High GDP growth easy, but not sustainability: economist

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A worker checks quality of jeans in a garment factory in Ho Chi Minh City

With gross domestic product estimated at US$322 billion in terms of purchasing power parity (PPP), the Vietnamese economy ranks 42nd in the world and sixth in Southeast Asia behind Indonesia, Thailand, Malaysia, the Philippines, and Singapore.

It is not difficult for the country to go back to 7-8 percent growth, but sustainable growth is another thing altogether, economist Nguyen Minh Phong tells Vietweek.

Vietweek: How do you assess Vietnam's ranking?

 

Nguyen Minh Phong: This shows Vietnam's economic scale and economic development potential in comparison with the rest of the world. Vietnam used to be in the latter half of the world rankings in many areas. In economic scale, we are now in the top half of the rankings. This is very positive. Vietnam could do more to improve its ranking.

The average income is still low and the economy is still weak. Isn't it because of our large population that the GDP is high?

It is not quite right to say that we have high GDP because of our large population. It is mainly due to inflation and exchange rates. For example, according to World Bank calculations, to buy a product which is sold for $1 in Vietnam, a consumer has to spend $3-4 in the US. Thus, Vietnam's GDP based on purchasing power parity will increase three or four times. Vietnam estimates its GDP at some $120 billion, while the bank estimates it at $322 billion under the PPP method.

Nevertheless, per capita GDP is still low due to the large population. To improve it, we need to accelerate economic restructuring, encourage firms' deep international economic integration, increase products' value addition, and develop market information. The private sector will spearhead Vietnam's GDP ranking.

While the world economy seems to be recovering, Vietnam is stuck in low growth mode compared to a few years ago. Why?

It is because it is our intention to keep economic growth low. Vietnam has not focused on increasing the GDP in the past two years. We have prioritized macroeconomic stability and inflation control. So we have reduced public investment. Obviously, low economic growth is also due to lower demand and the debilitation of firms caused by high interest rates, outdated technologies, and many other factors. But we should not think that low GDP growth is bad.

When and how can Vietnam return to 7-8 percent growth rates?

It is not difficult to achieve GDP 7-8 percent growth each year. We can achieve it if we increase public investment. However, this will hurt economic sustainability in terms of the environment, resources and public debts. We cannot forecast when we can achieve the growth because it depends on the implementation of policies, for example when the restructuring is done, how it is implemented, and how corruption is tackled. Economic growth also depends on the private sector's development.

In 2013 the government has unveiled some important policies such as the measures to resolve firms' difficulties and bad debts. If the policies are strictly implemented, they will have a good impact to the economy.

Has the private sector's development been facilitated?

Some big private companies have received government support. At the same time, reform of state-owned enterprises should be speeded up so that the monopolies in some areas can be reduced and the state can shift its support to private firms from state-owned enterprises. However, the policies are being implemented too slowly. The private sector has not yet got full support from the government.

The restructure of banking and public investment is also slow. So what are feasible now?

The restructure is happening slowly because we have not yet been given a clear direction for it. The government should amend the Law on Investment, which would facilitate the development of the private sector. The sector now operates in a passive manner since it depends on new policies issued by the government every year.

According to rankings announced last month by the World Bank, the US remained the largest economy in the world last year with GDP of $15.7 trillion. It was followed by China with around $12.5 trillion, India with $4.8 trillion, and Japan with $4.5 trillion.

Russia overtook Germany to become the fifth largest economy in the world with $3.4 trillion. The figure for Germany is $3.3 trillion.

According to rankings based on nominal GDP by the International Monetary Fund, the US and China top the list with over $15.7 trillion and $8.2 trillion respectively.

They are followed by Japan with $6 trillion, Germany with $3.4 trillion, and France with $2.6 trillion.

Vietnam ranks 51st in terms of nominal GDP with over $141 billion.


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