Hanoi (VNA) ♈– Vietnam’s economic recovery is likely to accelerate in 2022 with GDP growth expected to rise to 5.5 percent, from 2.6 percent in the last year, the World Bank (WB) said in a report released on January 13.

Positive prospects

Titled “No time to waste: The Challenges and Opportunities of Cleaner Trade for Vietnam”, the WB’s economic update said Vietnam's service sector is expected to recover once consumers and investors regain trust, and the country's manufacturing industry will benefit from stable demand from the US, the EU and China. The agriculture sector is expected to grow at the same rate as the 2020-2021 period, the report says. Budget deficit and public debt are expected to be maintained with a debt-to-GDP ratio at 58.8 percent, it adds. Vietnam's economic recovery will also be aided by a more lax fiscal policy, at least for the first half of 2022. However, the uncertain trajectory of the COVID-19 pandemic continues to pose risks.

Risks still remain

The report says that the emergence of more variants of the pandemic may lead to new social distancing orders, which would impact economic activities. Lower demand from within the country may also affect economic recovery. As Vietnam's commercial partners experience a narrowing fiscal space, their capabilities to support their economy might be impacted if the COVID-19 crisis persists. This may also slow down global recovery and weaken demand for Vietnam's exports, the report says. The report calls for more focused support for businesses and people affected by the COVID-19, to be deployed at a larger scale. It also says social welfare programmes should accurately determine groups to support and deploy themselves more effectively to mitigate the consequences of the crisis. The report argued that greening the trade sector should be a priority. While trade is an important driver of Vietnam’s remarkable economic growth over the past two decades, it is carbon-intensive - accounting for one-third of the country’s total greenhouse gas emissions - and polluting.

While Vietnam has started to decarbonise activities associated with trade, more need to be done to respond to mounting pressures from main destination markets, customers and multinational companies for greener products and services, the report said.

“Trade will be a key component of Vietnam’s climate actions in the years to come,” said Carolyn Turk, World Bank Country Director for Vietnam.

“Promoting greener trade will not only help Vietnam follow through on its pledge to reach net zero-emission in 2050, but will also help it keep its competitive edge in international markets and ensure trade remains a critical income and job generator.”

The report recommended that the Vietnamese Government act on three fronts: facilitate the trade of green goods and services, incentivize green foreign direct investment and develop more resilient and carbon-free industrial zones.

Assuming the COVID-19 pandemic will be brought under control at home and abroad, the forecast envisioned that Vietnam’s services sector will gradually recover as consumer and investor confidence restores, while the manufacturing sector will benefit from steady demand from the US, the European Union, and China. The fiscal deficit and debt are expected to remain sustainable, with the debt-to-GDP ratio projected at 58.8 percent, well below the statutory limit.

The outlook, however, is subject to serious downside risks, particularly the unknown course of the pandemic. Outbreaks of new variants may prompt renewed social distancing measures which will dampen economic activity. Weaker-than-expected domestic demand in Vietnam could weigh on the recovery. In addition, many trading partners are facing dwindling fiscal and monetary space, potentially restricting their ability to further support their economies if the crisis persists, which in turn could slow the global recovery and weaken demand for Vietnamese exports.

However, WB experts said careful policy responses could mitigate these risks.

💃 Fiscal policy measures, including temporary reduction of VAT rates and more spending on health and education, could support aggregate domestic demand. Support for affected businesses and citizens could be more substantial and more narrowly targeted. Social protection programmes could be more carefully targeted and efficiently implemented to address the severe and uneven social consequences of the crisis. Heightened risks in the financial sector should be closely monitored and addressed proactively./.