Challenging internal and external factors leading to slowdown in Vietnam’s economic growth

The report’s special chapter studies Vietnam’s public investment management and how it can contribute to the goal of climbing the income ladder.

A challenging external environment and weaker domestic demand is leading to a slowdown in economic growth in Vietnam. But the economy will pick up pace over the second half of this year, and the following years, according to the World Bank’s latest economic update entitled “Making Public Investment Work for Growth”.

The report shows that Vietnam’s economic growth slowed from 8% in 2022 to 3.7% in the first half of 2023. It forecasts a moderate growth of 4.7% in 2023, gradually accelerating to 5.5% in 2024 and 6.0% in 2025. A proactive fiscal policy supporting short-term demand, removing barriers to the implementation of public investment, and addressing infrastructure constraints can help the economy achieve these targets and promote long-term growth.

“Vietnam’s economy is being tested by internal and external factors. To boost economic growth, the government can support aggregate demand through effective public investments, thereby creating jobs, and stimulating economic activity,” said Carolyn Turk, World Bank Country Director for Vietnam. “Beyond short-term support measures, the government should not lose sight of structural institutional reforms – including in the energy and banking sectors – as they are imperative for long-term growth”.

The report suggests policy options to get the economy back on track. Effectively implementing the 2023 investment budget can stimulate aggregate demand and economic growth. On exports, the report suggests diversifying product offerings and export destinations to build medium-term resilience against external shocks.  At the same time, fiscal policy can play a stronger role in incentivizing green practices and consumption, ultimately contributing to environmental sustainability.

The report’s special chapter studies Vietnam’s public investment management and how it can contribute to the goal of climbing the income ladder. To harness the power of public investment, the report recommends that Vietnam sustain its level of investment, improve the quality of the proposed project, and address deficiencies in public investment management and inter-governmental fiscal institutions.