Institutions have become a major impediment to the nation's aspiration to reach high income by 2045.
Vietnam needs to shift its economic growth model and improve the government's capacity to implement economic policy reforms and public investments, realizing its aspiration of reaching high-income status by 2045, a World Bank Group report says.
|Overview of the report launch.|
The World Bank Group's Systematic Country Diagnostic Update, themed “How Will Vietnam Blossom? Reforming Institutions for Effective Implementation," emphasizes that Vietnam’s traditional growth model faces major challenges from the Covid-19 pandemic, slowing globalization, and the country's increasing vulnerability to external shocks, especially climate risks.
After identifying a series of policy responses and reform priorities, many of which are not new, the report argues that adapting institutions will be the key to success.
"Vietnam's GDP per capita has increased fivefold over the past three decades, while its institutions have not adapted at the same speed since the Doi Moi [Renewal] of the late 1980s," said World Bank Country Director for Vietnam Carolyn Turk at the launch today [May 18].
"A series of institutional reforms can help the country avoid the middle-income trap by increasing its efficiency to respond to new and complex global and domestic challenges," Turk said.
Vietnam has implemented its development priorities unevenly over the past 35 years. It has exceeded expectations in trade openness and social inclusion but lagged considerably in promoting green growth and upgrading national core infrastructure. Such variability is explained by its institutions that have not been always well prepared to address increasingly complex, often cross-cutting development priorities, or to facilitate the transition to a higher-income society.
World Bank's Lead Economist and Program Leader for Vietnam Jacques Morisset added adapting and modernizing existing institutions is a key priority of the socio-economic development strategy adopted by the Party Congress in February 2021.
"Institutions have become a major impediment to the nation's aspiration to reach high income by 2045. Clear evidence of this was emphasized by Prime Minister Chinh in April 2022 who highlighted that only seven out of the 111 (national, sectoral, regional, and provincial) master plans had been approved since the adoption of the Law on Planning in late 2017," Morisset noted.
According to Morriset, the prime minister's call to revamp the country's planning system is in line with the historical experience of South Korea which undertook major institutional reforms when it reached the same stage of economic development as Vietnam today.
Five institutional reforms
The World Bank's report suggested improving Vietnam's implementation performance will require five institutional reforms. Vietnam will need to create a solid institutional anchor that will transform development priorities into concrete actions; streamline administrative processes to increase the effectiveness of government at all levels; use market-based instruments to motivate public and private stakeholders; enforce rules and regulations to enhance motivation, trust, and fairness; and engage in participatory processes to secure greater transparency and accountability.
Thanks to this series of five institutional reforms, Vietnam already transformed itself from one of the most closed economies in the world to one of the most open economies during the 1990s and 2000s.
But the road from lower middle income to high income will be far more challenging. By adopting these institutional reforms more systematically, Vietnam will underpin its vision for economic development, strengthen its capacity to implement national strategies and boost its motivation to produce results in several key areas – green growth, digital transformation, financial inclusion, social protection, and infrastructure upgrading – that will help it achieve its development goals.
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