Economic recovery in parallel with institutional reform
Director of Department for General Economic Issues and Integration Studies (CIEM) Nguyen Anh Duong said the economic growth results of 2020 and Q1 2021 again affirmed that appropriate and flexible adjustments have been made to the Government’s direction and administration, persisting with the dual goals of drastically and effectively combating COVID-19 and focusing on reviving and promoting domestic production. It is the proactive and methodical management associated with updating the pandemic situation and evaluating growth scenarios, thereby retaining policy space to cope with future scenarios and constantly create further space for new economic activities. Reforms in the business environment and supporting businesses have seen continuity with the previous years, receiving high consensus from the community, enterprises and people. On the side of businesses, there has also been adaptation in terms of organising production, using workers and applying new business models and methods.
In this report, CIEM assesses Vietnam’s economic prospects for 2021-2023 based on three scenarios corresponding to management solutions. Specifically, CIEM predicts the average annual GDP growth during the period at 6.35% regarding the scenario with normal solutions at present, 6.69% in the scenario of loosened fiscal and monetary policy, and 6.76% concerning the scenario of loosened fiscal and monetary policies and institutional reform. “Thus, if the Government only loosens the fiscal and monetary policy, economic growth may be higher, but it will be accompanied by greater inflationary pressure. Meanwhile, if breakthroughs are achieved in the quality of institutional reform, leading to improved growth quality in parallel with appropriate monetary and fiscal easing measures, the average annual GDP growth rate could reach 6.76% in the 2021-2023 period, accompanied by significant improvement in productivity. Then, Vietnam’s economy will recover faster and more sustainably, even when the world economy remains with uncertainties,” Duong emphasised.
From these scenarios, CIEM recommends that Vietnam, despite considered one of the countries with successful pandemic control, should develop a long-term plan to avoid the risks of “exhausted” policy space and decreased motivation for economic institutional reform in the future. The economic recovery process should go hand in hand with economic institutional reform. If the economy recovers slowly, economic institutional reform will lack the necessary consensus and motivation, while not creating drastic changes to meet the requirements of the economy. CIEM has also proposed a policy roadmap for the 2021-2023 period, which is to continue effectively containing the disease, removing difficulties for the business community and workers, and reforming economic institutions in 2021. From 2022, economic recovery solutions will be combined with institutional reforms, gradually reducing growth recovery support measures to focus on economic institutional reform in 2023.
Prioritising measures to improve labour productivity
One of the other priority policies suggested by CIEM to be accelerated in the coming time is to issue policies and allocate necessary resources to focus on improving and developing the labour market, thereby increasing labour productivity and promoting the process of economic restructuring. Deputy Director of Department for Sectoral Policy Studies (CIEM) Le Thi Xuan Quynh said that Vietnam’s labour market has seen many positive transitions in recent years. Labour has shifted from agriculture to the industrial and service sectors; from the informal sector to the formal sector; from unstable and precarious jobs (self-employment, unpaid family work) to more stable, sustainable and secure jobs; from simple occupations to those requiring high skills and technology; and from areas with low labour productivity to areas with higher labour productivity.
In addition, workers’ awareness of social insurance and unemployment insurance has improved significantly, with the proportion of workers participating in voluntary social insurance and unemployment insurance having increased remarkably compared to previously. However, the Vietnamese labour market still reveals many shortcomings. The system of legal normative documents and policies does not yet fully cover the subjects in the market. In general, the Vietnamese labour market is still a labour surplus market and sees serious imbalance in labour supply and demand among regions, areas and economic sectors.
Given that fact, it will be very difficult to realise the goal of restructuring the economy gradually from growth based on increasing quantity and production inputs to growth based on increasing productivity and quality of labour, science and technology application, and innovation. In the coming period, the international economic context promises to see many unpredictable changes and fluctuations, together with the strong development of the fourth Industrial Revolution and climate change. Vietnam will need to pay strong attention to perfecting institutions and policies on human resource training and the creation of jobs for workers. To achieve that goal, it is necessary to renovate the resource allocation mechanism in the direction of actively promoting the transition of production resources to industries and fields with greater competitiveness, higher labour productivity and better contributions to the economic development process, including labour resources. In addition, the salary policy for employees should be considered and adjusted in conjunction with the development of intermediary institutions and social security and insurance mechanisms for workers to promote market development towards modernity, efficiency and integration, thus accelerating the modernity-oriented economic restructuring.