Capital flows to Vietnam were not as expected

According to Bui Ngoc Son, Institute of World Economics and Politics, the world economy in 2019 witnessed many events, in which, the US-China trade war is considered to have a strong impact on the Vietnamese economy. At the beginning of the year, it was expected that Vietnam would become an attractive destination for foreign direct investment (FDI) flows from China and would benefit from this. However, the reality has showed the opposite.

“The reason behind this is that Vietnam has not yet had strong supporting industries with poor infrastructure, weak logistics and high costs. Meanwhile, countries like Thailand, Indonesia and Malaysia have these advantages and at the same time have many tax policies to attract this FDI inflow. Therefore, FDI capital into Vietnam tended to decrease while it increased rapidly in the aforementioned countries. For example, FDI registered capital in Thailand increased by 69% in the first 9 months of 2019. FDI inflows to Indonesia in the same period also soared by 17.8% (excluding capital into banks, oil and gas)” said Mr. Son.

Along with that, the increase in orders shifted from China was not significant while Vietnam was losing competitiveness, being annexed and taken advantage of trade. The amount of goods imported from China increased sharply. Moreover, clothing and footwear products imported from China are also labeled with Vietnamese brands, showing that Vietnam’s textile industry and many other industries also have to compete with Chinese products right in the domestic market.

On the other hand, in the trade relation with the US, Vietnam is stuck in the conflict between the US and China. China has taken advantage of Vietnam to avoid US import taxes. This situation has happened with wood, iron and steel, aluminum and textiles.

Restructuring State budget revenues and expenditures

There will be better growth prospects in 2020 as major negative changes are less likely to occur.  However, the US-China trade war is still happening and has much impact on the global economy, and Vietnam is strongly affected by this trade conflict.

In the financial sector, the State budget has followed the increasingly sustainable budget balancing roadmap reflected in the gradual restoration of the decline in central budget revenue and the gradual reduction of public debt to the target. However, the planned targets in 2020 are considered to be relatively high and quite challenging in the context of global economy and domestic economy facing many difficulties and great risks.

Therefore, in order to promote a fast and sustainable economic growth to achieve the targets set in 2020, macroeconomic stability, inflation control, and balancing must be continued, creating a foundation for rapid and sustainable development.

“It is necessary to closely monitor the fluctuation of the world economy and the monetary market, to actively manage and adjust the exchange rate flexibly, in accordance with the development of the economy, in order to stabilize and improve the value of Vietnam dongs. It is also necessary to monitor the fluctuations in the real estate market and the stock market to take measures to timely adjust to avoid the occurrence of abnormal fluctuations that adversely affect the economy”, Assoc. Dinh Trong Thinh emphasized.

Besides, Assoc. TS Dinh Trong Thinh also recommended that the administrative procedure reform should be promoted, a synchronized digital transformation in state management activities should be actively implemented, e-government and the “one-door” regime should be encouraged, the investment, production and business environment should be improved, and the formal and informal costs in business registration must be minimized. All of the mentioned are to create a fair and transparent development environment among economic sectors, contributing to improving the competitiveness of enterprises and the economy.

As recommended by many economic experts, in the coming time, the Government also needs to strengthen inspection and supervision of price and market activities, ensuring price stability. It is also advised to actively restructure state budget revenues and expenditures, to minimize budget deficits, to accelerate tax policy reforms, to restructure and enhance the efficiency of public spending, and to actively reduce budget deficits by reducing the ratio of public debt and external debt to GDP.

Alice Hoang Thao – VietnamCredit