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Three major challenges to Vietnam’s economy in 2023

By Huynh The Du

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The slowdown or possibly recession of the global economy; risks and uncertainties in the financial system that may culminate in a crisis; and foot-dragging disbursement of public investment are three major challenges to Vietnam’s economy in 2023.

Global economy facing recession

In the updated World Economic Outlook report in October 2022, the International Monetary Fund estimated the global economic growth this year at 3.2%, and 2.7% in 2023. Economic difficulties or even the possibility of global economic recession in 2023 are the common concern that takes center stage in current discussions around the world.

Given the prolonged impact of the Covid-19 pandemic and the war in Ukraine, an increasing number of economists predict the global economy is headed for a recession. In an interview aired on CBS stateside in early December, US Secretary of the Treasury Janet Yellen said she would do her utmost to keep the US economy from a recession (of course, the global economy as well)

For an economy with high exposure like Vietnam’s, impacts from the global economy are very strong. In reality, developments since the second half of the third quarter have turned unfavorable, with enterprises decrying a sharp fall in export orders. Some entrepreneurs in the apparel and footwear industries have told me something like, “the situation has never been this gloomy over the past three decades.” Massive layoffs and business shutdowns have become widespread, and under the current situation, it will be difficult for Vietnamese enterprises to secure new orders.

Uncertainties in the financial-banking industry

Vietnam’s financial-banking industry is facing a huge risk, with the current situation resembling that in previous crises. Many enterprises and individuals had access to vast financial sources and invested in non-yielding assets.

To run business, enterprises need capital under the forms of (1) owner’s equities, (2) bank loans, (3) proceeds from bond issue (debt), and (4) sums payable to partners. In an economy, the total capital demand for economic activities always rise, and as such, when a debt is repaid in due time, there must be another sum in compensation.

However, under the current situation, problems with the corporate bond segment have made it impossible for enterprises to tap this capital channel. Normally, when the debt via a bond issue reaches maturity, the enterprise will issue new bonds in replacement. Now enterprises cannot issue new bonds for refinancing, while mobilization via share issues also proves difficult, and borrowings from partners cannot be increased. It is possible that loans under the disguise of sums collectible will not be extended, and as such, credits from banks are the final lifeline.

The current liquidity crunch can partly be attributed to the fact that a large volume of capital has been used on non-yielding assets that do not create cashflow to pay principal and interest sums (acquisition of assets that may be an act of speculation), which is further aggravated as interest rates surge. The right solution should be to channel capital to economic activities that can give rise to cashflow, and temporarily put on hold investment/speculation activities that do not create revenue. However, many enterprises choose the opposite way, arguing that postponing revenue-generating activities will not lead to grave consequences while failing to arrange capital for investment in assets can possibly result in crippling effects. Therefore, naturally, many enterprises tend to pour capital into investment activities that should not be prioritized.

Given the current developments, it is possible that risks will accumulate and then burst out. Without suitable remedies, many enterprises will become insolvent, posing high liquidity risks to banks and other financial institutions.

If Vietnam can survive the hardship in a positive way, the financial system will still see bad debt rising substantially. The challenge now is how to deal with corporate bonds issued under private placements via banks. In fact, many bondholders do not have a clear-cut understanding to tell corporate bonds from savings or certificates of deposit. The risk is that the public may vent their anger which can result in grave consequences.

Difficulties in disbursing State money

When the financial system faces problems and the economy is headed for a recession, stimulus packages for investment and consumption using the State budget can be an efficient vehicle. However, this is also a major challenge now.

Data from the Ministry of Finance shows that the disbursement of public investment by the end of November had reached only 52.43% of the year’s target. Only 16 central bodies and 29 provinces/cities had disbursed more than 60% of the budgetary allocations, while 27 other central agencies and 18 localities had disbursed less than 50% of public funds. As one of the localities with the biggest allocation, HCMC fared poorly, with the disbursement rate at merely 25%.

State-funded investment projects often have to undergo multiple procedures. If processes of procedures at various competent agencies are to be fully adhered to, it will normally take too long to start such projects, which in many cases cannot be executed. Therefore, flexibility and making use of the grey zone are necessary to expedite public investment projects and create subsequent economic activities.

However, the current situation proves difficult for officials to cut corners, largely due to the collateral damage stemming from the fight against corruption. Needless to say, the fight against corruption must be proceeded. However, many officials and civil servants fret about unintentional wrongdoings and dare not take the initiative to execute State-funded projects in a flexible manner. This mindset is well manifested in a remark by National Assembly Deputy Nguyen Huu Thong of Binh Thuan Province, who said, “Officials rather stand before the disciplinary council (for inaction) than before the court.”


The year 2023 will be very challenging for Vietnam. Minimizing damages to the economy should take center stage in policymaking in the coming time. The State, enterprises, and other stakeholders are advised to consider the following issues:

It is the top priority for enterprises to maintain production orders and regular customers. This is by no means easy but more viable than looking for new customers or expanding business to new spheres. In the context of high risks, enterprises should seek to maintain liquidity and solvency. Therefore, risk control and liquidity management must be the top priority for enterprises. Taking a defensive stance and exercising discretion should be the suitable strategy for enterprises in 2023.

For the people, job opportunities in 2023 are not ample, and income can hardly rise. Therefore, prudence towards job hopping and expenditure should be the option for 2023.

For the State, avoiding economic collapse should be the top priority when introducing policies to respond to uncertainties in the financial-banking industry. It is important the country’s top leaders have a clear message to encourage State employees to take the initiative and have creativity in responding to current challenges. The fight against corruption must come with a clear message to relieve officials and civil servants of worries over unintentional wrongdoings.

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