Vietnam needs a period of miraculous growth to become a developed country

High income country dream

On January 9, the National Assembly voted to pass the Resolution on the National Master Plan for the 2021-2030 period. The goal is to strive for an average GDP growth rate of about 7% per year in the 2021-2030 period by 2030. By 2030, GDP per capita at current prices will reach about 7,500 USD.

In the 2031-2050 period, the average GDP growth rate is expected to be around 6.5-7.5% per year. By 2050, GDP per capita at current prices will reach around 27,000-32,000 USD - the high-income threshold.

These figures are very ambitious goals, requiring extraordinary efforts, especially when comparing Vietnam's GDP per capita in 2030 of 7,500 USD with other countries in the region.

In fact, this is not a high income level compared to the countries surrounding Vietnam. If the target set by the National Assembly is achieved, by 2030, Vietnam's GDP per capita will only be equivalent to Malaysia's in 2007.

Vietnam has achieved many outstanding economic achievements. Photo: Hoang Ha

In 2022, Thailand's GDP per capita will reach about 7,300 USD, while Vietnam's will be 4,110 USD. Thus, by 2030, Vietnam's GDP per capita will be equivalent to Thailand's current GDP.

The good news is that the gap between Vietnam and some countries in the region has significantly narrowed. In 2007, according to the International Monetary Fund (IMF), Vietnam's GDP per capita was only nearly 900 USD, while Malaysia's was 7,400 USD (nearly 8 times). Indonesia and the Philippines were nearly 2,000 USD (more than 2 times that of Vietnam), Thailand was about 4,000 USD, more than 4 times that of Vietnam.

Meanwhile, comparing the figures for 2022, Vietnam is only 3 times behind Malaysia, less than 2 times behind Thailand, has surpassed the Philippines, and is equal to Indonesia instead of being more than 2 times behind these two countries like in 2007.

That shows that if we try hard and have many effective solutions, Vietnam has the opportunity to narrow the gap with other countries. But to break through and reach a higher ranking, Vietnam needs many breakthrough solutions.

One thing to note is that GDP per capita only achieves a high growth rate when GDP per capita is below 7,000 USD. The higher the GDP per capita, the slower the growth rate will be. When GDP reaches an average of 10,000 USD, it is almost rare to achieve a growth rate of 6.5-7%/year. Looking at the growth rates of Malaysia and Thailand as mentioned above is proof that the growth rate of GDP per capita slows down significantly when reaching the threshold of 7,000 USD or 10,000 USD.

For many developed countries such as the US, Japan or EU countries, positive growth is a huge effort.

Therefore, the target for the period 2031-2050, Vietnam can achieve an average GDP growth rate of about 6.5-7.5%/year is very difficult.

Maintaining a high growth rate for a long time is something Vietnam has not been able to do.

Big challenge

Meanwhile, Vietnam is also facing signs of slowing growth, except for 2022, which will reach 8.02% on the basis of very low growth in 2021 due to Covid-19.

Specifically, many studies have shown that: In the first strategy (1991-2000), the average GDP growth rate was 7.56%, with the highest year being 9.5% (1995). In the second strategy (2001-2010), the average growth rate was 7.26%, with the highest year being 8.7% (2005). In the third strategy (2011-2020), the average growth rate was 5.95% (GDP not yet re-evaluated), with the highest year being 7.08% (2018).

Large economies such as Japan, South Korea, Taiwan, or more recently, the Chinese economy, have all achieved and maintained high growth rates for more than three decades, even when their economies have reached a large scale, far exceeding the current scale of Vietnam's economy.

Therefore, the Ministry of Planning and Investment has repeatedly expressed concern: "The risk that Vietnam will fall further behind in productivity compared to other countries in the region, and even the risk of falling into the middle-income trap, is quite high."

Research by Dr. Dang Kim Son - former Director of the Institute of Policy and Strategy for Agricultural and Rural Development, pointed out that: Asian economies have overcome the middle-income trap and must increase GDP growth rate to 8.2-10.5%/year for 5-9 consecutive years.

Vietnam’s race is very difficult because its growth rate is much lower. The peak of economic reform was only 19 years of growth above 7%/year (1989-2007), then after reaching the lower middle income level in 2010, the growth gradually slowed down. Obviously, the old growth model that has lasted until now does not allow Vietnam’s economy to make the necessary breakthrough to overcome the middle income trap.

Vietnam's GDP per capita is gradually narrowing compared to other countries in the region, but the gap is still large.

This study also shows a huge challenge for Vietnam. With an average GDP growth rate of 7% or more, Vietnam can catch up with average countries. To catch up with China, Vietnam must grow at 10.48%, and to be on par with South Korea, it must reach a growth rate of 11.08% in the next 30 years.

Almost such miracles have been successfully achieved by industrialized countries. South Korea's economy grew at 9.3% per year for 38 consecutive years (1960-997); China's growth was 9.8% per year for 37 consecutive years (1978-2014), including 15 consecutive years of growth above 10% per year. Israel's growth was above 10% per year for 22 consecutive years (1950-1972).

That raises the issue of Vietnam having to innovate its growth model. Associate Professor, Dr. Tran Dinh Thien - former Director of the Vietnam Economic Institute, has repeatedly recommended: Vietnam needs to build a developmental state in the spirit of serving the market, serving businesses, with modern development governance institutions, in line with integration commitments; adhere to the principle of "internal strength is decisive, external strength is important" in developing the Vietnamese business force and implementing the FDI attraction strategy.