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After releasing a special forecast in which the economic growth target of 6.7 per cent for 2017 is said to be “achievable with drastic efforts,” MPI has officially submitted to the government three scenarios for economic growth in the coming year.
Accordingly, in the low growth scenario, GDP is expected to grow by 6.4 per cent, while in the medium growth scenario, the projected growth rate is 6.5 per cent, and in the high growth scenario, it is predicted to hit 6.81 per cent.
These three scenarios, according to Tran Quoc Phuong, director of MPI's Department for National Economic Issues, were compiled by MPI based on estimates of the country’s economic performance in 2017, forecasts for the world and domestic economy in 2018, the objectives of the socioeconomic development plan for the 2016-2020 period, as well as the directions laid out by the prime minister in the 2018 Socioeconomic Development Plan, with the GDP growth rate estimated at 6.4-6.8 per cent.
Although these three scenarios seem promising, based on the forecasts for 2018 and the following years, the mining industry might continue going downhill, affecting the growth of the whole country.
Meanwhile, it is nearly impossible to immediately transform the current economic model with a direct shift from extensive to intensive growth. Thus, MPI believes that, among the above scenarios, the medium one is possibly the most likely option.
Also, this proposal has been broadly agreed on by many government members. Hence, it is likely that the 2018 Socioeconomic Development Plan will be devised with the GDP target of 6.5 per cent—a reasonable level of growth.
Besides setting new growth targets for the next year, MPI also revealed that the focus of the socioeconomic development plan in 2018 will be “ensuring macroeconomic stability, controlling inflation and creating stable grounds for economic development.”
At the same time, it seeks to gradually move towards the implementation of economic restructuring and adopt three strategic breakthroughs to generate new growth engines, thereby reigniting and securing macroeconomic stability at larger scales and higher levels.
“In addition, it is critical to continue to promote the growth of each economic sector, industry, and business to establish favourable conditions for economic development in the coming years and realise attempts to achieve the growth targets proposed in the five-year Socioeconomic Development Plan for the 2016-2020 period,” Phuong emphasised.
Difficulties and challenges await
Despite several positive signals reported in 2018, it is undeniable that numerous difficulties and challenges are lying in wait. One of the most visible challenges is the possibility of achieving the 6.7 per cent growth target this year. Failure to meet this target might affect the achievement of economic growth targets in the coming year.
Therefore, at the regular government meeting in August, PM Nguyen Xuan Phuc repeatedly requested all ministries, government bodies, localities, state corporations, and economic groups to continue reviewing the progress of each target with drastic efforts and full awareness of the situation. “Considering industry, agriculture, and the services sector, including tourism, if we miss any of the targets set for these sectors, even for one month, we might fail to reach the annual growth target of 6.7 per cent,” the PM emphasised.
Along with this, according to MPI, the difficulties and challenges of 2018, apart from external factors, are also related to the internal weaknesses of the economy. It starts with the country’s traditional economic model which is mainly based on cheap labour and low technology.
In addition, land and natural resources are gradually depleted, while the efficiency of their use has not been much improved. Moreover, domestic enterprises are still facing limitations in terms of operating scales and management capacity, leading to major competitiveness constraints.
More importantly, new problems may arise as the growth based on oil, gas, and coal exploitation, contributions from Samsung, Formosa, and remittances, etc. have been fully utilised and are hardly capable of generating the acceleration needed to take off.
This, combined with the little manoeuvrability in fiscal and monetary policy and the restricted ability to raise capital for community development investment, will significantly affect economic growth in 2018.
“The growth of the economy relies heavily on the development of the private sector even though the private sector still encounters quite a few challenges. According to statistics, only one third of private enterprises are profitable. If minimum wage rates are set to increase next year, another set of costs will distress the operational efficiency of this sector. As a result, the number of profitable businesses will decrease and that will surely affect our economic growth,” Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM), commented.
Thus, according to Cung, it is necessary to reconsider increasing expenses for enterprises, such as trade union fees, social insurance or unemployment insurance. “The proposal to increase value added tax at the moment is also causing a lot of confusion,” Cung said, suggesting the government to revalue the economic effects triggered by “the steel fists” of the economy.
“We must carefully review the business performance of at least 30 state-owned corporations and economic groups. Next year’s plans for these units should not be delivered as a metric of how many tonnes of oil or coal will be exploited, but at which levels their profits or rates of return could rise to. It means more quality indicators to be completed. By doing so, economic growth will be more achievable,” Cung said.
Regarding this issue, MPI, also vowed in its report to the government that the proposal to increase value added tax in the coming time will be thoroughly researched, taking into account the impacts on tax collection as a source of revenue for the state budget as well as the impacts on domestic consumption, especially among low-income consumers, and the influence on enterprises’ production costs or on labour and employment.
Meanwhile, as directed by PM Phuc, 2017 is supposed to be the year to reduce costs for businesses and, at least in the short term, government agencies should not mention increasing taxes, charges, and fees as they will greatly affect enterprises. However, concerns over rising production costs are seemingly weighing down businesses in 2018.