VIET NAM

Slowing global demand and high international interest rates hampered Viet Nam’s growth in
2023. A timely switch to an accommodative monetary policy to support growth was among
the key measures taken for the economy to move back on the path to recovery. Sizeable
public investment this year should further restore growth. Inflation is expected to edge up
in tandem with the economic revival. A key policy challenge is enhancing public investment
effectiveness for short-term stimulus and as a foundation for longer-term development.

Economic Performance
Growth decelerated sharply to 5.0% in 2023 from Figure 2.32.1 Supply-Side Contributions to Growth
8.0% in 2022. The slow global recovery, prolonged The economy grew much slower in 2023.
Russian invasion of Ukraine, and recent conflicts in Agriculture
the Middle East reduced global demand, significantly Industy
dampening Viet Nam’s export-led manufacturing—its Services
Taxes less subsidies for products
primary growth driver—slashing its growth by almost Gross domestic product growth, %
half to 3.6%. The sharp decline in manufacturing
Percentage points
reduced industry’s growth to 3.7%, just half the
10
7.5% a year earlier. The troubled real-estate sector 8.0
8 7.4
led construction down to 7.1% from 7.9% in 2022
(Figure 2.32.1). 6 5.0
4 2.9 2.6
Other sectors remained healthy. Agriculture 2
sustained its 3.8% growth as a pickup in commodity
0
prices encouraged farming. A steady increase in 2019 2020 2021 2022 2023
international visitor arrivals—estimated at 12.6 million Source: General Statistics Office.
or 3.4 times more than in 2022—remained nonetheless
below pre-pandemic levels. It still helped services grow
by 6.8% in 2023. investment down to 2.7% in 2023, its lowest level
in 10 years. The downturn led total investment to
Domestic demand recovered, but slower than contract by 6.2%, a reversal from the 11.3% increase in
expected. Fiscal measures to support growth such as a 2022. Weak external demand lowered trade.
2% reduction in value-added tax and public investment
aided consumption. Retail sales grew by 9.6% compared Average inflation reached 3.3% in 2023, slightly
with 2022, though far less than the 20% increase in higher than 3.2% in 2022 (Figure 2.32.2). A broad-
2022. Despite stable disbursement of foreign direct based global economic slowdown tamed global oil
investment (FDI), rising by 3.5%, turbulence in the prices and helped ease inflationary pressure. Price
corporate bond market and a real-estate downturn controls for electricity, healthcare, and education also
lowered private investor confidence, driving private restrained inflation.

This chapter was written by Nguyen Ba Hung, Nguyen Luu Thuc Phuong, and Chu Hong Minh of the Viet Nam Resident Mission,
ADB, Ha Noi.
Economic trends and prospects in developing Asia: Southeast Asia Viet Nam 231

Figure 2.32.2 Monthly Inflation Financial fraud rattled capital markets in 2022
Inflationary pressure eased. and 2023. Timely regulatory changes including bond
% year on year
restructuring, among other measures, helped stabilize
6
market sentiment in early 2023. New issuance value
Average year to date rose by 19.6% year on year, largely due to low base
4 effects. However, delayed payments of principal and/or
2 interest on restructured corporate bonds outstanding—
estimated an equivalent of $40 billion—will continue to
0
fuel market pressure in 2024.
–2
Jan Jul Jan Jul Jan Jul Mar The trade surplus was a record $28 billion in 2023
2021 2022 2023 2024
Source: General Statistics Office.
as imports declined faster than exports. Exports
receipts totaled $355.5 billion (83% of GDP), down
4.4% from 2022, while imports fell to $327.5 billion
The State Bank of Viet Nam (SBV), the central (76% of GDP), an 8.9% drop. Shipments of mobile
bank, shifted to an accommodative monetary phones, computers, and electronic products,
stance amid the growth deceleration. Decreasing accounting for 30% of total exports, decreased by 3.6%.
growth in the last quarter of 2022 prompted the Meanwhile, machinery and equipment, accounting for
SBV to slash its key policy interest rate four times in 12% of total exports, fell by 5%.
2023, cutting rates by 1.5%. The cuts widened the gap
between the US Federal Funds rate and SBV policy The sizable trade balance supported the current
rates, increasing pressure on the dong, causing a account surplus estimated at 5.9% of GDP from
decline of indirect portfolio investment and heightening a modest surplus of 0.3% a year ago. Higher
the risk of imported inflation. The dong depreciated remittances also supported the current account
1.2% against the US dollar in 2023. balance. The wide differentials with global interest rates
led to a capital and financial account deficit estimated
Following policy rate cuts, commercial banks at 0.7% of GDP in 2023. However, the substantial
lowered deposit rates on average by 3%–5% to boost current account surplus turned the overall balance of
credit. The SBV also encourages banks to use other payments to an estimated surplus of 1.3% of GDP in
credit schemes to spur growth. Bank credit growth 2023 from a deficit of 5.6% of GDP in 2022 (Figure
reached an estimated 13.5%, while total liquidity 2.32.4). By the end of 2023, foreign reserves had
growth shot up to 10.3% by the end of 2023 from 6.2% improved to 3.3 months of imports from 2.8 months at
a year earlier (Figure 2.32.3). the end of 2022.

Figure 2.32.3 Credit and Money Supply Growth Figure 2.32.4 Balance of Payments
Credit growth slowed but total liquidity improved in 2023. A current account surplus lifted the overall balance.
Credit Current account
Money supply Financial and capital account
Errors and omissions
% year on year Overall balance
20
% of GDP
15 12
7.0
10 6 4.8
3.9
1.3
5 0

0 –6
Jan Jul Jan Jul Jan Jul Dec –5.6
2021 2022 2023 –12
Sources: State Bank of Viet Nam; Asian Development Bank estimates. 2019 2020 2021 2022 2023
GDP = gross domestic product.
Sources: State Bank of Viet Nam; Asian Development Bank estimates.
232Asian Development Outlook April 2024

Fiscal policy in 2023 remained expansionary. A Figure 2.32.5 Industry and Manufacturing Growth
22.4% reduction in export and import earnings in Manufacturing and industrial production improved in the first quarter
2023 reduced revenue by 5.4%, while increased capital of 2024.
expenditure pushed up total spending by 10.9%. Industry
However, well-controlled public debt repayments and Manufacturing

contained current expenditures helped maintain a % year on year

relatively balanced budget with a mild estimated deficit 10

of 0.14% of GDP. 8
6
4

Economic Prospects 2
0

The economy is expected to grow 6.0% in 2024 –2

Q1 Q2 Q3 Q4 Q1
and 6.2% in 2025 (Table 2.32.1). A relatively broad- 2023 2024
based growth restoration in export-led manufacturing, Source: General Statistics Office.
services, and stable agriculture would make the
gradual recovery possible. Positive inflows of FDI and
remittances, a sustained trade surplus, continued fiscal Low domestic interest rates, fiscal policy measures,
support, and a substantial public investment program and wage increases will spur consumption-led
would also stimulate growth. For the first quarter of services in 2024. Retail sales in the first quarter of
2024, the economic growth accelerated to 5.7% from 2024 were 8.2% higher than the same period in 2022
3.4% a year ago. However, downside risks from global (Figure 2.32.6). Revived economic activity, though
geopolitical uncertainties and exposed domestic slow, will elevate logistic services, while liberalized visa
structural fragilities could impede growth. policy will likely boost tourism. Overall, services are
forecast to expand by 7.7% in 2024. Global demand for
agricultural commodities and free trade agreements will
Table 2.32.1 Selected Economic Indicators, % continue supporting agricultural exports.

Growth will improve in 2024 and 2025, with inflation rising this year.
Figure 2.32.6 Retail Sales
2022 2023 2024 2025
Retail sales in the first months of 2024 increased over last year.
GDP growth 8.0 5.0 6.0 6.2
Retail sales Cumulative growth
Inflation 3.2 3.3 4.0 4.0
Dong trillion % change year on year
GDP = gross domestic product.
600 30
Sources: General Statistics Office; Asian Development Bank
estimates.
300 15

The gradual return of new orders and consumption 0 0

revived manufacturing growth at the end of 2023,
with the trend gaining further momentum in –300 –15
2024. Manufacturing expanded at 6.8% in the first Jan Jul Jan Jul Jan Jul Mar
2021 2022 2023 2024
quarter of 2024, compared with the contraction of
Source: General Statistics Office.
0.5% a year ago, contributing to industrial growth
of 6.3% (Figure 2.32.5). Lower interest rates, fiscal
measures supporting growth, and the recently Monetary policy will pursue the dual objectives
improved land-related legal framework should support of price stability and growth, even as policy space
construction. However, slow global growth and still is limited. The expected slowdown in the global
high global policy rates could weigh down export-led economy in 2024 could tame global oil prices and
manufacturing growth. consequently ease inflationary pressure. Average
inflation for the first quarter of 2024 slowed to 3.8%
Economic trends and prospects in developing Asia: Southeast Asia Viet Nam 233

from the high level of 4.2% in the same period last year. and disbursed FDI went up 7.1% in the first quarter
Inflation is forecast to rise slightly to 4.0% in 2024 and of 2024 compared with the same period last year
2025. Though the inflation forecast remains below (Figure 2.32.7). Accelerated public investment
the 4%–4.5% target, near-term pressure may persist and improved business conditions can spur private
from geopolitical tensions and disruptions of global investment in 2024.
supply chains.
Softening global demand will limit the trade
The Fed expects to cut interest rates in 2024 and recovery in 2024. Global growth is expected to
external inflation will continue to cool, though bounce back slower than expected, which could also
more gradually than expected. The Fed rate cuts slow Viet Nam’s export recovery. Exports in the first
in 2024 would help relieve the pressure on the dong. quarter of 2024 grew by 17%, while imports increased
However, the heightened risk of nonperforming by 13.9% (Figure 2.32.8). Imports and exports will grow
loans—which peaked at an estimated 4.6% of loans modestly by 4%–4.5% this year and next as external
outstanding at the end of 2023 compared with 2.0% demand gradually recovers. Renewed manufacturing
in 2022—would reduce the prospect for additional activity would push up imports of production inputs.
monetary easing. The newly amended Law on Credit As a result, the current account surplus is projected to
institutions effective 1 July 2024 will also better be 1.5% of GDP in 2024.
monitor lending activities.

Figure 2.32.8 Trade Indicators

Given limited monetary policy space, fiscal and
investment spending will be key for growth in Exports are showing some signs of recovery.
2024. A comfortable fiscal position with a mild Cumulative exports
Trade balance Cumulative imports
budget deficit and a low public debt-to-GDP ratio
provides sufficient fiscal space to support growth. $ billion % change year on year
The ongoing value-added tax reduction program was 6 60
extended until June 2024 and could be extended
further to the end of 2024. A sizable amount of public 3 30
investment, equivalent to $27.3 billion, has been
programmed for disbursement this year. Together 0 0
with disbursements from 2023, this additional public
investment would significantly stimulate growth. A –3 –30
Jan Jul Jan Jul Mar
gradual revival of export-led manufacturing would
2022 2023 2024
support FDI. Registered FDI increased by 13.4%, Source: General Statistics Office.

Figure 2.32.7 Foreign Direct Investment The economy will likely grow slightly faster in 2024
Foreign direct investment remained strong in the first months of 2024.
than in 2023, although risks are tilted toward the
downside. Softened global demand caused by slow
New commitment
Disbursement economic recovery and continued geopolitical tensions
would slow the full recovery of Viet Nam’s export-led
$ billion
growth. Delayed normalization of interest rates in the
40
US and other advanced economies would also impede
30 the monetary policy shift to one supporting growth.
As a result, fiscal measures for supporting growth and
20
public investment would ultimately become the key
10 6.2 4.6 policy options to reignite growth. More importantly,
the growth slowdown has heightened the risks of
0
2018 2019 2020 2021 2022 2023 Q1 2024 structural fragilities, especially excessive reliance on
Q = quarter. FDI-led export manufacturing, weak linkages between
Source: General Statistics Office. manufacturing and the rest of the economy, the
234Asian Development Outlook April 2024

incipient capital markets, overreliance on bank credit, with project approval procedures. Better readiness to
and regulatory barriers to business. Policy measures expedite project implementation will help minimize
in 2024 would therefore need to combine short-term cost overruns.
growth support measures with long-term structural
remedies to promote sustainable growth. Second, projects sometimes require design or
budget changes even after approval and budget
allocation. This can cause long interruptions before
Policy Challenge—Accelerating project work can start. One major obstacle to timely
Disbursement of Public and quality project preparation is the complexity
of regulations, particularly land use planning, land
Investment acquisition, and site clearance. This rigidity is a crucial
challenge in situations of market fluctuations. Soaring
Public investment is a critical engine of economic prices due to shortages of materials and inputs for
growth, but plans must be implemented for this production, driven by regulatory constraints, lead to
engine to provide power. According to the Ministry higher costs, forcing contract renegotiations or the
of Planning and Investment, an increase of 1% in public need for additional funding and approvals. As part of
investment disbursement corresponds to a 0.058% improving project cycle procedures, regulations should
increase in GDP growth. In addition, every 1 dong be revised to allow for principle-based flexibility and
of disbursed public investment capital stimulates fit-for-purpose adjustments. This will help facilitate
1.61 dong of investment capital from the non-state efficient project approval and management that can be
sector. However, the execution rate compared to adapted to various circumstances without repeating the
planned investment has been consistently low, hovering approval process. It is also important to strengthen the
around 80% for the year (Figure 2.32.9). While the capacity of provincial and local public investment staff
government has tried to address this problem, progress to improve the quality of project preparation.
has been insufficient.
Third, weak coordination between public
investment and budget processes has resulted in
Figure 2.32.9 Public Investment
slow and insufficient budget allocation. In recent
The disbursement rate has shown little change over 2022–2024. years, it has been reported that central agencies
2022 received higher allocations than what they can initiate,
2023
while provinces received too little to meet their needs.
2024
The pressing challenge of the mismatch between
% allocated budgets and investment mandates often leads
100 to inefficiencies and delays in project implementation—
80 funds may not be optimally directed toward identified
60 priority areas, resulting in suboptimal resource
40
utilization. This limits project progress and capital
utilization efficiency.
20

0
The government has adopted measures to enhance
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sources: General Statistics Office; Asian Development Bank estimates.
transparency, efficiency, and accountability
in budget allocation and disbursement. This
promotes better coordination between central and
First, projects approved with allocated budgets local authorities, prioritizing projects based on impact
sometimes are not ready to move forward, causing and readiness, and implementing rigorous monitoring
extensive delays. A systematic approach to improve mechanisms to ensure funds are utilized effectively and
project readiness can significantly enhance effective efficiently. However, their effectiveness seems to be
implementation. Many projects require preparatory limited. Disparities among the execution capabilities
groundwork, such as feasibility studies, land clearance at different government levels highlight the need to
arrangements, and preparatory procurement in parallel strengthen the allocation process and build the capacity
Economic trends and prospects in developing Asia: Southeast Asia Viet Nam 235

of local governments. The ongoing decentralization of and driving economic development. The government
public investment mandates and fiscal responsibilities has implemented various policy measures to expedite
has exposed weaknesses in addressing inter-provincial disbursement of public investment and enhance
or regional challenges. The budget processes could be effective execution. These measures include a series of
adjusted to allow for flexibility, which would be more resolutions and directives focusing on different aspects
efficient at any level (central or provincial) to contribute of public investment disbursement. However, to sustain
resources to a regionally coordinated project. progress, more systematic measures are required
to improve the legal and regulatory processes for
In 2024, public investment will continue to play successful implementation. By proactively addressing
a vital role in supporting the economy. Following these obstacles in an integrated manner throughout the
budget approval by the National Assembly, the project cycle, Viet Nam can unlock the full potential
Prime Minister approved the capital allocation plan of its public investment initiatives, driving sustainable
of D688.5 trillion to continue building infrastructure economic growth and development.