Vietnam must work on growth quality
In the midst of the country’s rapid economic growth and its great demand for capital, Vietnam is in dire need of better policies to mobilise financial resources for further investment into the economy.
In an exclusive interview during his working visit to the country last week, Joaquim Levy, managing director and chief financial officer of the World Bank Group, told VIR’s Thanh Tung about the steps he deems necessary for Vietnam’s future growth.
What is the purpose of your visit to Vietnam, and to what extent have you fulfilled those objectives?
I was invited to attend the sixth Greater Mekong Subregion Summit (GMS-6) organised in Hanoi. This is a strategic region with a very big market in terms of trade, GDP, and investment, and the forum is a way to increase stability in the region as well as increase trade and welfare, and reduce barriers. The World Bank is an important partner, promoting the development of GMS, alongside other development banks and multilateral organisations.
I also had the opportunity to meet with local authorities. I met Prime Minister Nguyen Xuan Phuc and leaders of the ministries of Finance, Industry, and Trade, as well as the central bank, discussing Vietnam’s development priorities and policies.
In addition, I visited two World Bank-funded projects in the northern city of Haiphong – both of them major infrastructure projects – as well as a project to promote inclusiveness and reform the traditional fresh produce market. The projects have been implemented very effectively, reflecting that our capital has been well used.
I have learned a lot from the constructive dialogue with the authorities. The World Bank affirms our total commitment to this region to promote welfare and trade, as well as to provide capital and technical assistance to Vietnam in the fields of finance, banking, climate change adaptation, and grassroots healthcare.
As this is your first time in Vietnam, what has made the greatest impression? What is your view on Vietnam’s economic performance?
Vietnam has done a very good job in organising the GMS-6, mirroring the country’s increasingly important role regionally and globally, especially in terms of trade and investment co-operation. Last November, Vietnam also expertly organised APEC 2017.
I am also impressed by Vietnam’s high economic growth and reform drive. The country’s growth rate of more than 6 per cent is high. Notably, Vietnam has significantly improved its business climate. Vietnam climbed 14 places to rank 68th out of 190 economies surveyed in the World Bank’s latest Ease of Doing Business rankings.
Vietnam’s economic prospects are very good and will continue to be strong, with an expected growth rate of 6 per cent or more.
However, I think the rate is not as important as the quality of growth. Vietnam needs to improve its growth quality. Specifically, Vietnam needs to create better policies for the private sector, especially considering that it is in critical need of investment capital for socio-economic development.
Vietnam is facing high public debt, almost reaching the debt ceiling level of 65 per cent set by the National Assembly. How can the government mobilise more resources for development?
There is enormous potential to mobilise more private domestic resources for investment, including savings for growth.
One important step is to reduce barriers for the private sector, creating a financial market where private investors have confidence to invest, offering the ability to put your savings into something that creates new wealth.
Transparency is another important factor. State-owned companies need to show transparency and clear accountability, so the public can develop trust in these companies. You will also need professional institutional investors who can assess the companies and know which company is most promising to invest in.
The government has signalled its intention to expand the equitisation process of state-owned enterprises. If this is done well, said companies will have more resources to grow and people will have a safe place to put their investments without draining the government’s resources. It would be a win-win situation.
Good supervision of the banking sector is very important, too. Our team here is working with the Vietnamese government to address issues in a systematic way and to share lessons from around the world. The most important thing to know about these steps is their urgency. You cannot wait too long to do these things.
How will this help Vietnam in the long term?
Freeing up important resources for development can help the government focus on another important aspect for long-term growth, which is human capital. Vietnam already has very good primary and secondary education systems. Now, you might want to see how you can reform higher education to make universities more efficient. You will need more investment in universities to make sure that you train a good labour force for the future. If the private sector wants to grow, if you want innovation, you will need to make sure that the labour force is highly skilled. This is very important. You can also offer better healthcare in communities, delivering long-term health benefits if resources are available.
Assisting Vietnam in coping with climate change is one of the World Bank’s main priorities in Vietnam. Could you elaborate?
I think Vietnam needs to be aware of the negative effects of climate change. In my meeting with the prime minister, he asked for our help in addressing the impacts of climate change impacts, especially in the Mekong Delta. At the corporate level, we have promised to reserve 28 per cent of our portfolio for climate change-related projects, and we aim to increase this to 30 per cent. About $2.3 billion in International Development Association resources have been allocated to Vietnam, and one-third of this can be made available to address the issue of climate change.