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Vietnam’s economic resilience is explained by the behavior of both its domestic economy and its external sector. After three weeks of national lockdown in April, most industrial and service activities rebounded as domestic consumers and investors regained confidence.

Vietnam Did Extraodinary Job of Controlling Covid-19 Pandemic and Developing Economy, Experts Say
Photo Credit: AFP
By all standards, Vietnam has managed the COVID 19 crisis very well. The number of infections and deaths has been minimal, with few community infections since mid-September.
Despite strict social distancing measures and an unprecedented global recession, Vietnam’s economy is expected to grow at 2.8 percent in 2020. Although this performance is about 4.2 percentage points lower than the country’s recent performance, Vietnam will remain in positive growth territory, while the world economy is expected to contract by at least 4 percent. In East Asia, only two other countries—China and Myanmar—are expected to report positive GDP growth this year.
Vietnam’s economic resilience is explained by the behavior of both its domestic economy and its external sector. After three weeks of national lockdown in April, most industrial and service activities rebounded as domestic consumers and investors regained confidence. 
Not only has the private sector reacted positively to the gradual easing of social distancing and mobility measures, but the government has changed the course of its fiscal policy to support the recovery. After three years of fiscal consolidation, the authorities acted decisively and accelerated the disbursement of the public investment program, which increased by about 40 percent between January and September compared to the same period a year ago. 
Concurrently, like most central banks, the accommodative monetary policy and temporary financial relief measures of the State Bank of Vietnam provides breathing space to affected businesses and people.
The external sector—the main driver of economic growth in Vietnam over the past decade—has performed exceptionally well during the COVID-19 crisis. The country is on the verge of reporting not only its highest merchandise trade surplus ever but will also accumulate significant international reserves. 
Such positive developments were somewhat unexpected at the beginning of the COVID-19 crisis, when Vietnam was perceived as highly vulnerable to a global economic downturn and the closure of international borders. The restrictions on foreign visitors have cut foreign exchange earnings from tourism, and the level of remittances is estimated to decline by about 7.8 percent in 2020, but foreign investors have continued to come, and merchandise exports increased by about 4.8 percent in the first 10 months of 2020 compared to the same period in 2019. The strong management of the COVID-19 crisis has been Vietnam’s best promotional tool, encouraging foreign companies to reallocate their production activities to Vietnam from other countries where their factories are still closed, thus contributing to the country’s robust
export performance.
Looking ahead, Vietnam’s prospects appear positive, as the economy is projected to grow by about 6.8 percent in 2021, and thereafter stabilize at around 6.5 percent. This projection assumes that the COVID-19 crisis will be gradually brought under control, notably through the introduction of an effective vaccine.
In this baseline scenario, as economic recovery firms up, monetary and fiscal policies adopted in response to the crisis are expected to be unwound.
Monetary policy is to resume its prudent approach to balancing between supporting economic growth and managing inflation, while closely monitoring the health of the financial sector. While fiscal consolidation will be necessary to maintain the debt level to a sustainable level, the authorities will need to improve their revenue collection performance to finance the expected increase in infrastructure and quality social services that the country will need in the next decade. 
Improving expenditure efficiency, both at the central and local levels and through revised decentralization mechanisms, will further support the overall fiscal objectives. Public-private partnerships should help attract further financing and enhance the quality of investment projects through technology transfers and an improved governance framework.
Yet, the magnitude and duration of the pandemic, as well as its economic implications, are difficult to predict and, for that reason, a low-case scenario is also included. If the world, and possibly Vietnam, suffers from new COVID-19 waves, the economic rebound will be less and convergence toward the historical growth trend and fiscal consolidation will be slower than anticipated.

DIEP NGUYEN