nets, and on addressing the
support from the government, compared $18 billion to $20 billion to the current potential heightened risks in the financial sector.
to 19 per cent in June 2020 and 36 per account in the medium term. The short to In addition, this edition of Taking Stock
cent in January 2021. medium-term prospects are subject to seri- makes the case that given the importance of trade
The external position has remained ous downside risk. Covid-19 flare-ups, in Vietnam’s economic growth, greening the trade
sector should be the priority to ensure sustainable
strong, but the current account surplus including variants such as Omicron, could and strong growth going forward. It will also help
has deteriorated sharply. The country’s emerge before widespread vaccination is the country keep its pledge to reach net zero
international reserves rose by $12.3 billion reached, forcing renewed social distancing emissions in 2050. Trade is an important driver of
since December 2020, reaching $107.7 measures and slowing economic recovery Vietnam’s remarkable economic growth over the
billion, equivalent to 3.7 months of imports, in Vietnam and in its main export markets. past two decades but also produces one-third of
in total as of the end of September. The Continuing a rapid pace of initial vac- the country’s total greenhouse gas emissions. This
current account shrunk from a surplus of cinations, administering a booster dose to includes agriculture, manufacturing, and transport
services. Vietnam has started decarbonizing its
4.6 per cent of GDP in 2020 to an estimated the population in 2022, and keeping the trade, but increasingly, customers in destination
deficit of 1 per cent in 2021, mostly because “5K” national good hygiene practices will markets and multinational companies demand
merchandise imports grew faster than help diminish the risk of new variants greener products and services.
merchandise exports, at 26.2 per cent spreading among the population. Many To remain competitive and stay ahead of the
against 18.8 per cent year-on-year, while countries also have less room to use fiscal game, Vietnamese authorities and Vietnamese
services exports continued to be severely and monetary policy to deal with this per- exporters need to do more. The report
affected by the international travel restric- sistent crisis, adding uncertainty and down- recommends the government act on three fronts:
facilitate the trade of green goods and services,
tions. The steep current account deterio- side risks to global recovery momentum, incentivize green FDI, and develop more resilient
ration is expected to be offset by a large which again could affect Vietnam. Finally, and carbon-free industrial zones.
surplus in the financial account thanks to major countries that experienced an eco-
resilient, albeit slightly lower, FDI and nomic rebound in 2021 are expected to MS. CAROLYN TURK,
large short-term capital inflows. start unwinding supportive policies, includ- World Bank Country Director for Vietnam
ing monetary policies, which could affect
LOOKING AHEAD the financial sector of many emerging
Vietnam’s GDP should rebound from economies, including Vietnam. Major uncertainty and downside risks to global
2.58 per cent in 2021 to 5.5 per cent in economies will also experience a softening recovery momentum, which in turn could
2022 but downside risks are high and of growth in 2022 as their economies affect Vietnam’s exports and economic
warrant a proactive response by authorities. revert to longer-term economic patterns. recovery. In addition to the uncertainty
The economy is projected to grow about The growth of Vietnam’s major export associated with the path of the pandemic,
5.5 per cent this year and thereafter stabilize markets - the US and China - is projected authorities should take action to minimize
at around 6.5 per cent. This projection to slow to 3.8 per cent and 5.1 per cent in the effects of the fiscal, social, and financial
assumes that the pandemic will be under 2022, respectively. This heightens the sector risk. %

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