World Bank: 2021 growth may reach 4.8% but with risks

At an online press conference held by the World Bank to release its “Digital Vietnam - The road to the future” report on August 24, World Bank Senior Economist Ms. Dorsati Madani said that Vietnam’s economy recorded growth in the first half of 2021 but is facing serious risks caused by Covid-19.

The domestic economy has been particularly affected by strict social distancing. Conversely, the country’s competitors have superior vaccination rates and are restarting production and may recapture some of the market share lost to Vietnam last year. The pandemic has also had a strong impact on the labor market and households, not only reducing incomes but also creating deeper inequality between groups.

Ms. Madani also said that financial sector risks are increasing due to the crisis. While new or restructured bank credit provides welcome support to affected businesses, it also contributes to the transfer of risk from the real economy to the financial sector. She emphasized that agencies implementing monetary policy in Vietnam need to be cautious about the increasing risk of bad debts and adopt a plan to deal with them as well as develop a clear mechanism to address weak and troubled banks.

Regarding fiscal risks, she said that although the government still has sufficient fiscal space, international experience shows that the fiscal situation could deteriorate relatively quickly if the pandemic remains serious. The government may have to expand its fiscal support package, which has been modest so far, while budget revenues may be negatively affected by the weaker-than-expected economic recovery.

Despite the risks, the World Bank said that Vietnam’s economy could grow by about 4.8 per cent this year and gradually move towards pre-pandemic levels of 6.5-7 per cent from 2022 onwards. Its analysts believe that technology will play an important role in the future of the economy, thus suggesting the country improve technology, enhance creative innovation, and promote security and access to information.