According to the World Bank's (WB) update report on Vietnam's economic situation published on the afternoon of August 8, Vietnam's economy achieved a growth rate of 5.2% in the fourth quarter of 2021, 5.1% in the first quarter of 2021 and 7.7% in the second quarter of 2022, as consumers satisfied previously pent-up needs and international tourist arrivals increased. Vietnam's economic recovery has accelerated over the past six months, helped by a resilient manufacturing sector and a strong recovery in service sectors.

However, this positive outlook still depends on increasing risks that threaten the outlook for recovery. Risks include slowing growth or stagnation in key export markets, continued world commodity price shocks, continued disruption to global supply chains, or the emergence of new Covid-19 strains. There are also domestic challenges, including labor shortages, rising inflation risks, and higher risks in the financial sector.

In the context that the domestic recovery process has just begun, the outlook for global demand is weakening, and inflation risks increase, the report recommends that the authorities need to proactively respond.

In the immediate future, regarding fiscal policy, the focus should be on focusing on implementing the policy package to support economic recovery and development, and at the same time expanding the targeted social safety net, in order to help the poor and the vulnerable withstand the impact of fuel price shocks as well as rising inflation. In the financial sector, it is recommended to closely monitor and strengthen reporting and provision for bad debts, and issue a mechanism to deal with insolvency.

If the risk of increased inflation becomes a reality - when core inflation accelerates and the consumer price index exceeds the target of 4% set by the Government - the State Bank of Vietnam should be ready to move to monetary tightening in order to curb inflationary pressure, by raising interest rates and tightening money supply.

To maintain economic growth at the desired rate, Vietnam needs to increase productivity at 2-3% per year, emphasized Ms. Carolyn Turk - World Bank Country Director for Vietnam. International experience shows that productivity gains can only be achieved by investing in the education system, which is an important part of the package of necessary investments and reforms. A competitive workforce that will bring productivity is what Vietnam needs in the long term.

The report argues that reforming the higher education system is the key to improving Vietnam's productivity, and helps fulfill its goal of becoming a upper middle-income country by 2035 - a high-income country by 2045.

The report provides detailed recommendations to improve access to higher education, improve the quality and relevance of teaching, and improve resource efficiency, including recommendations on expanding digital technology adoption, enhancing the role of the private sector, and harmonizing regulatory documents.

Kylie Nguyen