The bank made the prediction in its latest economic update entitled “Making Public Investment Work for Growth” released on August 10.

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Vietnam's economy is predicted to grow strong in the next two years.

The report said Vietnam’s economic growth slowed from 8% in 2022 to 3.7% in the first half of 2023, noting that 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, it said.

Overall, investment will contribute 1.8 percentage points to the country’s GDP growth. Private investment is expected to decline slightly with an increase of 4.3% compared to the same period last year due to external uncertainties, and will contribute 1.2 percentage points for GDP growth. Public investment is expected to be boosted, up 9.5% over the same period in 2022, contributing 0.6 percentage points to growth. However, it can only partially offset the declining private investment situation.

Due to loosened liquidity and the State Bank of Vietnam’s issuance of the guidance on restructuring repayment terms, financial constraints for the real estate and construction sectors are expected to be solved, which thus support private investment to gradually recover from 2024 onwards.

The CPI is expected to increase slightly from an average of 3.1% in 2022 to an average of 3.5% in 2023. The deflationary impact of slowing growth and the policy of reducing value-added tax rates from 10% to 8% deployed in the second half of 2023 is enough to offset the 20.8% increase in civil servants’ salaries. CPI inflation will be stabilized at 3% in 2024 and 2025 on the basis of the expectation that energy and commodity prices will be stable in 2024.

Carolyn Turk, WB Country Director for Vietnam said that Vietnam’s economy is being tested by internal and external factors, suggesting that to boost economic growth, the government can support aggregate demand through effective public investments, thereby creating jobs, and stimulating economic activity.

“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,” she said.

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.

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, the bank suggested.

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.

Source: VNA