Vũ Viết Ngoạn, head of the Prime Minister’s Economic Advisory Team, talks to Thời báo kinh tế Việt Nam (Việt Nam Economic Times) about how the country can maintain its strong growth in 2019 and the next few years with internal strengths.

The Government’s report said 2018 saw “comprehensive and positive achievements across all socio-economic aspects”. In your opinion, what was the highlight?

In 2018, the Vietnamese economy witnessed growth in all three sectors – agriculture, industry and service. Not only have we attained high GDP growth, we have also consolidated macroeconomic fundamentals and increased the quality of growth, with the increase in productivity and higher ratio of manufacturing industries in the GDP compared to 2017.

For me, there are two points that outshine others.

First is the impressive development of the private sector.  In the 2011-15 period, the growth of the non-State economic sector’s investment reached merely 6.3 per cent a year. Since 2015, this sector has pushed up investment continually, with its growth in 2018 reaching upwards of 18 per cent – much higher than that of the State and foreign direct investment (FDI) sectors – bringing the proportion of the non-State sector to 43 per cent of the economy, eclipsing the once-dominant State sector that currently hovers around 33 per cent. If this strong growth is sustained, within five years it would make up more than half of the economy’s total capital. The trajectory, position and impetus of the private sector has manifested clearly in the economy.

Second, the resilience of the economy has been improved a great deal. Against 2018’s global stock market losses and multiple countries seeing their currencies dropping off, the Vietnamese đồng remains stable and foreign investment is still increasing, despite numerous external challenges.

So, you chose one achievement that showcases the impressive growth and another that demonstrates macroeconomic stability. Do you think Việt Nam could maintain the same growth in 2019, when the global economy is expected to slow down?

Many economists and economic institutions have predicted that the global economy’s growth in 2019 will be lower than in 2018, but they have also pointed out discrepancies in the impact amongst different geological regions and between developed and emerging economies.

Given how open the Vietnamese economy is, we would be hard pressed to stave off the negative influences altogether.

With that being said, Việt Nam has numerous advantages, including a population of 94 million with strong consumption and investment demands.

Geopolitical and geo-economic developments, plus major shifts in the policies of large economies around the world, are reshaping the flow of trade and investment, creating new opportunities for countries in the Southeast Asian region – including Việt Nam – to attract more investment and expand their export markets.

What decide the growth for 2019 will be internal strengths, not external factors; therefore, we are likely to uphold strong growth in 2019 and for the next few years.

The Vietnamese economy still has a lot of untapped potential to grow, if only we can harness them and take advantage of new emerging opportunities.

Could you elaborate on these potential areas for growth?

The potential I mentioned lies within the people and the society or, to be frank, the private sector. The private sector still has a vast reserve of labour and capital – the two most basic factors in production. This is not a novel idea and I think all of us would agree with it.

However, how to project the contribution of the private sector in the short term, namely the 2019-20 period, and determine how to convert these potentials into drivers of growth is a problem to which there is not be a widely agreed-upon solution.

As I have mentioned, the potential of the private sector remains substantial and could be unlocked by appropriate mechanisms and policies.

Would high growth lead to high inflation, especially when economic experts and international financial organisations have said Việt Nam’s growth has surpassed its potential?

First of all, macroeconomic stability is a goal every country, not just Việt Nam, is striving for. To better clarify the relationship between growth and inflation, there are two points I would like to make.

First, if we try to prop up growth by expanding fiscal policies, increasing public spending and loosening monetary policies, inflation would be difficult to keep under control. But if we know how to tap into the resources of the society, the story would be different. The last two years are a case in point; when fiscal and monetary policies were not relaxed at all, credit growth in 2018 was two percentage points lower than in 2017. The capital that made up for this decline in credit growth was from society. 2017 saw the total charter capital increase by 45 per cent compared to the prior year and 2018 continues to benefit from this source. According to the National Financial Supervisory Commission, the contribution rate of capital to the economy from the capital market – primarily from Vietnamese people as well as domestic and foreign enterprises – went up from 10 per cent in 2017 to 14 per cent in 2018.

Second, would high growth upset the supply and demand for factors of production, driving up labour costs and materials in the short term and eventually causing prices to increase? In theory, that much is to be expected, but based on the real conditions here in Việt Nam, we would not have to worry too much about this. Việt Nam has been deeply integrated into the global goods market, so there is no worrying about production inputs. The country also enjoys the availability of an ample labour force – except for highly skilled workers. In addition, the Government is encouraging the development of new industries, new products and services based on innovation. The expansion of new industries and reduced reliance on traditional industries would help alleviate the ‘bottleneck effect’ on the economy.

With this assessment, what will be the running theme of the team’s policy proposals this year?

The team expects the Vietnamese economy to maintain a strong growth trajectory, but we will continue to help craft policies that release the potential of the private sector, remove existing bottlenecks and take advantage of new opportunities, without relaxing macroeconomic policies.

What are the messages you would like to convey to the business community?

As I said, I believe in the cleverness of the market; the business community will know what to do and how to do it when they sense what might be in store. I want to reassure them that the prospects of the Vietnamese economy remains bright this year. I hope enterprises will maintain an unwavering confidence in new chances and new opportunities to take action. This is one critical factor contributing to growth. — VNS