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The excellent management of the pandemic has already enabled the country to build a competitive edge over many of its competitors. For example, the country has strengthened its footprint in the world economy by capturing a larger share of global trade and foreign direct investment (FDI).

Vietnam Can Emerge Stronger After the Pandemic if Maintain Flexible Policies
Photo Credit: Reuters
Amid the COVID-19 uncertainty, Vietnam is exposed to fiscal, financial, and social risks. Since the beginning of the COVID-19 crisis, the government has collected less revenue (down 10.8 percent) but spent more (up by 8.1 percent).
In other words, it has been foregoing an average of around US$1 billion per month during the second and third quarters of 2020. Such a policy response, justified to stimulate the recovery, has so far been financed by the massive cash flow reserves accumulated by the government before the COVID-19 crisis. 
However, if such an accommodative policy were to be sustained over a longer period, the government would need to identify new sources of funding that would require substantial reforms in the areas of public financial management, tax collection, and debt, as well as asset management.
The financial sector, especially commercial banks, is not immune to the COVID-19 crisis. Because such an impact will be mainly indirect, a consequence of deterioration in the real sector, it might take some time to materialize.
The main danger is that an increasing number of borrowers will gradually default on their debt, raising the proportion of problematic loans for banks. Because Vietnam has one of the highest levels of banking credit (relative to GDP) in the world, close attention should be given to this risk.
Furthermore, some banks might have exposure to sectors that have been the most vulnerable to the crisis, including but not only the tourism and the transport sectors. This risk could be mitigated by improving the quality of reporting by the monetary authorities, stabilizing banks’ profits, and encouraging the capitalization of several banks that have not yet fulfilled Basel II prudential requirements.
Social risks could arise from people and businesses that are now in financial distress because of the COVID-19 crisis. On average, the shock has been well absorbed by the domestic economy, and the unemployment rate and number of active businesses are close to precrisis levels. 
But as in every crisis, there have been winners and losers. For example, about one-third of households saw their income decline between July and August, while 60 percent reported no change and 7 percent reported an increase. Among the losers, about 2.5 million people earn nothing or less than half of their usual income. The government should pay immediate attention to these victims, who are generally not covered by existing social programs and are in danger of being left behind.
If these risks are well-managed, Vietnam can emerge stronger than before the COVID-19 crisis. The excellent management of the pandemic has already enabled the country to build a competitive edge over many of its competitors. For example, the country has strengthened its footprint in the world economy by capturing a larger share of global trade and foreign direct investment (FDI).
Its digital development has accelerated, with more than half of local businesses reporting higher use of digital tools and platforms in recent months.
The government also increased the number of e-services integrated into the National Portal by elevenfold between March and November 2020.
These moves toward more integration into the world economy, and digitalization, are fully aligned with the forthcoming national development strategy (2021–30).
Policymakers have also increasingly recognized that Vietnam’s future will require greater attention to the management of the country’s natural resources and to rising climate risks, which are direct threats to the country’ aspiration of becoming a high-income economy. Yet, despite the high-level commitment, measurable progress has remained elusive. Looking ahead, the main challenge will be for Vietnam to implement the reforms, investments, and policies that will help it address its environmental and climate challenges with a greater sense of urgency.

DIEP NGUYEN