Living in Hanoi for six months, I have seen with my own eyes the country labeled by many as the “economic miracle of the past 25 years.” The successful management of the coronavirus (COVID-19) crisis, well covered by the Financial Times and The Washington Post, has given me an opportunity to see the country at its best. In fact, a bit of luck mixed with very good policy making has extended this success to the economy – so much that Vietnam is now projected to remain one of the world’s fastest growing countries in 2020.
A resilient economy
Since the end of April, the government has eased social distancing with the reopening of schools as well as many shops and restaurants. This gradual return to normality is well captured by the recent trends in Google mobility indicators, which rose by 13% between mid-April and the second week of May. Today, like most Vietnamese, who report being satisfied with how the crisis has been handled, I am starting to feel good again.
This sentiment explains why the economy is expected to rebound in the second part of 2020 according to the World Bank’s and IMF’s latest projections. Bear in mind that the economy was hurt, but not dead.
The GDP was still expanding at a respectable rate of 3.8% in the first quarter of 2020, and the external sector – Vietnam’s main engine of growth – continued to be vibrant. Exports were up by 5% during the first four months of the year, while foreign investors were still knocking on the doors, with over $12 billion of foreign direct investment registered between January and April 2020.
The domestic sector was affected, principally during the three weeks of the most intense lockdown in April, but it demonstrated signs of resilience. A good indicator is that the level of electricity consumption only declined by 4% in April (compared to the same month in the previous year), which is much lower than the 20%–30% downfall reported by China and EU countries during their lockdowns. Of course, some businesses and people have been severely hit – notably in the tourism and passenger transport sectors. Yet, overall,
Some luck with plenty of savoir faire
Now let’s try to understand together why Vietnam has been so resilient. One can pretend that luck has been a factor. Yes, the epicenter of the COVID-19 could have been Shenzhen rather than Wuhan, causing major disruptions in the global value chains of Vietnam’s crucially important electronics sector. Similarly, Vietnam could have been a major producer of cotton or oil, commodities that have seen international prices plummeting in recent weeks. Luckily, the price of the country’s main export commodity, rice, has recorded a 20% increase in world markets since end-February.
But Vietnam has been smart, too. Like in most countries, the authorities here have used a package of monetary and fiscal policies to help the most affected people and businesses.. Here are three concrete illustrative examples.
- Fiscal management: The government was ready to face COVID-19, as it had accumulated significant cash-flow reserves, thanks to its prudent fiscal management before the crisis. In addition, in line with its own standard fiscal rule, the country has set aside 5% of its 2020 budget as contingency funds to be used in case of catastrophe. As a result, the government was able to respond immediately to the crisis both at the central and local levels, without additional domestic and external borrowing. There has been no sense of panic.
- Trade and logistics: The slowdown in global trade, which is projected in the range of 15%–30% by the WTO in 2020, has been a main area of concern for Vietnam. As it’s one of the most open economies in the world, the authorities have reacted quickly to reduce logistical costs facing exporters and gave instructions to cut red tape, reduce fees, and streamline procedures in customs and in main transport hubs.
- Digital response: While Vietnam has been known for its dynamic export sector, its digital development has been lagging. In response to the COVID-19 crisis, the authorities have now embarked on a series of reforms, including the intensive use of digital tools to fight the pandemic. The government is now considering the introduction of digital money through a new e-payment system to reach the two-thirds of the population who still lack access to bank accounts.
This combination of foresight and pragmatism has been applied in the COVID-19 crisis with considerable success. Let’s hope that its experience can help other countries that have been much less well-prepared for the crisis.