OECD Economic Surveys:

Viet Nam 2025

June 2025
Volume 2025/16
OECD Economic Surveys:
Viet Nam
2025
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 3

Foreword

This Economic Survey was prepared by Randall S. Jones, Patrick Lenain and Ken Nibayashi, under the
supervision of Jens Arnold. Research assistance was provided by Isabella Medina, administrative and editorial
support by Sophie Jenkins and communication assistance by François Iglesias.
This Survey is published under the responsibility of the Economic Development and Review Committee of the
OECD. The Committee discussed the draft survey on 29 April 2025 with participation of representatives of the
Vietnamese authorities. The draft report was then revised in light of the discussions. The report does not
necessarily reflect the official views of the Vietnamese government. The cut-off date for data used in the
Survey is May 2025.
Support from the government of Japan is gratefully acknowledged.
Information about this and previous Surveys and more information about how Surveys are prepared is
available at https://www.oecd.org/en/topics/economic-surveys.html .

OECD ECONOMIC SURVEYS: VIET NAM 2025 © OECD 2025

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Table of contents
Foreword 3
Basic statistics of Viet Nam, 2023 7
Executive Summary 8
1 Strengthening the macroeconomic foundations for growth 17
1.1. Growth has returned to its pre-pandemic pace 18
1.2. Looking ahead, growth is projected to weaken 20
1.3. Keeping inflation low while improving the monetary policy framework 23
1.4. Addressing financial-sector risks and improving resource allocation 28
1.5. Fiscal challenges include revenue mobilisation and a better fiscal framework 33
References 45

2 Towards more inclusive growth 47

2.1. Viet Nam has reduced poverty and contained inequality, but several groups lag behind 48
2.2. Access to social protection could be further improved 51
2.3. Reducing barriers to formal employment 54
2.4. Access to public services could be improved 59
2.5. Women participate actively in the labour market, but not in senior positions 62
2.6. Achieving an equitable transition to a low-carbon economy 63
References 66

3 Unlocking low-carbon economic growth 69

3.1. Viet Nam is acting to mitigate and adapt to climate change 70
3.2. The energy mix is changing, but not enough to reduce emissions 71
3.3. Climate actions include both price-based and regulatory measures 73
3.4. Decarbonising electricity generation will be key for emission reductions 78
3.5. Reducing emissions from ground transportation 86
3.6. Adaptation investments are needed to reduce environmental damages 88
References 91

4 Harnessing trade and investment flows to boost productivity 95

4.1. Viet Nam aims to achieve high-income status in two decades 96
4.2. The positive impact of FDI and trade on the Vietnamese economy 98
4.3. Productivity growth in Viet Nam has outpaced its peers, but the level remains relatively low 101
4.4. Sustaining inflows of foreign direct investment to Viet Nam 104
4.5. Better leveraging foreign direct investment and international trade to boost productivity 108
4.6. Scaling up domestic firms to boost connections with MNEs 124
4.7. Improving the allocation of resources 127
4.8. Improving economic governance and fighting corruption 130
References 134

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FIGURES
Figure 1. Viet Nam’s growth has outperformed peers 9
Figure 2. Reducing high social security contributions would encourage formal jobs 12
Figure 3. Carbon emission from coal-fired power plants are increasing with electricity demand 13
Figure 4. Viet Nam’s share in world goods trade has risen 14
Figure 1.1. Recent macroeconomic developments 18
Figure 1.2. Exports of goods by destination and products 20
Figure 1.3. Headline and core inflation have fallen 20
Figure 1.4. The number of foreign tourists to Viet Nam is approaching the pre-COVID 19 peak 22
Figure 1.5. Viet Nam is deeply integrated into the international trading system 23
Figure 1.6. Domestic credit to the private sector has risen sharply while the policy interest rate has fallen 24
Figure 1.7. Vietnam’s exchange rate has depreciated while the capital balance has turned negative 25
Figure 1.8. Viet Nam’s external debt is not high while reserves cover three months of imports 26
Figure 1.9. Viet Nam’s private debt has grown rapidly, led by the corporate sector 29
Figure 1.10. The property and construction sector accounts for a third of corporate sector debt 30
Figure 1.11. Viet Nam’s non-performing loans have risen to high levels 31
Figure 1.12. Capital adequacy ratios remain weak, especially in state-owned commercial banks 32
Figure 1.13. Bond issuance has slowed sharply, while real estate companies have high default rates 33
Figure 1.14. Viet Nam has reduced government spending and its budget deficit since the mid-2010s 34
Figure 1.15. The elderly dependency is currently low, but will rise sharply by mid-century 35
Figure 1.16. Government spending in Viet Nam is less than half of the OECD average 35
Figure 1.17. Government debt is below ASEAN peers and has declined since 2015 36
Figure 1.18. The expected rise in public social spending calls for offsetting fiscal measures 37
Figure 1.19. Viet Nam’s tax revenue has remained steady at close to 20% during the past 20 years 38
Figure 1.20.The composition of Viet Nam’s tax revenue differs from the OECD average 39
Figure 2.1. Poverty indicators 48
Figure 2.2.Income inequality has retreated 49
Figure 2.3. The tax system does little to reduce poverty 50
Figure 2.4. Labour force participation rates have remained high, with more youths in education 52
Figure 2.5. Informality is gradually declining 55
Figure 2.6. Informal employment is high in agriculture and retail trade, 2023 56
Figure 2.7. Social security contributions generate sizeable government revenues, 2022 58
Figure 2.8. Informality in Colombia declined in the aftermath of a reduction in payroll taxes 59
Figure 2.9. People with low education and those living in rural areas receive lower incomes 60
Figure 2.10. Full enrolment in primary education, rising enrolment in secondary education 61
Figure 2.11. Viet Nam’s gender pay gap is low 63
Figure 3.1. Viet Nam’s conditional pathway implies a lower carbon footprint 70
Figure 3.2. Electricity generation is the main source of GHG emissions 72
Figure 3.3. Fossil fuels continue to dominate Viet Nam’s energy mix 72
Figure 3.4. CO2 emission intensity is declining in many countries, but not in Viet Nam 73
Figure 3.5. Environmental regulations remain less stringent than in OECD economies 78
Figure 3.6. Coal-fired powerplant generation and emissions keep on rising fast 79
Figure 3.7. Viet Nam’s consumption of coal exceeds its production 80
Figure 3.8. Viet Nam has a considerable renewable energy potential 80
Figure 3.9. Viet Nam has elaborated concrete plans to expand low-carbon electricity generation 82
Figure 4.1. Rapid development was supported by FDI inflows and international trade 96
Figure 4.2. Viet Nam’s ambitious target to achieve “high-income status” by 2045 97
Figure 4.3. The stock of inward FDI has increased at a rapid pace since 2007 98
Figure 4.4. Wages remain relatively low compared to ASEAN peers 99
Figure 4.5. China accounted for the largest share of investment projects in 2023 99
Figure 4.6. Participation in international trade and GVCs boost firms’ productivity and wages 100
Figure 4.7. FDI inflows have helped to boost the share of manufacturing in the economy 101
Figure 4.8. Buoyant investment has accounted for most of output growth since 1985 102
Figure 4.9. Labour productivity growth exceeds peer countries but the level remains relatively low 104
Figure 4.10. The positive demographic dividend recorded during 1995-2020 will disappear 104
Figure 4.11. Viet Nam’s FDI restrictions are significantly above the OECD average but close to other ASEAN countries 106
Figure 4.12. Private investment in transportation infrastructure is relatively low in Viet Nam 108

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6

Figure 4.13. Foreign value-added in exports is high but participation in global value chains is low 109
Figure 4.14. Production workers account for about 85% of employees in the export sector 110
Figure 4.15. Vietnamese students performed well in the 2022 OECD PISA test 111
Figure 4.16. Workers’ average years in school rose rapidly but remain low 112
Figure 4.17. The share of tertiary graduates and enrollment is low 113
Figure 4.18. Government spending on education is relatively low 114
Figure 4.19. Viet Nam is the 10th-largest global exporter of semiconductors 116
Figure 4.20. Increased employer-based training and R&D could promote innovation 117
Figure 4.21. Intellectual property rights protection in Viet Nam is relatively low 120
Figure 4.22. Domestic services’ value added embedded in exports remains low 121
Figure 4.23. Barriers to trade in services remain very high in Viet Nam 122
Figure 4.24. Small firms in Viet Nam are less likely to participate in global value chains and export 125
Figure 4.25. Access to finance is a major concern for Vietnamese firms 126
Figure 4.26. The significant fall in the productivity of capital indicates resource misallocation 127
Figure 4.27. State-owned enterprises play a large role in Viet Nam 129
Figure 4.28. Corruption measures show improvements but also scope for further progress 132

TABLES
Table 1. Growth has held up well 10
Table 1.1. Macroeconomic indicators and projections 21
Table 1.2. Low-probability events that could lead to major changes in the outlook 23
Table 1.3. Indicative fiscal costs (-) and revenues (+) over a horizon of 3-5 years 36
Table 1.4. Illustrative impact of selected structural reforms on GDP per capita 37
Table 1.5. Past Recommendations on macroeconomic policies and the financial sector 43
Table 1.6. Recommendations on macroeconomic policies (Key recommendations in bold) 44
Table 2.1. Past Recommendations on Inclusive Growth 51
Table 2.2. Social insurance, health insurance and unemployment insurance rates 57
Table 2.3. Recommendations on more inclusive growth (Key recommendations in bold) 65
Table 3.1. Past recommendations on green growth 71
Table 3.2. Viet Nam’s environmental protection tax has been reduced 75
Table 3.3. Policy recommendations from this chapter (Key recommendations in bold) 90
Table 4.1. Past recommendations on policies to boost productivity and actions taken 128
Table 4.2. Past recommendations on anti-corruption policies and actions taken 130
Table 4.3. Table of Recommendations (Key recommendations in bold) 133

BOXES
Box 1.1. The transformation of monetary and foreign exchange frameworks in Poland and Czechoslovakia 28
Box 1.2. Improving tax expenditure transparency 41
Box 2.1. Viet Nam’s statistics on labour, income and household welfare 50
Box 2.2. Colombia’s 2012 tax reform and non-wage labour costs 59
Box 3.1. Climate Change Councils 74
Box 3.2. Interplay between mandatory and voluntary carbon markets 77
Box 3.3. UK restrictions on the use of polluting vehicles 88
Box 4.1. Viet Nam and Samsung: developing a synergistic and symbiotic relationship 103
Box 4.2. Viet Nam’s semiconductor industry 116
Box 4.3. Meister schools in Korea 117
Box 4.4. Innovation vouchers in the Netherlands 118
Box 4.5. Viet Nam’s Programme on the Development of Supporting Industry for 2016-25 123
Box 4.6. Supplier development programmes in Chile and Costa Rica 124

OECD ECONOMIC SURVEYS: VIET NAM 2025 © OECD 2025

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Basic statistics of Viet Nam, 2023

Numbers in parentheses refer to the OECD average
LAND, PEOPLE AND ELECTORAL CYCLE
Population (million) 100.3 Population density per km² 303 (39.2)
Under 15 (%) 23.9 (17.0) Life expectancy at birth (years) 74.6 (79.6)
Over 65 (%) 9.2 (18.3) Men 72.1 (77.0)
International migrant stock (% of population, 2020) 0.1 (13.9) Women 77.2 (82.4)
Latest 5-year average growth (%) 0.8 (0.4) Latest general election May 2021
ECONOMY
Gross domestic product (GDP) Key monetary policy rate (%, Nov-2024) 4.50
In current prices (billion USD) 433.7 Value added shares (%)
In current prices (billion VND) 10320311 Agriculture, forestry and fishing 11.86 (2.8)
814.7
Latest 5-year average real growth (%) 5.25 (1.7) Industry including construction 37.58 (27.2)
Per capita (thousand USD PPP)1 15.2 (59.0) Services 42.29 (70.0)
GENERAL GOVERNMENT Per cent of GDP
Expenditure 20.4 (42.9) Gross financial debt (2022) 34.7 (109.6)
Revenue 17.0 (38.1)
EXTERNAL ACCOUNTS
Exchange rate (VND per USD) 23797.4 Main exports (% of total merchandise exports, 2022)
PPP exchange rate (USA = 1) 6 802.46 Machinery and electronics 45.8
In per cent of GDP Textiles and Clothing 12.2
Exports of goods and services 86.5 (31.2) Miscellaneous 7.7
Imports of goods and services 78.3 (31.2) Main imports (% of total merchandise imports, 2022)
Current account balance 5.9 (-0.3) Machinery and electronics 41.4
Metals 9.3
Fuels 7.5
LABOUR MARKET, SKILLS AND INNOVATION
Employment rate (aged 15 and over, %) 67.6 (58.0) Unemployment rate, Labour Force Survey 1.6 (4.8)
(aged 15 and over, %)
Men 73.5 (65.5) Youth (aged 15-24, %) 7.6 (10.6)
Women 61.9 (50.8) Long-term unemployed (1 year and over, 0.3 (1.0)
%)
Participation rate (aged 15 and over, %) 68.9 (60.9) Tertiary educational attainment (aged 25-64, 14.7 (41.0)
%)²
Mean weekly hours worked 42 (37.0) Gross domestic expenditure on R&D (% of 0.4 (2.9)
GDP, 2021)
ENVIRONMENT
Total primary energy supply per capita (toe, 2022, 1.0 (3.7) CO2 emissions from fuel combustion per 3.0 (7.6)
OECD: 2023) capita (tons, 2022, OECD: 2023)
Renewables (%, 2022, OECD: 2023) 20.5 (12.5) Renewable internal freshwater resources per 3.7
capita (1 000 m³, 2020)
Exposure to air pollution (more than 10 μg/m³ of PM 94.2 (56.5)
2.5, % of population, 2020)
SOCIETY
Income inequality (Gini coefficient, 2022, OECD: 0. 374 (0.316) Education outcomes (PISA 2022 score)
latest available)
Poverty gap at USD 3.65 a day (2017 PPP, %, 2022) 1.1 Reading 462 (476)
Public and private spending (% of GDP) Mathematics 469 (472)
Health care (2021, OECD: 2023) 4.6 (9.2) Science 472 (485)
Education (public spending, % of GNI, 2021) 4.6 (4.4) Share of women in parliament (%) 30.3 (32.8)
Note: The year is indicated in parenthesis if it deviates from the year in the main title of this table. Where the OECD aggregate is not provided in the
source database, a simple OECD average of latest available data is calculated where data exist for at least 80% of member countries.
1. For Viet Nam, data refers to aged 25 and over.
Source: Calculations based on data extracted from databases of the following organisations: OECD, International Energy Agency, International Labour
Organisation, International Monetary Fund, United Nations, World Bank.

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Executive Summary

Key messages
Viet Nam has made remarkable economic progress over the past decades, sustaining high economic
growth. Extensive and continued reforms since the late 1980s have been key to this economic success. But
with significant challenges ahead, Viet Nam needs to advance structural reforms that will further
strengthen market forces, improve social protection in light of an ageing population and make growth more
sustainable.
• Macroeconomic policies could be enhanced by strengthening the operational independence of the
central bank, price-based monetary policy, additional revenue mobilisation to address growing spending
needs and more transparency in national and fiscal accounts.
• Social benefits, including old-age pensions, remain patchy amid widespread labour informality. Making
growth more inclusive requires well-coordinated reforms to expand non-contributory social assistance
benefits while maintaining strong incentives for formal job creation.
• Viet Nam is strongly affected by climate change and has committed to net zero carbon emissions by
2050. Reducing emissions from electricity generation by phasing out coal-fired plants and accelerating
the rollout of renewable energy sources will be key for more sustainable growth.
• Foreign-owned firms have been a driver of growth but have developed few supplier links to local firms.
More investment in tertiary education, stronger competition in services sectors and a more even playing
field between private and state-owned companies could boost productivity growth.

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Viet Nam has become a major manufacturing hub

Viet Nam was one of the poorest countries in the world in 1985. The Doi Moi reforms of 1986 laid the
foundation for rapid growth, transforming Viet Nam from a virtually closed, centrally planned agrarian
economy to a major exporter and destination for foreign direct investment. The country’s high ambitions for
the future include an official 8% growth target for 2025 and double-digit growth for 2026-2030, with the aim
of reaching high-income status by 2045. These goals, however, require faster productivity gains to support
economic growth as demographic trends become less favourable.

Robust growth since 1990 has been based primarily that were successful in the past. The public sector
on capital accumulation, with productivity will have to deliver more and become more effective,
improvements playing a more modest role. Thanks which calls for improved economic governance. An
to a stellar growth performance that outpaced many ongoing public-sector reform including the merger of
regional peers, per-capita incomes rose by 5.7 times ministries, provinces and administrative regions, is
between 1990 and 2023, and Viet Nam became a likely to support such improvements in institutions.
lower middle-income country in 2011 (Figure 1). Filling the substantial gaps in the current social
Poverty has declined sharply, and life expectancy has protection requires more efficient spending and
risen from 69 to 75 years. Productivity could be increased expenditure.
boosted by upgrading the education system,
Viet Nam’s commitment to achieving carbon
especially at the tertiary level and in coordination
neutrality by 2050 is an ambitious contribution to
with the business sector. Boosting competition,
climate change mitigation. Future growth will
especially in services sectors, would also help to lift
therefore also need to have a lower carbon footprint
productivity, including by easing entry and foreign
than in the past. The rising energy needs of an
investment restrictions and creating a more level
expanding manufacturing sector have been largely
playing field between state-owned enterprises and
met through coal-powered electricity generation,
private firms.
which will need to be replaced by low-carbon
With higher incomes, surging demands for better alternatives, requiring large investments.
public services require different policies from those
Figure 1. Viet Nam’s growth has outperformed peers

Source: World Bank, World Development Indicators database

StatLink 2 https://stat.link/tsol34
.

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10 

Growth will face headwinds

Economic growth is projected to face headwinds in 2025 and 2026 as exports will weaken amid higher trade
barriers, although domestic demand remains solid. Inflation has fallen below 3% but monetary policy should
remain vigilant to inflation risks given high credit growth. Improvements in both the monetary and fiscal policy
frameworks could lead to stronger growth outcomes and foster policy transparency and predictability.

The economy has rebounded from negative housing costs and a depreciating exchange rate
external and domestic shocks in 2023. A slowdown during the first half of the year and later by higher
in world trade reduced exports and imports as a production costs after Typhoon Yagi. These effects
share of GDP by 9 and 12 percentage points, have dissipated, and inflation fell below 3% in the
respectively. The domestic economy was hit by final quarter of 2024. Core inflation, which had
financial-sector turbulence following the failure of peaked at more than 5% in 2023, remained below 3%
the country’s fifth-largest bank in late 2022 and throughout 2024, and stood at 3.1% in April 2025.
turbulence in the real estate sector. Typhoon Yagi,
GDP is projected to increase by 6.2 percent in 2025
the most powerful storm to hit the country in 30
and 6.0% in 2026, led by domestic demand while
years, unleashed devastating floods and landslides
export demand will weaken. Private consumption
across the economically important northern
will be supported by continued increases in real
provinces. Still, GDP increased by 7.1% in 2024,
wages and employment. Higher tariffs on exports to
surpassing both the previous year’s growth outcome
the United States, affecting around one third of Viet
and the government’s growth target.
Nam’s exports, will dent export prospects going
Exports have been a key driver of economic growth. forward, although the wider ramifications of these
At 15.5% during 2024, export growth has made a developments, including for investment inflows,
major contribution to the rise in industrial output remain highly uncertain.
(Table 1). Imports, though, increased even faster,
Accommodative monetary policy and
resulting in a negative contribution to GDP growth
improvements in bank balance sheets will help
from trade.
consumption and investment to grow steadily in
Headline consumer price inflation picked up 2025 and 2026. Inflation is projected to increase to
temporarily in 2024, but monetary policy was right 3.7% in 2025, still slightly below the target of 4.5-5%,
to see through these inflationary pressures from driven by strong domestic demand, while the
volatile items. Rising inflation in mid-2024 was unemployment rate remains low.
driven in part by food prices, healthcare services,

Table 1. Growth has held up well

Annual growth rates, %, unless specified
2022 2023 2024 2025 2026
Real GDP 8.5 5.1 7.1 6.2 6.0
Private consumption 7.9 3.4 6.7 6.5 6.2
Public consumption 3.0 4.6 5.8 5.4 5.3
Gross Fixed Investment 5.9 4.6 7.1 7.6 8.0
Exports 4.0 -3.2 15.5 8.0 5.4
Imports 1.5 -5.2 16.1 9.3 6.0
Unemployment rate (% of labour force) 2.3 2.3 2.2 2.5 3.0
Consumer Price Inflation 3.2 3.3 3.6 3.7 3.8
Federal government budget balance (% of GDP) 0.7 -3.4 -3.5 -4.6 -4.5
Federal government debt (% of GDP) 33.8 33.2 34.7 36.3 38.0
Source: OECD Economic Outlook 117 database and OECD projections.

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  11

Fiscal policy will continue to support growth into higher inflation, requiring a tighter monetary
through increased public investment, as the policy stance.
government tries to offset past undershooting of
Risks in the financial sector are related to corporate
investment plans. Given strong growth, the need for
debt and a high share of non-performing loans.
fiscal stimulus could be reconsidered, although
These have risen to their highest level in a decade,
recent tariff hikes are projected to weigh on growth
due in part to real estate turbulence and the failure
outcomes, with substantial downside risks around
of the fifth-largest commercial bank during 2022.
these projections. Fiscal policy should therefore
Strengthening debt enforcement and insolvency
remain flexible and stand ready to support growth if
rules could help to reduce non-performing loans.
needed. Emerging spending needs in social
protection and the green transition will call for Viet Nam could enhance its resilience by revising its
reforming the tax system to mobilise additional monetary policy framework. Strengthening the
revenues, including from value-added taxes, while operational independence of the central bank and
improving budgetary governance and the moving towards a more price-based approach to
transparency of fiscal accounts. monetary policy would improve the effectiveness
and transparency of monetary policy. This requires
As a trade-dependent economy, Viet Nam remains
phasing out bank-specific credit growth targets to
highly exposed to developments in global trade. In
enhance competition and the efficient allocation of
light of higher tariffs, net exports will subtract from
capital through the large banking system to contain
growth in 2025 and 2026, but their overall effect on
financial stability risks. Enhancing exchange rate
trade and growth could be much larger, especially if
flexibility would cushion the impact of external
higher trade barriers lead to a sharp decline in
shocks. Publishing national accounts and fiscal data
foreign investment inflows. Renewed downward
in line with up-to-date internationally recognised
pressure on the exchange rate could pass through
methodologies would strengthen policy
transparency.

Towards more inclusive growth

Viet Nam’s rapid economic expansion has delivered large benefits to a large share of the population. A middle
class is emerging, income inequality has declined, and extreme poverty has been almost eradicated. Although
informality has been contained, two thirds of workers still work in informal jobs and lack access to social
protection benefits. Recent reforms to enhance access to pensions and health care will help these workers
and should be implemented. Lowering the tax burden on labour income would foster formalisation and
mitigate the pervasive effects of informality.

Viet Nam's sustained economic growth and social reforms. For lower-income households, targeted
protection policies have nearly eradicated extreme cash transfers would help to improve access to
poverty. Progress spans income, employment, secondary education and reduce the burden of out-
nutrition, healthcare, and education. Plans to of-pocket health expenses and higher energy prices.
achieve universal pension coverage by rolling out At the top of the income distribution, eliminating
non-contributory basic pensions are underway, and some of the numerous income tax expenditures
healthcare coverage is almost universal. would make the tax system more progressive.
Income inequality has been contained. As measured Reducing informality through a combination of
by the Gini coefficient, inequality is lower than in financial incentives and stricter enforcement will
Malaysia and the Philippines, and similar to that of make growth more inclusive. Informality is
Indonesia, Lao PDR, and Thailand. The recent decline pervasive among young people and older workers,
in income inequality was in large part due to tax and but prime-age persons are also affected. Those with
transfer measures introduced during the COVID-19 informal employment receive lower incomes, work
pandemic and the global surge in energy prices. longer hours, are not eligible for unemployment
Some of these measures are temporary and should insurance, and do not accumulate pension rights.
therefore be supplemented by longer- lasting policy The recent reform of the pension system, as part of

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12 

the amended Law on Social Insurance, will create a expanding other sources of government revenue
non-contributory basic pension for all workers. This would encourage formalisation.
is welcome to broaden pension coverage as currently
Women participate actively in the labour market
few workers are eligible for pensions upon
but hold few senior positions. Women participate
retirement due to widespread labour informality. But
less in leadership positions in the business sector,
these reforms should be implemented with a view
government departments, and political institutions.
towards policy coherence across the whole social
Increasing early childhood leave entitlements, with a
protection system to avoid weakening formalisation
minimum earmarked to fathers, would help to
incentives. The combination of social security
distribute the burden of childcare more evenly
contributions (Figure 2), income taxes and minimum
across men and women. Viet Nam could also
wages can make formal job creation prohibitively
consider gradually phasing in mandatory quotas for
costly for low-skilled workers with low productivity
female directors on executive boards, as done
and contribute to high informality. Reducing social
successfully in other countries.
security contributions for low-income-earners while

Figure 2. Reducing high social security contributions would encourage formal jobs
Government revenues from social security contributions, 2022

% of GDP
7

0
Sri Lanka Malaysia Indonesia Thailand Armenia Kazakhstan Philippines Azerbaijan Mongolia Viet Nam China, PR

Source: OECD Comparative tables of Revenue Statistics in Asia and the Pacific.

StatLink 2 https://stat.link/k9wd5e

Unlocking low-carbon economic growth

Viet Nam is highly exposed to the effects of climate change. People living in the large urban areas of Hanoi
and Ho Chi Minh City are already exposed to risks of flooding, heat waves, and extreme weather events. The
government has introduced ambitious climate mitigation policies, including incentives for solar and wind
power, and has adopted a net zero carbon emission target by 2050. However, fast-increasing energy demand
means that the consumption of coal is still reaching record-high levels.

Enhancing preparedness against climate hazards shelters and evacuation routes. Facilitating the
will be essential, including by implementing early resettlement of internal migrants from precarious
warning systems, constructing storm-resistant urban neighbourhoods would also provide
infrastructure, conducting information campaigns, protection during typhoons. Additionally, significant
and investing in public resources such as temporary health risks result from high levels of local air

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  13

pollution due to fine particulate matter. Low-emission adequate price signals. The establishment of an
zones in cities, low-carbon public transport options Emission Trading System, which will operate
and a more rapid adoption of electric vehicles can help alongside a voluntary carbon credit market, should
contain these risks. be accelerated. Carbon pricing could be combined
with non-pricing measures such as regulation and
The government is committed to ambitious public investment.
mitigation efforts. Vietnam aims to achieve carbon
Strong electricity demand drives up carbon
neutrality by 2050 and is implementing a policy
emissions. In the first 10 months of 2024, record-
framework to support this transition. Significant
high electricity demand increased emissions from
investments have been made to expand renewable
coal-fired power plants (Figure 3). To reverse this
electricity generation, positioning Viet Nam among
trend, Viet Nam will need to expand renewable
the world's fastest adopters of clean energy.
energy sources further and strengthen the grid.
Although the government has not introduced a
Decommissioning coal plants will have collateral
carbon tax, various fossil fuels are subject to excise
effects on local communities in mining areas, but a
taxes that increase their prices. The Environmental
fair transition can be achieved through reskilling and
Protection Tax and VAT on energy products were
relocation assistance.
reduced following global energy price shocks and
could now be returned to previous levels to send
Figure 3. Carbon emission from coal-fired power plants are increasing with electricity demand
First 10 months of each year
300
CO2 emissions from coal generation (Megatonnes of CO2e) Electricity demand (TWh)

250

200

150

100

50

0
2019 2020 2021 2022 2023 2024
Source: Ember data.
StatLink 2 https://stat.link/n3dlj7

Harnessing foreign direct investment and international trade

Achieving Viet Nam’s objective of reaching high-income status by 2045 requires faster productivity gains to
support economic growth as demographic trends become less favourable. A key priority is to maintain and
leverage inflows of foreign direct investment (FDI) to boost productivity through better connections with local
firms. This will become increasingly challenging in light of new trade barriers for exports to the United States.

Viet Nam’s increasing share of world trade has been important to sustain in a changing global economy.
driven by FDI inflows. Between 2015 and 2023, these Viet Nam’s share of world trade climbed from 0.1%
amounted to 4.8% of GDP, exceeding other ASEAN in 1996 to 1.5% in 2023, making it the world’s 19th
countries, China and India. FDI inflows have brought largest exporter (Figure 4). New tariffs imposed by
significant benefits to Viet Nam’s economy including the US are likely to weaken this strong performance
capital, technology and market access, which will be in the future.

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14 

Opening up services markets to competition and domestic companies. Only around half of young
foreign direct investment will be key for moving people are enrolled in upper secondary education.
into higher-value ladders of global value chains. Tertiary enrollments remain one of the lowest in the
More competitive service inputs can have significant region and high tuition fees hinder access to higher
productivity benefits for downstream manufacturing education for many students, which may require
companies, but barriers to competition and foreign increased public financial support.
investment remain high in most service sectors.
Improving the allocation of resources will require
FDI has been less successful in developing linkages
stronger competition across the economy. This
with the domestic economy. Supplier development
includes financial services, which are key for the
programmes, a better exchange of information
allocation of capital and present scope for expanding
between potential local suppliers and foreign
market-based financing, including for SMEs.
affiliates and stronger protection of intellectual
Reducing the weight of state-owned enterprises and
property rights may allow more local firms to benefit
levelling the playing field with private firms could
from productivity spillovers from FDI.
allow more labour and capital to move to more
Upgrading education and training to increase the productive firms. Anti-corruption efforts have led to
supply of high-skilled workers can help to progress and should be maintained.
strengthen connections between FDI firms and

Figure 4. Viet Nam’s share in world goods trade has risen

Source: World Bank, World Development Indicators.

StatLink 2 https://stat.link/trswx8

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Main findings Key recommendations

Macroeconomic developments and policy challenges
Economic growth exceeded 7% in 2024, boosted by fiscal stimulus, but Move towards a neutral fiscal policy stance but stand ready to provide
recent tariff hikes could dampen growth more than expected. policy support if growth weakens.
The value-added tax (VAT) has a standard rate of 10%, well below the Gradually raise the VAT rate and broaden its base to meet growing
OECD average of 19%. It also has a reduced 5% rate for essential goods spending needs, while using other policies to offset the regressive impact
and services. of the VAT.
The troubled real-estate sector has contributed to the rise in banks’ non- Enhance the effectiveness of the debt enforcement and insolvency
performing loans and added to financial stability risks. The slow frameworks to reduce non-performing loans.
insolvency procedures tend to lower the value of non-performing loans.
The central bank, the State Bank of Viet Nam (SBV), is a ministerial In the medium to long term, consider strengthening the SBV’s operational
organisation of the central government, and its governor is a member of independence to achieve the policy goals set by the government and create
the Cabinet. The SBV’s independence is not explicitly defined. a monetary policy committee.
In addition to interest rates, the SBV uses a range of tools, including Move gradually away from the current quantity-based monetary policy
bank-specific credit growth ceilings, interest rate caps on deposits and towards a more price-based approach by phasing out bank-specific credit
lending and foreign exchange intervention to achieve its targets. growth targets and relying more on interest rates.
Towards more inclusive growth
Few workers become eligible for public pensions upon retirement due to Implement plans to achieve universal pension coverage by expanding
widespread labour informality. basic, non-contributory old-age pensions while ensuring the sustainability
of the contributory pension system.
About 6.7% of the population does not have access to healthcare Reduce administrative barriers to access healthcare cards.
insurance.
The average number of years of schooling is low at 9.3 years. Only 58% Improve access to upper secondary education by making attendance
of students complete secondary education. mandatory, while improving its quality.
Energy prices will increase during the climate transition as carbon pricing Use targeted social assistance benefits to support vulnerable people
and stricter regulation will increase production costs. affected by higher energy prices.
Informal employment affects 68.5% of workers. This precludes them Establish a comprehensive strategy to foster formalisation, including
from access to social security, while reducing productivity and tax through lower non-wage costs, stronger enforcement and lower
revenues. administrative burdens to register a business and obtain licenses.
High charges on formal labour hold back formal job creation and sustain Reduce the tax burden on labour income by lowering social security
high labour informality, especially among low-income earners. contributions for low-income earners and shifting the financing of basic
social protection towards general taxation.
Unlocking low-carbon growth
The Environmental Protection Tax has been halved during the period of Restore environmental protection tax rates to pre-crisis levels and define
high inflation, as elsewhere, resulting in low fuel prices. them in terms of carbon content. Bring the diesel tax in line with the
gasoline tax.
Gradually increase the coal tax to better reflect coal’s large impact on
carbon emissions.
Energy consumption increases faster than GDP, illustrating the lack of Accelerate the deployment of Viet Nam’s mandatory emission trading
price signals system.
GHG emissions from energy are largely the result of a strong reliance on Further encourage the expansion of renewable energy sources. Streamline
fossil-fuel energy. The low-carbon transformation of the electricity, heavy licensing procedures for low-carbon activities and infrastructure, especially
industries and transport sectors faces regulatory headwinds. regarding land acquisition.
Harnessing trade and investment flows to boost productivity
The service sector, where FDI barriers are relatively high, is small at 45% Promote the development of the service sector by reducing trade barriers
of GDP. Key telecommunication markets are dominated by state-owned to services and reducing foreign ownership restrictions in services,
enterprises while state-owned banks account for 40% of bank of assets. including telecommunications.
Viet Nam’s intellectual property rights (IPR) law aligns with international Strengthen IPR enforcement by cutting the time and costs of legal actions
standards, but enforcement mechanisms need improvement. and raise public awareness of the importance of IPR.
Tertiary education completion rates are 10% for universities and 3% for Boost government spending on tertiary education and increase
vocational schools. Government spending on tertiary education has coordination with the business sector to improve curricula and reduce
fallen to around 0.3% of GDP. labour market mismatch.
Market-based financing is small in the bank-centred financial system. Create an appropriate regulatory framework for new forms of equity
Viet Nam has created a special trading platform, equity crowdfunding and investment to ensure transparency and prevent fraudulent activities.
peer-to-peer financing to increase SMEs’ access to equity financing.
State-owned enterprises (SOEs), which account for about 40% of GDP, Reduce the role of the state in the economy by accelerating the
hinder competition in many product markets. The scope of SOEs in Viet privatisation of state-owned enterprises and levelling the playing field
Nam is very broad according to the OECD Product Market Index. between private firms and SOEs.
Significant progress in public-sector integrity has been achieved. Maintain strong efforts to fight corruption.

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1 Strengthening the
macroeconomic foundations for
growth
Randall S. Jones

Ken Nibayashi

Economic growth is projected to face headwinds from weaker exports and foreign
investment in 2025 and 2026 and will be driven by domestic demand. Inflation fell
below 3% in late 2024 but monetary policy should remain vigilant to inflation risks
against the backdrop of a 16% target for credit growth in 2025. The monetary policy
framework could benefit from stronger central bank independence and a move from
the current quantity-based monetary policy towards a more price-based approach,
relying more on interest rates as the main monetary policy tool. A high level of
corporate debt and non-performing loans (NPLs) reflect potential financial sector
risks. An effective insolvency framework and decisive measures to reduce NPLs will
be required to contain such risks and improve resource allocation. The fiscal stance
is accommodative, due in part to rising public investment, and should gradually
move towards a more neutral fiscal policy stance while standing ready to provide
policy support if growth weakens. An improved fiscal framework could help to guide
fiscal policy. Current tax revenues of 20% of GDP will be insufficient to improve social
protection and prepare for population ageing.

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18 

1.1. Growth has returned to its pre-pandemic pace

Viet Nam has rebounded from negative external and domestic shocks that slowed growth to 5.1% in 2023
(Figure 1.1, Panel A). A slowdown in world trade reduced exports and imports as a share of GDP by 9 and 12
percentage points, respectively. The domestic economy was hit by financial-sector turbulence following the
failure of the country’s fifth-largest bank, the Saigon Commercial Bank, in October 2022 and turbulence in the
real estate sector. In 2024, GDP increased by 7.1%, surpassing the government’s 6.5% target. Viet Nam has
overcome Typhoon Yagi, the most powerful storm to hit the country in 30 years. The typhoon unleashed
devastating floods and landslides across northern provinces that are home to 111 industrial parks and nearly
5 000 FDI enterprises in key sectors, including electronics.

Figure 1.1. Recent macroeconomic developments

A. Real GDP growth B. Contribution to GDP growth
% %
10 Malaysia Indonesia Thailand Viet Nam Private consumption Public consumption
12
Investment Net exports
8 Other Real GDP growth
9
6

4 6
2
3
0

-2 0
-4
-3
-6

-8 -6
2016 2018 2020 2022 2024 2011 2013 2015 2017 2019 2021 2023

Y-on-Y % C. Retail sales and real wages Y-o-y % D. Export and import growth in nominal value
change change
Retail sales (lhs) Real wage (rhs) Exports Imports
50 30 25

40 25 20
20 15
30
15
20 10
10
10 5
5
0 0
0
-10 -5
-5
-20 -10
-10
-15
-30 -15
2019 2020 2021 2022 2023 2024 2025
-20
2022 2023 2024

Note: In panel B, “Other” covers the change in stocks and the statistical discrepancy.
Source: CEIC; General Statistics Office of Vietnam; and OECD calculations.

StatLink 2 https://stat.link/jwpegm

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  19

Private consumption was a major driver of growth, accounting for nearly half of the increase in GDP in 2024
(Figure 1.1Panel B). Retail sales rose 9.0%, supported by a 2 percentage-point cut in the VAT. Real wage growth
of nearly 3% during the first three quarters of 2024 (Panel C), buoyed by a 21% rise in public-sector wages in
July 2023, also supported private consumption. In addition, the unemployment rate has remained steady at
around 2¼ percent since mid-2022. Fixed capital formation accounted for another third of GDP growth in
2024, although public investment fulfilled only two-thirds of the government’s 2024 plan (Vietnamnet, 2024a).
Buoyant domestic demand contributed to a rebound in industrial output, which was 8.9% higher at the end
of 2024 than a year earlier.
Following a large decline in 2023, export growth of 14.3% (in USD value) in 2024 made a major contribution
to the rise in industrial output (Figure 1.1, Panel D). Imports, though, increased even faster (15.4%), resulting
in a negative contribution to GDP growth from trade. Viet Nam is one of Southeast Asia’s most open markets
following its accession to the World Trade Organisation in 2007 and the conclusion of 17 bilateral and
plurilateral free trade agreements (FTAs), with three more under negotiation. These agreements cut Viet
Nam’s average applied tariff on manufactured goods from 16.6% to 1.1% (World Bank, 2024c). Viet Nam’s
share of world trade climbed from 0.1% in 1996 to 1.5% in 2023, making it the world’s 19th largest exporter.
Viet Nam’s increasing share of world trade has been driven by foreign-owned companies operating in Viet
Nam. Between 2015 and 2023, foreign direct investment (FDI) inflows amounted to 4.8% of GDP, a higher
share than in other ASEAN countries, as well as China and India. Buoyant FDI inflows reflect in part the shift of
production out of China, in part to avoid the high US tariffs resulting from the US-China trade dispute. Viet
Nam has gained more FDI inflows from this diversification strategy than any other country (Kahn et al., 2024).
Overall, FDI has accounted for more than half of fixed investment in Viet Nam during the past decade (see
Chapter 4).
Foreign-owned firms in Viet Nam account for nearly three-quarters of the country’s exports, with a large share
of them shipped to the United States. Viet Nam has gained significant market shares in US product lines where
China has lost market share (Kwon, 2022). In 2024, Vietnamese exports to the United States, its top market,
increased by 23.3%, boosting its share of Vietnamese exports from 23% in 2021 to 30% in 2024 (Figure 1.2,
Panel A). Meanwhile, Viet Nam’s imports from China rose by 30%, indicating that some goods that China had
previously exported directly to the United States are now produced in and exported from Viet Nam.
Vietnamese exports to China, its second biggest export destination, grew by only 5.3% in 2024. Viet Nam’s
bilateral trade surplus with the United States topped USD 100 billion in 2024, making it the third-largest
bilateral deficit for the United States after China and Mexico.
Foreign-owned firms in Viet Nam have also promoted trade with other Asian countries, which account for
about half of Vietnamese exports (Figure 1.2, Panel A). Indeed, the top foreign direct investors in Viet Nam
are Korea (18.2% of the total stock), Singapore (15.9%), Japan (15.5%), Chinese Taipei (8.4%), Hong Kong,
China (7.3%) and China (5.9%). FDI inflows have also helped Viet Nam move up the value chain in its exports,
which were dominated by agricultural products and oil in the 1980s, before shifting to textiles and footwear
in the 1990s and 2000s. In 2024, electronics and electrical products, telephones and parts, machinery and
equipment, and transport vehicles and parts accounted for almost half of Vietnamese exports (Panel B). Viet
Nam has achieved the fastest growth of medium and high-tech manufactured exports among ASEAN countries
while textile, apparel and footwear exports remain significant at 15%. However, exports’ economic benefits
are limited by the large share of foreign inputs, which account for about half of the value added of Viet Nam’s
exports and limit the scope for productivity spillovers (see Chapter 4).
Headline consumer price inflation picked up from 3.3% in 2023 to nearly 4½ percent by mid-2024, driven in
part by prices for pork, healthcare services, and housing as well as depreciating exchange rate during the first
half of the year (Figure 1.3). In addition, Typhoon Yagi increased domestic production costs. Meanwhile, core
inflation, which fell sharply in 2023 from its peak of more than 5%, remained below 3% throughout 2024. The
decline in core inflation while headline inflation increased reflects the fact that food prices (which are excluded
from core inflation) were a major factor in the rise in headline inflation, while strong wage growth may also
have played a role. Headline inflation fell below 3% in the final quarter of 2024 but reached 3.1% in April 2025.

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20 

Figure 1.2. Exports of goods by destination and products

Share of total exports in 2024

A. Main export destinations B. Main export products

India Other Telephones,

16% Other
2% 20% mobile phones
& parts
United Wood &
13%
Hong Kong, States wooden
China 30% products
3% 4%

Iron and
steel &
Japan
related
6%
Electrical &
electronic
Korea Fishery & food 19%
6% products
9%
China Machinery,
ASEAN Footwear
15% equipment &
9% 6% Textiles &
EU27 garments parts
13% 9% 17%

Source: CEIC.

StatLink 2 https://stat.link/ch86tx

Figure 1.3. Headline and core inflation have fallen

Y-on-y % changes
6
Core inflation Headline inflation
5

-1
2021 2022 2023 2024 2025

Note: Core inflation excludes food and foodstuff; energy and such items managed by the state as healthcare and education.
Source: CEIC; General Statistics Office of Vietnam; and OECD calculations.

StatLink 2 https://stat.link/5v2dau

1.2. Looking ahead, growth is projected to weaken

GDP is projected to increase by 6.2 percent in 2025 and by 6.0% 2026, led by domestic demand. This reflects
significant headwinds from higher US tariffs and weaker external demand that are bound to limit Viet Nam's
exports (Table 1.1). A new US baseline tariff of 10% on all goods and sector-specific tariffs that will add
approximately another 3 percentage points of effective tariffs on Vietnamese exports to the US are assumed
to stay in place over 2025 and 2026. Even higher tariffs on Vietnamese exports remain a possibility, as these

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  21

were announced but later temporarily suspended to allow time for bilateral negotiations. These higher tariffs
are not part of the assumptions underlying the growth projections presented in this Economic Survey, but
they constitute a significant downside risk. Private consumption will be supported by continued increases in
real wages and employment. Investment will be sustained by strong public-sector capital outlays, while the
prospects for foreign direct investment inflows have become more uncertain in the face of higher US tariffs.

Table 1.1. Macroeconomic indicators and projections

Per cent changes from previous year unless specified

2022 2023 2024 2025 2026

Output and demand
Real GDP 8.5 5.1 7.1 6.2 6.0
Consumption 7.2 3.6 6.6 6.3 6.1
Private 7.9 3.4 6.7 6.5 6.2
Public 3.0 4.6 5.8 5.4 5.3
Gross fixed investment 5.9 4.6 7.1 7.6 8.0
Final domestic demand 6.7 3.9 6.8 6.8 6.7
Stockbuilding (contribution to GDP growth, % point) -0.8 -0.8 0.9 0.7 0.0
Total domestic demand 5.7 3.1 7.6 7.4 6.6
Exports of goods and services 4.0 -2.5 15.5 8.0 5.4
Imports of goods and services 1.5 -4.5 16.1 9.3 6.0
Net exports (contribution to GDP growth, % point) 2.6 2.0 -0.5 -1.2 -0.7
Inflation and labour market
Consumer price inflation 3.2 3.3 3.6 3.7 3.8
GDP deflator 4.4 2.1 4.2 4.2 3.3
Unemployment (% of labour force) 2.3 2.3 2.3 2.5 3.0
Public finances (% of GDP)
Federal government fiscal balance 0.7 -3.4 -3.5 -4.6 -4.5
Expenditures 18.2 20.4 19.8 20.0 20.0
Revenues 18.9 17.0 16.3 15.4 15.5
Federal government debt 33.8 33.2 34.7 36.3 38.0
External sector and memorandum items
Current account balance (% of GDP) 0.3 5.9 5.7 4.2 3.8
Trade balance (% of GDP) 3.7 8.1 6.4 4.2 3.7

Source: OECD Economic Outlook 117 database and OECD calculations, Viet Nam Ministry of Finance.

A rising number of tourist arrivals will support consumption and investment. The number of tourists entering
Viet Nam during 2024 reached 17.6 million, but remains 2.4% below the 2019 peak, suggesting room for
further growth (Figure 1.4). The initial recovery in tourist arrivals after Viet Nam re-opened its borders in 2022
was initially driven by Korean and American tourists, while the number of visitors from China, traditionally the
largest source of tourists, has remained below pre-crisis levels. Given that foreign tourism accounted for about
8% of Vietnam’s pre-COVID GDP, the rising number of visitors will have a significant positive impact on growth.
Tourism’s direct and indirect impact is estimated to exceed 15% of GDP (VinaCapital, 2024).
In recent years, exports have benefited from FDI inflows as higher tariffs on Chinese products made Viet Nam
an attractive production site for multinational enterprises, including those based in China. Higher tariffs on
Vietnamese exports to the United States will weigh on export prospects as gross exports to that destination
account for almost 30% of Viet Nam’s GDP, of which around half corresponds to domestic value added. Against
this background, export growth is projected to slow from 15.4% in 2024 to 8.0% in 2025 and 5.4% in 2026 as
exports to the United States are expected to contract. The contribution of net exports to GDP growth is likely
to be negative in 2025 and 2026, although there is considerable uncertainty around the exact magnitude of
higher tariffs on trade and growth (Table 1.1).

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Figure 1.4. The number of foreign tourists to Viet Nam is approaching the pre-COVID 19 peak
Million tourists
20
18
16
14
12
10
8
6
4
2
0
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024
Source: CEIC.

StatLink 2 https://stat.link/girkmt
Accommodative monetary policy and improvements in banks’ financial position will help consumption and
investment to grow in 2025 and 2026. The SBV cut its policy rate from 5.5% to 4.5% during 2023. The inflation
rate is projected to rise gradually over 2025 and 2026, while remaining below the target range of 4.5-5.0%
amid low unemployment. Fiscal policy will also support growth, in part through increased public investment,
as the government offsets past undershooting of investment plans to fulfil the targets set in the Socio-
economic Development Plan for 2021-2025. In March 2025, the authorities ordered steps to resolve 1 533
stalled investment projects (Vietnamnet, 2025).
Given Viet Nam’s lack of seasonally-adjusted quarterly national accounts data, the timely assessment of
current economic conditions and identification of turning points in key macroeconomic variables, such as
quarter-on-quarter changes in GDP, is difficult. Economic variables in all countries are influenced by systematic
and recurrent within-year patterns due to weather and social factors. In Viet Nam, the first and third quarters
tend to be stronger than the second and fourth. When seasonal variations dominate period-to-period changes
in the seasonally-unadjusted series, it becomes difficult to identify non-seasonal effects, which reveal the most
important economic signals. Removing the seasonal effects makes short and long-run trends more visible. In
the absence of seasonally-adjusted figures, Viet Nam provides annual rates of change (the current quarter
compared to the same quarter in the previous year) in its national accounts. However, such an approach gives
outdated information and does not fully exclude calendar-related effects, such as the number of working days
in a quarter (IMF, 2017). This is particularly important in Viet Nam, which celebrates a number of traditional
festivals that are based on the lunar calendar. The publication of seasonally-adjusted quarterly national
account data using international best practice would improve transparency and provide a better information
basis for macroeconomic policies.
As a trade-dependent economy, and despite the absence of notable macroeconomic imbalances, Viet Nam
remains exceptionally vulnerable to developments in global trade. Indeed, its exports jumped from 67% of
GDP in 2012 to 87% in 2023 (Figure 1.5). Growth depends to an important degree on external demand,
especially from the United States and China, Viet Nam's largest export destinations. Risks are tilted to the
downside as the projected slowdown in exports could turn out to be much more pronounced than currently
anticipated and lead to lower growth, especially if investment and the labour market were to weaken
substantially. Other geopolitical risks also remain elevated. An intensification of the conflicts in the Middle
East or Russia’s invasion of Ukraine could disrupt global energy markets, with both direct and indirect negative
impacts on Viet Nam. Renewed downward pressure on the exchange rate could pass through into higher
inflation, leading to a tighter monetary policy stance.

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  23

Figure 1.5. Viet Nam is deeply integrated into the international trading system

A. Exports of goods and services B. Imports of goods and services

% of GDP % of GDP
100 100
2023 2023
2013 2013
80 80

60 60

40 40

20 20

0 0
IDN

IND
CHN

JPN

AUS

THA
NZL
PHL

KOR

KHM
MYS
VNM
OECD

IDN

IND
AUS
CHN

JPN

THA
NZL

PHL
KOR
MYS

KHM
VNM
OECD
Source: OECD, Economic Outlook database; World Bank, World Development Indicators database; and CEIC.

StatLink 2 https://stat.link/bg158d
Domestic risks are primarily related to financial markets, which are, in turn, linked to the housing market.
Effective financial sector reforms could improve resource allocation, leading to faster productivity and output
gains. However, the financial sector also poses potential threats to economic stability. The share of loans that
are non-performing doubled between the end of 2022 and 2024, due to natural disasters such as Typhoon
Yagi, real estate turbulence and the failure of the fifth-largest commercial bank. Deteriorating asset quality,
potentially exacerbated by less favourable export prospects, could weaken banks' lending capacity, although
recent legislative changes aimed at mitigating these risks have been introduced. Banks also face risks from the
rapid growth of corporate debt. Consequently, the share of firms with an interest coverage ratio below one
has doubled from 5% to 11%, the largest increase among Viet Nam’s peers (IMF, 2024b). Persistent weakness
in the corporate bond market could also limit corporate access to financing. Energy supply constraints are
another risk that could hamper the growth of manufacturing exports. In addition to these risks, there are low-
probability events that could lead to major changes in the economic outlook (Table 1.2).

Table 1.2. Low-probability events that could lead to major changes in the outlook
External shocks Potential impacts
Natural disasters Viet Nam is very vulnerable to climate change as it is one of the world's most flood-prone countries. Extreme weather
events could overwhelm the existing coping capacity and bring about wide-ranging dislocation of economic activity.
Energy crisis A sudden stoppage of energy imports, accompanied by extremely high energy prices, could reduce production in areas
that have already faced energy shortages and lead to a sharp rise in inflation.

1.3. Keeping inflation low while improving the monetary policy framework
Viet Nam’s monetary policy framework is unique in many respects. The central bank – the State Bank of Viet
Nam (SBV) – is a ministerial organisation of the central government, and its independence is not explicitly
defined. The SBV governor is a member of Cabinet appointed by the National Assembly based on the Prime
Minister’s proposal. The National Assembly is responsible for monetary policy, including determining policy
targets based on government projections. The 2010 Law on the State Bank of Viet Nam states that its objective
is to maintain “the stability of the national currency value, which is denoted by the inflation rate” (SBV, 2025).
The National Assembly set the 2025 inflation target at 4.5-5.0%, up from the 2024 range of 4.0-4.5%. The
upper limit is considerably above the average annual rate of 3.2% recorded over 2012-24.

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The SBV uses a range of instruments to control inflation. Monetary policy is implemented partly by setting
annual credit growth targets for banks, both individually and collectively. A December 2024 SBV document
stated that “credit growth should be aligned with the Government priorities” (SBV, 2024). Credit growth
targets are currently the best indicator of the monetary policy stance. Since 2011, the SBV has also imposed
an interest rate ceiling on bank deposits of up to six months, on the grounds that it prevents weak banks from
undermining their financial position by competing for deposits. In addition, the SBV caps banks’ short-term
lending rates for a number of priority sectors to support individuals and businesses. This also influences credit
growth (OECD, 2023b). Furthermore, the SBV sets policy interest rates, namely the refinancing, discount and
overnight rates, but the effect of these rate changes is effectively dominated by the explicit quantitative credit
targets. The sharp increase in domestic credit relative to GDP during the past decade suggests an expansionary
monetary policy stance (Figure 1.6, Panel A). In addition, the central bank periodically intervenes in the foreign
exchange market to limit exchange rate volatility.

Figure 1.6. Domestic credit to the private sector has risen sharply while the policy interest rate
has fallen

A. Domestic credit to the private sector B. Central bank refinancing rate and 3-month
interest rate
% of GDP %
140 16
Refinancing rate 3-month interest rate
120 14

100 12
10
80
8
60
6
40
4
20 2
0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
Jan-24
Jan-25
Source: Panel A -- World Bank, Domestic credit to private sector (% of GDP), accessed 4 January 2025; Panel B – State Bank of Viet Nam.

StatLink 2 https://stat.link/1sogrq

1.3.1. Monetary policy should remain vigilant to potential inflationary pressures

With the outbreak of the pandemic, the central bank reduced the refinancing rate from 6% to 4% during 2020
(Figure 1.6, Panel B). The interest rate cut was quickly reversed in the autumn of 2022 as headline and core
inflation increased significantly, driven by rising energy and commodity prices. Viet Nam’s inflation rate is very
sensitive to shifts in such prices (OECD, 2023b). With inflation receding in the first half of 2024, the SBV moved
to an accommodative stance in June 2023; it raised credit growth targets for banks and cut the refinancing
rate to 4.5% (Figure 1.6, Panel B). Despite a spike in headline inflation in the first half of 2024, these policies
were maintained. Seeing through these inflationary pressures from volatile items has paid off, as headline
inflation slowed in the second half of 2024.
With a robust recovery in place, the focus should be on closely monitoring inflation risks, which could arise
from the 15% hike in pensions, the largest ever, in July 2024. At the same time, the minimum wage rose by
6% on top of a 21% increase in 2023. Hikes in administrative prices are expected in 2025. In addition, the
accommodative monetary policy stance may lead to exchange rate pressures that could feed into domestic
inflation. Other international factors, such as a renewed spike in energy prices and global geopolitical tensions,
could also generate higher inflation. Viet Nam’s currency faced downward pressure in 2024 despite foreign
exchange intervention.

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  25

Viet Nam’s exchange rate arrangement is classified by the IMF as managed floating (IMF, 2024b). The SBV
conducts foreign exchange policy to promote macroeconomic stability and support economic growth. In 2021,
the SBV stated that “it will continue to manage exchange rate policy within its general monetary policy
framework to safeguard the proper functioning of the monetary and foreign exchange markets, to promote
macroeconomic stability and to control inflation, not to create an unfair competitive advantage in
international trade”. Viet Nam’s exchange rate flexibility has gradually increased, with the SVB widening the
exchange rate band from ±1% of the central parity rate to ±3% in 2016 and further to ±5% in 2022. In addition,
the central parity rate has been adjusted daily since 2016 based on a weighted average of movements in the
VND vis-à-vis the currencies of eight important trading partners and domestic macroeconomic conditions.
Viet Nam’s currency has depreciated by more than 10% in nominal terms against the USD since the beginning
of 2022, roughly in line with its ASEAN peers (Figure 1.7, Panel A). The downward pressure on the VND was
driven by short-term capital outflows as interest rates in advanced economies increased as they overcame the
COVID-19 pandemic and central banks started to fight rising inflation. Downward pressure on the VND
continued in the latter part of 2024 as the cuts in Viet Nam’s policy interest rate matched or exceeded those
in the United States and Europe. Although foreign direct inflows have so far remained strong, the capital and
financial account balance turned negative in 2023 and 2024 (Panel B).

Figure 1.7. Vietnam’s exchange rate has depreciated while the capital balance has turned
negative
A. Nominal exchange rates relative to the USD B. Capital and financial account balance
2019 Q1 = 100 USD billion
90 40
30
95
20
100
10
105 0

110 -10

IDR VND -20

115
MYR THB -30 FDI (net) Portfolio investment
120 PHP Loans Short-term capital
-40
Total
125 -50
2019 2020 2021 2022 2023 2024 2025 2020 2021 2022 2023 2024

Note: Panel A shows the exchange rates of the currencies of Indonesia, Thailand, the Philippines and Malaysia in addition to the Viet Nam. A decline
indicates a depreciation of the currency. In Panel B, loans are medium and long-term. The figure for 2024 is an estimate by the IMF.
Source: Panel A – CEIC; Panel B, IMF (2024b).

StatLink 2 https://stat.link/6nrcwv
The extent of depreciation was limited by the SBV, which intervenes in the foreign exchange spot market when
the currency hits the upper bound of the exchange rate band, with the aim of supporting market liquidity and
maintaining exchange rate stability over time. The central bank spent an estimated USD 9.4 billion on its
interventions in 2024. In addition, the SBV used open market operations to raise the interbank rate towards
the policy rate (the refinancing rate).

1.3.2. Improving the monetary policy framework

Viet Nam has a complex monetary policy setup that uses a range of instruments, including credit growth
ceilings for individual banks, a policy interest rate, a refinancing rate, interest rate caps on short-term bank
deposits of up to six months, exchange rates, reserve requirements, open-market operations, and other
instruments. This framework has limited inflation to an annual average growth rate of 3.2% since 2012, in line

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26 

with SBV targets. Emerging market economies tend to be vulnerable to external shocks, such as swings in
cross-border capital flows. Some studies suggest that, under Viet Nam’s current monetary policy framework,
the impact of external shocks on inflation and other economic indicators is likely to be smaller compared with
a policy of relying solely on interest rates (Epstein et al., 2022). Moreover, credit growth ceilings on individual
banks may prevent weak banks from lowering their lending rates in an effort to grow, thereby reducing
financial risks. However, reliance on credit ceilings has costs and can be inefficient, in part by delaying the
development of financial markets (see below). Such risks would be better managed by fine-tuning regulation
and supervision.
International experience suggests that foreign exchange intervention can help smooth excessive short-term
fluctuations, thereby contributing to macroeconomic stability. However, if intervention is used to counter
longer-term trends, it may negatively influence investors’ assessment of currency risks and heighten financial
market vulnerabilities (OECD, 2023b). Intervention may not always effectively stabilise exchange rate
movements resulting from structural factors, and risks wasting valuable foreign reserves. While Viet Nam’s
foreign debt is in line with its ASEAN peers, its foreign reserves cover only three months of imports (Figure
1.8). According to the IMF, Viet Nam’s foreign exchange reserves “are assessed to be moderately below
adequacy at end-2023” (IMF, 2024b). Finally, the multiple objectives in a monetary policy framework based
on credit ceilings and foreign exchange intervention reduce clarity in communications and the effectiveness
of monetary policy (IMF, 2024b).

Figure 1.8. Viet Nam’s external debt is not high while reserves cover three months of imports
A. External debt B. Total reserves, 2023 or latest year
% of GDP % of GDP Number of months
200 50 10
IDN IND MYS Total reserves including gold (lhs)
PHL THA VNM Total reserves in months of imports (rhs)
160 40 8

120 30 6

80 20 4

40 10 2

0 0 0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024

IDN IND VNM PHL THA

Source: OECD (2024), OECD Economic Surveys: Indonesia, OECD Publishing, Paris.
StatLink 2 https://stat.link/h0stuf
To further enhance its resilience, Viet Nam should continue modernising its monetary policy framework in the
medium to long-term as its financial markets develop and become more competitive. A number of Eastern
European countries have successfully made such a transformation in their monetary and foreign exchange
frameworks (Box 1.1). The priority is to move away from the current quantity-based monetary policy towards
a more price-based approach, but the getting the sequencing of reform right is crucial for success. Having a
well-developed interest rate setting framework and efficient credit markets in place is key before such a move
could be undertaken. Moving towards a price-based approach requires phasing out bank-specific credit
growth targets to enhance the efficient allocation of capital through the banking system. Rather than limiting
credit growth, the bank-specific ceilings have incentivised banks to extend credit so as to not lose their quota
or have it reduced (IMF, 2024b). Banks’ efforts to meet their ceilings thus create distortions by supporting
unproductive sectors and weakening balance sheets. At the same time, phasing out the ceilings creates a risk
that weaker banks, including those owned by the state, could lend too generously, especially given the

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  27

traditional reluctance of the SBV to raise interest rates. This, in turn, could attract portfolio inflows and lead
to exchange rate appreciation. In December 2024, the SBV reaffirmed that it will create a roadmap to limit
and eventually eliminate the practice of assigning specific credit growth targets to individual credit institutions
(SVB, 2024). However, no mention was made of phasing out the overall credit growth target, which would be
more difficult to achieve in the absence of targets for individual banks. Strengthening the SBV’s supervision of
banks and its capacity to manage risks would facilitate the removal of credit ceilings. Macroprudential policies,
such as countercyclical capital buffers and loan-to-value and debt-to-income limits on borrowers, would
enhance the SBV’s capacity to manage risks, particularly those arising in the real estate sector.
In addition to strengthening monetary policy transmission and reducing credit distortions, the reform of the
monetary policy framework would allow for a more flexible exchange rate arrangement. As Viet Nam’s global
trade linkages expand further, such flexibility is essential, as it would allow the currency to depreciate when
the terms of trade worsen. This would make exports more competitive and provide a better cushion against
external shocks compared to its current managed floating exchange rate system. Consequently, domestic
financial conditions would be less affected by global financial shocks under a flexible exchange rate
arrangement. Moreover, a more flexible exchange rate arrangement would allow the SBV to focus more on
the inflation target, leading to more stable macroeconomic conditions, and would avoid the costs of
intervention, which can be significant (OECD, 2023b).
The reforms of the monetary policy framework should be accompanied by greater operational central bank
independence. Inflation is lower and more stable in countries where central banks conduct monetary policy
independently (IMF, 2024a). In 2018, the National Financial Supervisory Commission’s strategy to 2025 stated
that “The Strategy also aims to gradually increase the independence, the autonomy and accountability of the
SBV for the purpose of managing monetary policy and controlling inflation at an appropriate level” (NFSC,
2018). The objective should be to clearly mandate the SBV’s operational independence to achieve the policy
goals set by the government and the National Assembly (IMF, 2024b). This could be accomplished by
establishing a monetary policy committee as a collective decision-making body appointed by the National
Assembly and given operational autonomy. Reforming the banking sector is essential to improve the
transmission mechanism for monetary policy.

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28 

Box 1.1. The transformation of monetary and foreign exchange frameworks in Poland and
Czechoslovakia
With the collapse of communism, Eastern European countries faced the challenge of integrating into the
international monetary and trading systems. The first step was to establish functioning central banks.
Mandating central bank independence was one of the most important measures leading to a successful
transition. Studies have shown that central bank autonomy is correlated with lower inflation, which in turn
is correlated with subsequent real GDP growth. Poland’s central bank law established the independence
of its governor in 1989 and Czechoslovakia took similar steps in 1990.
To maintain low inflation and a stable currency, the new central banks had a choice of a fixing the exchange
rate or targeting money supply growth.
• An exchange rate peg had the advantage of being the simplest to implement and easiest for the
population to understand. However, this required strict fiscal discipline, which was difficult
economically and politically. Moreover, it requires ample foreign exchange reserves to defend the
currency.
• Targeting a monetary aggregate could help maintain low inflation, while a flexible exchange rate made
it easier to adjust to external shocks. However, this approach was susceptible to fluctuations in money
demand.
Most transition countries, experiencing a “fear of floating”, chose to fix or manage their exchange rate. In
addition, a number of countries opted for a fixed exchange rate to promote integration with the European
Union. Poland and Czechoslovakia initially chose a currency peg and later moved to a crawling band.
However, the more advanced fixed-rate economies experienced significant capital inflows, putting
pressure on domestic demand and making it harder to keep inflation low.
Faced with this new challenge, transition countries, beginning with Czechia (in 1997) and Poland (in 1999),
began to choose an inflation targeting strategy, following global trends. The introduction of inflation
targets was followed soon after by a shift to a floating exchange in both countries. Other transition
countries were slower to introduce inflation targeting as they lacked the necessary prerequisites: i) central
bank instrument autonomy, which allows it to make policy decisions without political interference; ii) well
developed debt and securities markets; iii) established frameworks for transparency and accountability;
and iv) fiscal dominance, which occurs when a country has a large government debt and deficit that forces
monetary policy to focus on keeping the government out of bankruptcy rather than achieving the inflation
target.
Source: International Monetary Fund (2014).

1.4. Addressing financial-sector risks and improving resource allocation

A well-developed financial market is a prerequisite for an effective monetary policy framework. Viet Nam’s
economic success has been driven in part by the availability of affordable credit from its financial system. By
2023, credit to the private sector reached 130% of GDP, well above the median for emerging market
economies (IMF, 2024b). Outstanding private-sector debt has increased at a 15.5% annual rate since 2013
(Figure 1.9, Panel A). Corporate debt, including both bank lending and bond financing, rose from 43% of GDP
in 2014 to 78% in 2023 (Panel B). Viet Nam’s corporate debt ratio exceeds that of Malaysia (55%) and Indonesia
(22%), though it is less than Thailand’s (85%) (AMRO, 2024), and the share of firms with an interest coverage
ratio below one more than doubled over 2017-23, as noted above. This strong credit growth may hint at loose
monetary policy in the past.

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  29

The highly leveraged corporate sector has experienced a series of shocks, notably the COVID-19 pandemic,
the decline in exports in 2023 and real estate market turbulence. The real estate market had boomed during
the decade prior to the pandemic, as rapid economic development enabled the growing middle class to move
from the countryside to apartments in urban areas. Real estate firms relied primarily on bank lending to meet
the surging demand. By 2022, one-third of corporate debt was in the property and construction sector (Figure
1.10). When the pandemic hit, housing sales plummeted and highly leveraged real estate companies were
unable to borrow, prompting them to turn to the bond market, creating new problems (see below). Other
factors undermined the real estate sector. First, the default of Evergrande, China’s second-largest property
developer, in 2021 further weakened consumer and investor confidence in Viet Nam. Second, SVB’s policy
interest rate jumped from 4% to 6% in mid-2022, as the central bank tried to stabilise the currency in the face
of downward pressure as high-income countries raised their interest rates in the face of rising inflation. Third,
official investigations uncovered fraudulent practices in the real estate industry, which led to the fall of the
Saigon Commercial Bank.

Figure 1.9. Viet Nam’s private debt has grown rapidly, led by the corporate sector
A. Outstanding private debt B. Corporate debt-to-GDP ratio
VND trillion Household debt Corporate debt Growth rate % %
25 80
14000
70
12000 20
60
10000
15 50
8000
40
6000 10
30
4000 20
5
2000 10

0 0 0
2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023
Note: Total private-sector debt comes from both bank lending and bond financing.
Source: AMRO (2024).
StatLink 2 https://stat.link/27lioy
In 2022, the number of newly licensed and newly completed housing projects both plunged by 90%. In the
first two months of 2023, 235 real estate firms went out of business, 20% more than during the same period
of 2022. Consequently, numerous housing projects have been put on hold, stranding homebuyers. The 2024
amendments of the Land Law, the Law on Housing, and the Law on Real Estate Business aimed at reducing
bottlenecks that constrain new housing projects and limit supply. In addition, the new laws are expected to
reduce legal uncertainty and enhance transparency in real estate transactions. Nevertheless, the real estate
sector is likely to only fully recover over the medium term, given the severity of its problems (IMF,
2024b). With urban areas accounting for only 40% of Viet Nam’s population, a strong real estate sector is
essential to supply housing for further urbanisation.

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30 

Figure 1.10. The property and construction sector accounts for a third of corporate sector debt

Source: AMRO (2024).

StatLink 2 https://stat.link/ku5anq
The troubled real estate sector has contributed to the rise in banks’ non-performing loans (NPLs) and added
to financial stability risks. Total NPLs, including restructured loans and those held by the Viet Nam Asset
Management Company (VAMC), reached 7.1% of total loans in March 2024 before declining to 5.4% of total
loans at the end of 2024. On-balance sheet NPLs, doubled from 2% at the end of 2022 to 4.6% in late 2023,
the highest level in ten years. Although it fell to 4% at the end of 2024, it was still well above the ratio in other
emerging economies (Figure 1.11) Excluding banks under central bank control (notably the Saigon Commercial
Bank), the ratio was below 1.6%.
In April 2023, the SBV issued a circular stating that credit institutions may restructure loan repayment terms,
such as the amount and due dates, without changing loan classifications. This policy was prolonged until the
end of 2024. The outstanding balance of restructured loans with unchanged classifications fell from VND
114,458 trillion in July 2024 to VND 74,413 trillion (0.2% of total loans) by the end of January 2025. The
forbearance policy was designed to assist borrowers experiencing financial distress, particularly those
assessed as having the capacity for recovery and debt repayment following a restructuring period.
Concurrently, the SBV is in the process of amending the law to incorporate provisions that authorise credit
institutions to seize collateral to enhance debt recovery mechanisms, replacing an earlier provision that
expired.
However, experience in many countries shows that a policy of forbearance can pose economic risks as it can
hide the true scale of NPLs and the costs they impose. Forbearance can enable non-viable firms to remain in
business, but it also has a negative effect on bank profitability. As such, it can also trap capital in low-
performing (zombie) firms, resulting in a misallocation of capital. Forbearance always involves trade-offs.
Banks should focus their efforts at debt collection and collateral liquidation, which requires enhanced
supervision of individual banks by the SBV. The SBV’s recent announcement that it will conduct unscheduled
inspections of credit institutions to ensure their compliance with monetary and banking regulations beginning
in February 2025 is a welcome step in this regard.

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  31

Figure 1.11. Viet Nam’s non-performing loans have risen to high levels
% of total gross loans
7
2025 Q1 or latest
6
2021 Q4

0
KOR ISR SGP SAU MYS CHN CZE IND MEX TUR ARG IDN HKG EME CHL THA HUN BRA PHL COL VNM POL ZAF RUS

Note: End of 2004 for Viet Nam. EME represents emerging market economies.
Source: CEIC.

StatLink 2 https://stat.link/fs9ig5
The resolution of NPLs could be accelerated by increasing sales to the Viet Nam Asset Management Company
(VAMC) and developing debt trading markets. Under current regulations, the VAMC can purchase NPLs from
credit institutions through two methods, either at book value in exchange for special bonds issued by VAMC,
or -since 2017- at market value using other funding sources. Since its establishment in 2013, the VAMC has
played a crucial role in buying NPLs from credit institutions but their role remains somewhat passive, with the
transfer of NPLs being only temporary. Unresolved NPLs are returned to the credit institutions after five years
(OECD, 2023b). Viet Nam may want to consider the active role played by the Korea Asset Management
Corporation (KAMCO), which negotiated the purchase of NPLs from banks at a discount following the 1997
Asian financial crisis. After restructuring, KAMCO sold the loans and recovered the public funds it had used to
purchase the NPLs (OECD, 2001).
Enhancing the effectiveness of the debt enforcement and insolvency frameworks remains crucial to deal with
highly leveraged firms and help banks promptly address NPLs (IMF, 2024b). Viet Nam’s slow insolvency
procedures tend to lower the value of NPLs. The court process for bankruptcy is rarely used as it is
cumbersome and time-consuming. Viet Nam could consider creating a fast-track insolvency process (OECD,
2023b). Finally, a real estate market recovery is essential to reduce the number of new NPLs.
Strengthening capital buffers would help to ensure the resilience of banks in the face of rising NPLs (AMRO,
2025). Sufficient capital buffers are key to allow banks to implement effective debt restructuring without
jeopardizing their ability to operate. The SBV set their minimum capital adequacy ratio (CAR) requirement at
8% in 2020, in line with Basel II provisions. For commercial banks, the average CAR fell from around 13% in
2013 to 10.5% at the end of 2019 (Figure 1.12). However, since the official introduction of the CAR, the ratio
has been rising. For state-owned banks, the ratio was stable before returning to a double-digit level in mid-
2024. Overall, the CAR of banks has satisfied the Basel II criteria. However, the CAR for Vietnamese banks
remains weak and is much lower than the weighted average of 19.4% in other major ASEAN economies (IMF,
2024b). Given the risk that NPLs will erode their capital, 26 of 27 listed banks had ramped up their provisioning
efforts by the end of 2023 (AMRO, 2025). The SBV expects to issue a circular on CAR under the Basel III
framework in 2025. Bank capital could be increased by promoting foreign strategic investment in local banks
and encouraging banks to introduce Tier-1 capital through retaining profits, reducing dividend payouts and
raising equity through public offerings (AMRO, 2025).

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32 

Viet Nam’s banking sector plays the dominant role in its financial system: bank-based financing amounts to
around 125% of GDP compared to only 30% for market-based financing (Chapter 4). Compared with other
ASEAN countries, the evolution of Viet Nam's financial market has been driven primarily by banks (OECD,
2023b). Well-functioning equity and bond markets would improve resource allocation and make the domestic
private sector more productive, particularly given that state-owned commercial banks account for 40% of
banking-sector assets. The capitalisation of the stock market, which was established in 2001, was 41% of GDP
in 2022, below the Philippines (59%), China (64.1%), Malaysia (94%) and Thailand (122%), but nearly on par
with Indonesia (46%) (World Bank, 2024d). Former state-owned enterprises account for a majority of listed
firms in the Viet Nam stock market. While the Singaporean stock market is classified as a developed market,
and the Philippines, Indonesia and Malaysia as emerging markets, Viet Nam remains a “frontier market”.
Frontier markets are considered to be too small, risky, or illiquid to be classified as an emerging market. In
order to meet the target of achieving emerging market status by 2025, the government has taken steps to
restructure the stock market, address the operating methods of member companies in the exchanges, and
strengthen supervision and inspection of listed companies since 2022.

Figure 1.12. Capital adequacy ratios remain weak, especially in state-owned commercial banks
%
15
Credit institutions State-owned banks Commercial banks
14

13

12

11

10

8
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Note: There is a break in the series when capital adequacy requirements entered into force in January 2020.
Source: CEIC.

StatLink 2 https://stat.link/3kzs46
The bond market took off during the pandemic (Figure 1.13, Panel A), boosting its share of corporate debt
from around 1% in 2019 to more than 5% in 2023. The growth is attributed to a tightening of bank lending
standards and stronger demand associated with investors’ search for higher yields in the low-interest rate
environment during the pandemic (AMRO, 2024). Most investors in the bond market are domestic financial
institutions, including banks. However, problems in the real estate sector caused a loss of confidence and
turbulence in the bond market. Indeed, the real estate sector accounted for a quarter of corporate bond
defaults (Panel B). Defaults could rise further as bonds issued by real estate developers account for the bulk
of maturities in 2025.
After freezing in late 2022, the corporate bond market has been gradually recovering, with bond issuance
resuming in the latter half of 2023. The government launched policies to facilitate payment deferrals and bond
restructuring, which centred on the real estate sector. The 2023 Securities Market Development Strategy
towards 2030 includes plans to implement higher requirements for issuance, disclosure and credit rating to
improve the quality of bond products. This should enhance transparency, the capacity of the regulators, and
consumer protection, helping restore investors’ trust in the corporate bond market and promote public
offerings. In addition, it is important to limit the contagion of real estate market instability on financial

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  33

markets, in part by actively implementing the new laws on land, housing and real estate companies, thereby
promoting the recovery of the real estate sector.
Another potential source of concern is the government bond market, which is essential for monetary policy
transmission. The yield on the 10-year government bond remained below 3% -- negative in real terms -- in
2024 due in part to large purchases by the public pension system. Establishing a strong fiscal framework would
help create an active government bond market and attract more investors.

Figure 1.13. Bond issuance has slowed sharply, while real estate companies have high default
rates
A. Growth in corporate debt B. Corporate bond default ratio by sector
% Bonds Bank loans
200
Manufacturing

150 Construction

Other
100
Trade & services
50
Real estate

0 Energy

-50 -200 -100 0 100 200 300 400

y-o-y %
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

change

Note: Panel B shows the status of corporate bonds as of 31 May 2024.

Source: Panel A – AMRO (2024); Panel B – FiinRatings (2024).

StatLink 2 https://stat.link/y1uc9l

1.5. Fiscal challenges include revenue mobilisation and a better fiscal

framework

1.5.1. Moving towards a neutral stance while standing ready to provide support if
needed
A decline in government spending since the mid-2010s has reduced the general government budget deficit,
which was 6% of GDP in 2013, and government debt (Figure 1.14). In 2022, the federal government budget
recorded a surplus, despite the fiscal impact of the COVID-19 pandemic. The relatively modest spending
response in 2020-22 reflected the government’s decision to reallocate spending from other areas to address
the pandemic and to use state-owned banks and extra-budgetary funds to provide additional financial support
to affected households and firms. As a result, government spending’s share of GDP in 2022 was below its pre-
pandemic level.
Countercyclical stimulus led to a federal government budget deficit of 3.4% of GDP in 2023, reinforced by a
decline in government revenue as a share of GDP, reflecting the downturn in the real estate sector. In 2024,
the deficit is estimated to have remained around 3½ percent of GDP (Table 1.1). Government spending edged
up as a share of GDP in 2024, as public-sector wages jumped 30%, on top of a large increase in 2023, in an
attempt to reduce the gap between private and public-sector wages. The public wage increase is estimated to
cost about 1.6% of GDP over 2024-25 (IMF, 2024b).
Government spending in 2025 is expected to be driven by an acceleration of public investment, which lagged
behind schedule in 2024. The Ministry of Finance announced a reduction of other expenditures to allow

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34 

increased spending on development projects in 2025, especially in infrastructure and national security.
Nevertheless, the federal government budget deficit is projected to rise to around 4½ percent of GDP in 2025
and 2026 (Table 1.1). The strong economic growth that surpassed expectations in 2024 suggests reconsidering
the need for continued fiscal stimulus and moving to a more neutral fiscal stance. At the same time, recent tariff
hikes will weigh on growth outcomes in 2025 and 2026, with substantial downside risks around these projections.
Fiscal policy should therefore remain flexible and stand ready to support growth if needed, for example through
a further frontloading of public investment.

Figure 1.14. Viet Nam has reduced government spending and its budget deficit since the mid-
2010s

Source: General Statistics Office of Viet Nam.

StatLink 2 https://stat.link/nt4agi

1.5.2. Upcoming spending needs will challenge longer-term debt sustainability

In most societies, demand for social protection tends to rise as incomes improve. Despite sustained strong
growth over decades, Viet Nam’s social safety networks remain in an early stage both with respect to coverage
and benefit levels (Chapter 2). Current social protection instruments are generally weak and will leave many
future retirees without an adequate pension, or without any pension at all. Even current pension liabilities will
need to be funded by general government revenue once the assets of the under-funded pension system are
exhausted.
Demographic developments are likely to reinforce calls for better social protection. At present, Viet Nam has
a relatively young population. In 2021, Viet Nam’s elderly dependency ratio (the number of persons aged 65
and over relative to the 15–64-year-old population) was 15%, well below China (20%) and the OECD average
(28%) (Figure 1.15). By mid-century, Viet Nam’s elderly dependency ratio is projected to reach 32%. In the
absence of improvements in old-age pensions, this would significantly raise the financial burden on families
to sustain their elderly relatives, as family support is currently the main source of income of those who are no
longer able to work.

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  35

Figure 1.15. The elderly dependency is currently low, but will rise sharply by mid-century
%
60

50

40

30

20

10

0
2000 2023 2050 2000 2023 2050 2000 2023 2050 2000 2023 2050 2000 2023 2050 2000 2023 2050 2000 2023 2050
PHL IDN MYS VNM THA CHN OECD

Note: The old-age dependency ratio is defined as the number of persons aged 65 and over relative to the 15-64 years old population.
Source: United Nations, Department of Economic and Social Affairs, Population Division (2022). World Population Prospects 2022, Online Edition;
World Bank, World Development Indicators database.

StatLink 2 https://stat.link/nrsfh2
Viet Nam’s still relatively small social safety net compared to other countries is reflected in low government
spending, which at 20% of GDP in 2023, was only about half of the OECD average (Figure 1.16). Its government
debt is also low relative to OECD countries and ASEAN peers, where debt has risen since 2015 (Figure 1.17).
By contrast, public debt in Viet Nam fell to 33.5% of GDP in 2023, well below the debt ceiling of 50%, as the
declining share of government spending in GDP and robust economic growth led to favourable debt dynamics.
Figure 1.16. Government spending in Viet Nam is less than half of the OECD average

% of GDP in 2024
60

50

40

30

20

10

0
IDN

IND

ISR

FIN
THA
IRL

COL

ISL

FRA
PHL

CHE

JOR

TUR
VNM

CHL

ZAF

CHN

USA
AUS
LTU
LVA
JPN

CAN
GBR

NLD
CZE
ESP

BRA

SVK
SVN
DNK
DEU

LUX

HUN
POL
ITA
AUT
SGP

MYS
KOR

MEX

NZL

PRT

EST
NOR

GRC

BEL
SWE
OECD

Source: International Monetary Fund, World Economic Outlook Database, October 2024.

StatLink 2 https://stat.link/jpik9m
The recommendations in this Survey are expected to affect both the expenditure and the revenue side of
public accounts, although not all of them can be quantified with sufficient certainty. The fiscal impact of
selected recommendations made in this Survey, including in the following chapters, is presented in Table 1.3.
The effect on spending over the next three-to-five years is estimated at 6.0% of GDP, while longer-term
spending needs in the context of population ageing and the green transition are likely to be larger.

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36 

Figure 1.17. Government debt is below ASEAN peers and has declined since 2015
% of GDP 2023 2015
250

200

150

100

50

0
IDN

ISR

FIN

IND
EST
LUX
TUR

IRL

ISL

CAN

ITA
DNK
CHE

LTU

LVA

NLD
VNM

CHL

CZE

AUS

THA

DEU
SVN
HUN

CHN

FRA
NOR

KOR

PHL

MYS

AUT

BRA
PRT
ESP

USA

GRC
JPN
BEL
SWE

POL

COL
Source: IMF Global Debt Database, December 2024.
StatLink 2 https://stat.link/cblu6f

Table 1.3. Indicative fiscal costs (-) and revenues (+) over a horizon of 3-5 years
% of GDP
Deficit increasing measures -6.0
Reduce social security contributions for low-income earners (Chapter 2) -1.0
Expand the coverage of non-contributory pensions (Chapter 2) -1.0
Reduce secondary school fees paid by disadvantaged students in schools (Chapter 2) -0.5
Improve healthcare and reduce out-of-pocket payments by lower-income households (Chapter 2) -0.5
Provide temporary shelter and other protection against climate events in slums (Chapter 2) -0.3
Increase education spending (Chapters 2 and 4) -2.0
Support R&D spending for SMEs (Chapter 4) -0.2
Increased outlays for the Programme on the Development of Supplying Industries (Chapter 4) -0.5
Deficit reducing measures +6.0
Reduce personal and corporate income tax expenditures +1.0
Eliminate reduced tax rates for the VAT and the Environmental Protection Tax +1.0
Raise the standard VAT rate +2.5
Introduce a recurrent tax on immovable property (land and buildings) +1.0
Additional tax revenue from increased formalisation (Chapter 2) +0.5
Total fiscal impact 0.0
Source: OECD estimates.

Safeguarding the sustainability of public debt in the long run, however, is likely to require policy changes in
response to Viet Nam’s longer-term spending challenges, as suggested by debt simulations undertaken for
this Survey (Figure 1.18). Although hard to quantify and dependent on policy choices, population ageing is
likely to have a significant long-run impact on the trajectory of public social spending, which was only 6.4% of
GDP in 2016 (the latest available data). One illustrative assumption could be that social spending gradually
rises to 10% of GDP by 2060, which is still low in comparison to other countries with age structures and income
levels similar to those that Viet Nam will have in 2060. In addition, the debt simulations assume that other
expenditures rise by 3 percentage points of GDP, mostly reflecting additional spending needs in education and
to finance the transition towards a carbon-neutral economy (Chapter 3). Assuming that there are no additional
fiscal measures to compensate increased spending, government debt would exceed 120% of GDP by 2060 in
the current policies scenario (Figure 1.18, red line). In other words, current revenue levels are clearly not
compatible with fiscal sustainability once future spending pressures are considered.

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Figure 1.18. The expected rise in public social spending calls for offsetting fiscal measures

Note: Nominal GDP and real GDP are assumed to grow by 8.5% and 5.6%, respectively, after 2027, based on their historical averages. The interest
rate is constant at 3.1%. Given the lack of recent data, it is assumed that the share of public social expenditures in GDP was constant from 2017 to
2023. All scenarios assume that public social expenditure will reach 10% of GDP by 2060, while other expenditures increase by 3 percentage points
of GDP. The current policies scenario assumes that revenues as a share of GDP will converge to their historical average. The fiscal consolidation
scenario assumes that tax revenues rise gradually over time, reaching an additional 6.7 percentage points of GDP by 2060. The higher growth scenario
assumes that growth-enhancing structural reforms increase GDP growth by approximately 0.6 percentage points per year, reaching a 20% higher
GDP level by 2060.
Source: OECD calculations.
StatLink 2 https://stat.link/nvyc0x
Besides striving to maximise the efficiency of public spending, Viet Nam will need to mobilise additional
government revenue to keep the debt ratio below the 50% ceiling while meeting emerging spending needs. If
revenue-enhancing measures are implemented, gradually reaching around 6.7% of GDP by 2060, the
government debt-to-GDP ratio would stabilise at a level of 40% of GDP by 2060 (Figure 1.18 blue line).
Another important factor that will determine the trajectory of public debt relative to GDP is economic growth,
which can be strengthened through structural reforms. An illustration of the potential growth impact of
structural reforms recommended in this Survey is presented in Table 1.4. These simulations estimate the
potential effects of reforms in the areas of economic governance, education attainments, regulation and
competition, and state-owned enterprises, based on empirical analysis. The effect of economic governance is
typically estimated on the basis of cross-country estimations and may be an upper bound estimate for what
can be achieved through policy changes over time. A third debt scenario, represented by the green line in
Figure 1.18 assumes that the growth-enhancing structural reforms presented in Table 1.4are implemented
and raise GDP by over 20% in the long run, in addition to the fiscal consolidation measures put in place. In this
scenario, the debt-to-GDP ratio would decline further to around 30% by 2060, slightly below current levels.

Table 1.4. Illustrative impact of selected structural reforms on GDP per capita
Policy area Policy actions Cumulative effect on GDP per capita after:
5 years 10 years Long term
Improve economic governance and Halve the gap with the OECD average in the rule of 2.1% 4.2% 11.1%
institutions law
Improve education and workforce Halve the gap with the OECD average in education 1.3% 2.5% 3.3%
skills attainments
Ease regulatory burdens to Reduce the overall regulation to the level of the 1.3% 1.8% 3.3%
strengthen competition OECD average
Reduce the role of state-owned Reduce public ownership to the level of the OECD 1.9% 2.5% 5.0%
enterprises average
Source: OECD simulations based on the framework of Egert and Gal (2017) and OECD (2024).

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38 

1.5.3. Raising government revenues to meet increasing spending needs

Government tax revenue (including social security contributions) in Viet Nam has averaged 19% of GDP during
the past two decades (Figure 1.19). While it is above its ASEAN peers, revenue is low compared to the OECD
average of 33%. In the long-term scenario (Figure 1.18), a revenue increase of nearly 7% of GDP is necessary
to stabilise government debt at 40% of GDP, given the projected increases in spending. Such an increase ideally
would come from a number of revenue sources.
The composition of Viet Nam’s tax revenues stands out in several respects (Figure 1.20). First, personal income
tax accounted for only 1.7% of GDP in 2022 (Panel A), well below the OECD average of 8.2%. The small share
of personal income tax at only 9.0% of total tax revenue (Panel B) in Viet Nam reflects generous tax allowances,
which include personal and dependent allowances, as well as deductions of mandatory contributions. As a
result, less than 3% of the active population paid personal income taxes in 2019, suggesting significant scope
for broadening its base. Although the personal income tax rate schedule has seven tax brackets ranging from
5% to 35%, it has little redistributive impact. Informality also reduces social security contributions; only 40%
of the 15-60 age group pays social security contributions (Chapter 2).
The corporate income tax is a major source of tax revenues in Viet Nam, accounting for 3.6% of GDP and nearly
a fifth of tax revenue, compared to an OECD average of 11.4%. The statutory corporate income tax rate of
20% is slightly below the OECD average of 23.5%. There is scope for increasing the effective tax rate by
reducing the number of exemptions contained in various incentive schemes, such as tax holidays and reduced
rates applied in special economic zones, some of which have little economic merit (OECD, 2018a). Reducing
personal and corporate income tax expenditures could raise revenues by 1% of GDP (Table 1.3).

Figure 1.19. Viet Nam’s tax revenue has remained steady at close to 20% during the past 20
years
General government revenue, including social security contributions, as a percent of GDP

Source: OECD (2024), Global Revenue Statistics Database.

StatLink 2 https://stat.link/hgwiek

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Figure 1.20.The composition of Viet Nam’s tax revenue differs from the OECD average
A. Tax revenue as a percentage of GDP, 2022
% of GDP
40
Individuals
35 Corporate
Social security
30 Property
Taxes on goods and services
25 Special tax on goods and services
Other
20

15

10

0
Singapore Indonesia Malaysia Thailand Philippines Viet Nam Korea Japan OECD

B. Tax revenue by source as a percentage of total tax revenue, 2022

Individuals Corporate Social security Property Taxes on goods and services Other
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Singapore Indonesia Malaysia Thailand Philippines Viet Nam Korea Japan OECD

Source: OECD Global Revenue Database, accessed 31 March 2025.

StatLink 2 https://stat.link/ewxcdo
Taxes on goods and services including the value-added tax (VAT) and special (excise) taxes on certain goods
and services accounted for 11.3% of GDP and 43.4% of tax revenue in Viet Nam in 2022, exceeding the OECD
average. While the standard VAT rate is 10%, many essential goods and services, including healthcare and
education, are either exempt from the VAT or subject to a rate of 5%. The standard rate was temporarily
reduced to 8% in the first half of 2024 until June 2025. Viet Nam’s Tax System Reform Strategy to 2030 calls
for “gradually increasing VAT rates according to a specific plan and roadmap to meet increasing spending
needs”. Raising the VAT rate from its current 10% could be a major source for additional revenue in the long
run, while taking steps to limit its regressive impact. The VAT has several advantages. For a fixed amount of
tax revenue, relying more on indirect taxes (such as those on goods and services) and less on direct taxes on
income has a less negative impact on GDP, as it imposes fewer distortions on employment and investment
(Arnold et al., 2011). In addition, the VAT is less affected by economic fluctuations, making it a relatively stable
revenue source, and it is relatively difficult to evade.
The amended Value Added Tax Law, which takes effect in July 2025, applies the 5% rate to some sectors that
had been exempt from the VAT and there are plans for further reducing the list of items taxed at 0% and 5%,
which is a welcome development that should be pursued further. However, the same law doubles the revenue
threshold for exemption from the VAT from VND 100 million to VND 200 million (USD 7 874) per year.

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40 

As in Viet Nam, many OECD countries have a lower VAT rate for essential items aimed at helping lower-income
families. However, Viet Nam’s Tax System Reform Strategy to 2030 aims to move towards a single VAT rate by
reducing the number of goods and services subject to the reduced VAT rate and expanding the base. The
government should follow through on this plan. Multiple VAT rates are not effective in helping low-income
households, as higher income households benefit proportionally more from the reduced rates (OECD, 2018b).
The foregone revenue resulting from the lower rate for essential items would be better used to provide a cash
transfer that compensates low-income households for their VAT payments. Multiple VAT rates also have other
drawbacks. First, they entail higher administrative and compliance costs, especially for SMEs. Second, they
create opportunities for fraud through the misclassification of items. Third, they reduce the neutrality of the
VAT, thus distorting consumption decisions and decreasing welfare (OECD, 2019b). Raising the VAT rate and
broadening its base by eliminating the reduced rate could generate around 3½ percent of GDP in additional
tax revenue (Table 1.3).
Another important difference in Viet Nam’s tax system compared to OECD countries is the limited role of
property taxes. Although land in Viet Nam is collectively owned by the state, individuals and companies can
use land indefinitely by paying one-off levies. Revenue from land use levies is one of the most important non-
tax revenue sources of local governments, amounting to 2.0% of GDP in 2019. Given that the supply of land is
limited, one-off levies are not a sustainable revenue source. The government also levies recurrent taxes on
agricultural and non-agricultural land, though not on buildings. However, land-use taxes on agricultural plots
have been exempted or reduce since 2001, although this policy is to be phased out at the end of 2030.
Property taxes accounted for only 0.03% of GDP in 2022 according to the OECD Tax Revenue database, well
below the OECD average of 1.8%. Viet Nam’s property tax, a recurrent tax on the immovable property of
households, has edged down from 0.07% of GDP in 2009 despite sharp increases in property prices. Recurrent
taxes on the value of immovable property are typically considered more efficient than other types of taxes, as
they have a weaker impact on the decisions of households and businesses on labour supply, production and
investment (Brys et al., 2016). Moreover, as with the VAT, recurrent taxes on immovable property are difficult
to evade and can generate stable revenues compared with other types of taxes.
Revenue could be increased by extending property taxes to cover buildings and improving the accuracy in the
valuation of property. These valuations are made every five years, leaving the tax base 30-70% below the
actual market value. More frequent and more realistic revaluations would generate revenue and avoid sudden
jumps in the tax burden. The additional revenue from the property tax could amount to 1.0% of GDP
(Table 1.3).
Another priority is increasing environmentally-related taxes, which amount to 6.7% of tax revenue in OECD
countries. Viet Nam’s Environmental Protection Tax (EPT) on petrol and oil has varied over time and was
halved in 2022, with the reduction being extended until end-2025. Restoring the EPT rate in 2026 as planned
and defining it in terms of carbon content could help reduce carbon emissions and generate more government
revenue. In addition, the deployment of Viet Nam’s mandatory emission trading system should be accelerated
(Chapter 3). To enhance political acceptance, it is crucial to earmark the revenue to initiatives that mitigate
the impact on vulnerable households. Specifically, carbon tax revenues should be directed toward financing
means-tested support for households struggling with higher electricity bills. These funds could also facilitate
the transition to clean cooking technologies and low-carbon commuting options, ensuring that the policy
fosters inclusivity and equitable access to sustainable solutions.
Increased transparency about tax expenditures, which tend to be less effective than direct expenditures to
accomplish government objectives, could guide better policy choices. In addition to the reduction in the VAT
from 10% to 8% and the cut in the EPT tax on gasoline, oil, and grease products, tax expenditures In 2024
include extending the deadlines for paying the VAT, the corporate and personal income taxes and land rent,
pushing back the deadline for the special consumption tax on domestically produced and assembled cars for
three months, and reducing their registration fees by 50%, and cutting various fees and charges by 10% to
50%. The Ministry of Finance projects that these measures will reduce public revenues by VND 195 trillion
(3.0% of GDP) to support businesses and households, of which tax, fee, and charge reductions account for

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  41

about VND 100 trillion and land rental extensions for about VND 95 trillion. As of the end of September,
approximately VND 116.4 trillion had been extended or reduced. While such transparency is welcome, current
information on tax expenditures does not include measures in place before the approval of the 2024
budget. Efforts to shed light on these permanent tax expenditures remain a priority to assess their impact on
government revenue. A number of countries have had success in improving tax expenditure transparency
(Box 1.2; Lenain, 2022).

Box 1.2. Improving tax expenditure transparency

Governments use various types of tax expenditures to pursue a variety of policy objectives. This includes
measures such as income exemptions, tax credits, tax allowances, reduced rates, zero rates, accelerated
depreciation and other actions, which reduce the revenue collected by governments and thus restrict fiscal
space available for growth-enhancing public spending. Estimating the amount of foregone revenue is not
straightforward and requires estimating deviations from benchmarks that provide preferential tax
treatment to individuals or businesses. Tax revenue losses from tax expenditures can be substantial.
According to the Global Tax Expenditures Database (GTED), the global average of revenue forgone due to
tax expenditures in the 106 countries that publish such data is 3.8% of GDP and 23.0% of tax revenue over
the 1990-2021 period. In some countries, such as Czechia, Finland, Jordan and the Netherlands, revenue
forgone from tax expenditures amounts to 10% of GDP or more. When they have a large impact on fiscal
receipts, these tax expenditures can have a major influence on socioeconomic developments such as
consumption, investment, inequality, or carbon emissions.
Despite significant revenue losses associated with tax expenditures, few countries provide comprehensive
information on them. Only 109 out of 218 jurisdictions have reported on tax expenditures at least once
since 1990 (Redonda et al., 2024). Moreover, the quality, regularity, and scope of these reports vary greatly.
Best practices for ensuring transparency include: i) publishing regular public reports on tax expenditures
to increase visibility; ii) informing parliament about these measures and their fiscal costs to facilitate
informed budget discussions; iii) estimating revenue foregone using peer-reviewed methodologies; and iv)
periodically evaluating the impact of these policies. The Global Tax Expenditure Transparency Index (GTETI)
ranks Korea, Indonesia, and Canada among the top countries for adopting such best practices. However,
Viet Nam is not ranked due to a lack of available information. Initiating a series of transparent tax
expenditure reports is critical for Viet Nam, given the evidence that numerous tax exemptions and income
deductions significantly influence its socioeconomic landscape.

In sum, Viet Nam could benefit from a comprehensive tax reform. Reforming the property tax system could
generate additional revenue without imposing large deadweight costs. In addition to reforming the tax
system, it is essential to improve tax compliance by adopting better auditing practices, enhancing inspection
and simplifying tax-related procedures, including using digitalised tax administration services. Implementation
of the 2020 Law on Tax Administration should help strengthen the enforcement power of the tax authorities
against tax evasion. Such measures would help reduce informality, which could generate an additional 1.5%
of GDP of revenue from the personal income tax and social security revenue (Table 1.3). Another priority is to
increase transparency about permanent tax expenditures noted above that narrow the base of key revenue
sources and reduce them over time.

1.5.4. Strengthening the fiscal framework and budget process

In addition to raising additional revenue, reforms to improve the fiscal framework are essential to meet the
spending challenges. Viet Nam’s fiscal framework is based on five-year plans that underpin the five-year Socio-
Economic Development Plans. Compared to other Southeast Asian countries, Viet Nam has more detailed
fiscal rules on government debt, budget balance and expenditures. Viet Nam is the only country with ceilings
for expenditures on a programme or sector basis (OECD/ADB, 2019). Such rules may have contributed to the

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42 

downward trend in spending as a share of GDP. In 2018, the government created the “Medium Term
Expenditure Framework” (MTEF), a three-year rolling plan issued each year to monitor consistency between
medium-term planning and actual policy implementation (OECD, 2023b).
Resilient and performance-oriented fiscal frameworks can help lead to appropriate policy choices, which are
affected by numerous political biases and constraints. OECD research has identified critical elements of such
a framework: budget transparency, fiscal rules, medium-term plans and expenditure frameworks
(Rawdanowicz et al., 2021). In addition, independent fiscal councils could play a useful role in the future
(OECD, 2023b). Evidence suggests strong synergies between fiscal rules, independent fiscal institutions and an
effective medium-term budgeting framework.
The transparency of public finances is important to enable external scrutiny of government policies and
programmes and their implementation. Public access to fiscal information in Viet Nam has improved in recent
years. In 2023, the International Budget Partnership ranked Viet Nam 57th of 125 countries compared to 77th
in 2019. However, Viet Nam is still in the “limited transparency” category (IBP, 2023). Viet Nam provides fiscal
data on the Ministry of Finance e-portal that is in line with the Government Finance Statistics (GFS) Manual
2001. Moreover, it is gradually bringing it into line with the more recent GFS Manual 2014. Providing fiscal
data that covers the general government sector and shows inter-governmental fiscal transfers would further
increase transparency. Moreover, a rigorous quantification of tax expenditures could enhance transparency.
External audits should play a crucial role in identifying inefficiency in the public sector. While all revenues are
audited, expenditures are audited for only half of ministerial agencies. Internal audits are conducted for only
six of the 20 central government ministries and agencies. Ministries produce annual financial reports, but they
are limited to budget execution and do not contain information on assets and liabilities. Accounting standards
used in the reports deviate significantly from International Public Sector Accounting Standards (World Bank,
2024b).
Transparency can also be weakened by the lack of information on fiscal risks, including contingent liabilities,
such as guarantees and contingent obligations including private-public partnerships. The OECD has
recommended that Viet Nam consider disclosing contingent liabilities arising from state-owned enterprises
(OECD, 2023b). Another area where transparency will be key is the publicly-owned Viet Nam Social Securities
(VSS), currently the main buyer of government securities. The VSS will become a net payer as the age profile
of its beneficiaries shifts, and large contingent liabilities will gradually materialise (World Bank, 2023). The
OECD has found that countries with the most advanced management of fiscal risks focus on three channels to
improve risk management practices. First, the comprehensive reporting of fiscal risks enhances awareness of
the risks, which can lead to more effective risk mitigation and management. Second, fiscal risk stress tests help
to identify the channels through which public finances are most likely to be affected during a crisis. Third, fiscal
risk assessments can help policymakers set appropriate fiscal targets or objectives (OECD, 2019a).
The large carryover of unspent budget and surplus revenue (the difference between actual and planned) from
one year’s budget to the next also reduces the transparency of fiscal policy in Viet Nam, as pointed out in the
2023 OECD Economic Survey of Viet Nam (Table 1.5). Between 2015 and 2019, the average carryover of
revenue from the previous year was 18% of actual revenue (OECD, 2023b). Carryovers make it difficult to link
the annual budget with the previous year’s estimates and reconcile annual differences in the budget.
Consequently, the budget is not a credible indicator of policies and plans, making it difficult to monitor fiscal
policy.
Carryover revenue from the previous year should not be treated as actual revenue, but instead should increase
the surplus or reduce the deficit in the previous year. Unspent budget should be returned to the national
treasury if it is not used within a certain period of delay in the following year. Given that strictly forbidding
carryover of unspent budget may cause a spending rush towards the end of fiscal years, a limited amount of
spending could be allowed to be delayed until a specified date in the following year. The 2019 Law on Public
Investment stipulates that the disbursement period of the annual budget for public investment is up to end-
January of the following year (OECD, 2023b).

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  43

Fiscal rules in Viet Nam include rules on expenditure, as noted above. Such rules may prompt governments to
cut growth-enhancing expenditures, such as public investment, as they are politically less sensitive. In light of
significant investment needs, it will be important to protect public investment, based on rigorous cost-benefit
analysis. In addition to improving the quantity of public investment, it is essential to promote its quality, in
part through ensuring competitive bidding procedures and private-sector participation in infrastructure
projects (World Bank, 2021). Furthermore, the lack of information on tax expenditures may induce the use of
tax expenditures for various policy objectives for which direct spending might be better suited (Rawdanowicz
et al., 2021).
The medium-term perspective in expenditure budgeting in Viet Nam is not effective in supporting budget
credibility and predictability. The underlying forecasts in the three-year MTEF are not sufficiently robust for
credible medium-term ceilings and estimates. Consequently, it has been ineffective in linking policies, plans
and budgets for ministries to implement. The medium-term challenges are most severe in the management
of public investment, reflecting difficulties in reconciling the three-year MTEF with the five-year Medium-term
Investment Plan (MTIP) created in 2016. Over the five-year span, many of the projects in the MTIP become
unrealistic and are dropped from annual budget allocation. With the two plans on separate paths in Viet Nam’s
dual-budget system, the selection of investment projects is not based on clear criteria (World Bank, 2024b).

Table 1.5. Past Recommendations on macroeconomic policies and the financial sector
Recommendations Actions taken since April 2023
Consider providing targeted financial support to households strongly affected Measures to assist affected households were put in place during
by high energy and food prices. 2023. Headline and core inflation have now returned to around 3%.
Accelerate disbursement of public investment, including by simplifying public As of end-September 2024, the public disbursement rate reached
investment procedures and regulations. only half of the 95% target for the year. Relevant ministries and
agencies have been instructed to strengthen coordination.
Consider strengthening the independence of the Central Bank, with a view No action taken.
towards eventually establishing a monetary policy committee in the medium-
to long-term.
Eventually adopt stricter inflation targeting with a more flexible exchange rate Exchange rate flexibility has been increased by widening the
arrangement. exchange rate band to ±5% in 2022. The SBV spent an estimated
USD 9.4 billion of foreign exchange reserves in 2024 in foreign
exchange market interventions.
Replace regulation on banking activity with macroprudential measures. No action taken.
Introduce a rule that bans budget carryover spending after a certain period No action taken.
from the end of the previous fiscal year.
Publish comprehensive government finance data that covers the general No action taken.
government sector and shows inter-governmental fiscal transfers.
Prepare a concrete medium-term fiscal consolidation plan to further enhance Public revenues have been on a declining trend. Fiscal policy plans
revenue, improve spending efficiency and increase the transparency of debt and statistics continue to fall short of international standards.
management based on plausible economic projections.
Expand the tax base by reducing exemptions and deductions in the corporate Some products and services that have been exempted from the
income tax and the personal income tax and narrowing the application of the VAT have been put in the 5% VAT category and some that were in
reduced VAT rate. the 5% category were moved to the standard 10% rate.
Replace the land tax on non-agricultural land with a recurrent tax on Viet Nam does not tax buildings, but the government is considering
immovable property levied on both buildings and land. taxing land and buildings separately to raise property tax revenue
from its relatively low level.

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44 

Table 1.6. Recommendations on macroeconomic policies (Key recommendations in bold)

MAIN FINDINGS RECOMMENDATIONS
Viet Nam does not produce seasonally-adjusted quarterly national Provide seasonally adjusted national accounts to allow the timely
accounts, leading to a reliance on annual rates of change. assessment of economic conditions.
Monetary and exchange rate policies
Headline and core consumer price inflation, which were both around 5% Maintain a prudent forward looking, data-dependent monetary policy,
in early 2023, fell below 3% in the fourth quarter of 2024. making interest rate changes conditional on inflation developments.
In addition to interest rates, the State Bank of Viet Nam (SBV) uses a Move gradually away from the current quantity-based monetary
range of tools, including bank-specific credit growth ceilings, interest rate policy towards a more price-based approach by phasing out bank-
caps on deposits and lending and foreign exchange intervention to specific credit growth targets and relying more on interest rates.
achieve its targets.
The central bank, the SBV, is a ministerial organisation of the central In the medium to long term, consider strengthening the SBV’s
government, and its governor is a member of the Cabinet. The SBV’s operational independence to achieve the policy goals set by the
independence is not explicitly defined. government and create a monetary policy committee.
The National Assembly raised the inflation target range from 4.0-4.5% in Move towards inflation targeting as the SBV gains operational
2024 to 4.5-5.0% in 2025. independence and moves toward a price-based approach.
Exchange rate flexibility has been increased by widening the exchange Allow more exchange rate flexibility as Viet Nam’s role in international
rate band to ±5% in 2022. The government intervened in the foreign trade increases further to better cushion external shocks and limit the
exchange market in 2024 to offset downward pressure on the currency. loss of foreign exchange reserves.
Fiscal policy
Economic growth exceeded 7% in 2024, boosted by fiscal stimulus, but Move towards a neutral fiscal policy stance but stand ready to
recent tariff hikes could dampen growth more than expected. provide policy support if growth weakens.
Given the large amount of carryover of unspent budget and surplus Exclude carryover revenue from the previous year in actual revenues and
revenue from one year’s budget to the next, the budget is not a credible return unspent budget to the national treasury if the carryover is not used
indicator of policies, making it difficult to monitor fiscal policy. within a certain period in the following year.
The medium-term perspective in expenditure budgeting lacks credibility Improve the underlying forecasts in the three-year fiscal plan to make
and predictability, making it ineffective in linking policies, plans and them credible for medium-term ceilings and estimates.
budgets for ministries to implement
Viet Nam provides fiscal data in line with the 2001 Government Finance Publish comprehensive government finance data that covers the general
Statistics (GFS) manual, but not in line with more up-to-date government and shows inter-governmental fiscal transfers.
internationally recognised methodologies that show intergovernmental
fiscal transfers.
Large tax expenditures reduce the redistributive impact of personal Improve transparency about personal income tax expenditures and
income taxes, which have therefore little impact on inequality. In addition, evaluate their efficiency in achieving stated objectives.
these tax expenditures result in revenue foregone and reduce fiscal In the absence of an adverse impact, prepare to phase out these tax
space for growth-enhancing public expenditures. expenditures.
The value-added tax (VAT) has a standard rate of 10%, well below the Gradually raise the VAT rate and broaden its base to meet growing
OECD average of 19%. It also has a reduced 5% rate for essential goods spending needs, while using other policies to offset the regressive
and services. impact of the VAT.
Recurrent property taxes, which cover only land, generate only 0.2% of Increase revenue from property taxes by extending them to buildings
tax revenue. Prices are determined every five years, leaving the tax base located on the land and basing them on more accurate valuations of the
30-70% below the actual value. property.
Addressing financial-sector risks and improving resource allocation
Turmoil in the real estate sector has had a serious economic impact and Effectively implement the new laws on land, housing, and the real estate
disrupted the financial sector, contributing to rising non-performing loans business to reduce legal uncertainty and bottlenecks that constrain new
(NPLs) for banks and the freezing up of the bond market. supply and enhance transparency in real estate transactions.
The troubled real estate sector has contributed to the rise in banks’ non- Enhance the effectiveness of the debt enforcement and insolvency
performing loans and added to financial stability risks. The slow frameworks to reduce NPLs.
insolvency procedures tend to lower the value of NPLs.
Non-performing loans remain relatively high and capital adequacy ratios Enhance supervision of individual banks by the SBV to ensure adequate
are relatively low. capital adequacy levels, in part by promoting foreign strategic investment
in local banks and encouraging them to raise more Tier-1 capital.
After expanding sharply during the pandemic, the bond market froze in Implement the 2023 Securities Market Development Strategy’s plan to
late 2022. Although bond issuance resumed in the latter half of 2023, raise the requirements for issuance, disclosure and credit rating of bonds
investor confidence in this market remains weak. to improve the quality of bond products and restore investors’ confidence.

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References
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AMRO (2025), https://amro-asia.org/amros-2024-annual-consultation-report-on-vietnam.
Arnold, J. et al. (2011), Tax Policy for Economic Recovery and Growth - The Economic Journal.
Brys, B. et al. (2016), Tax Design for Inclusive Economic Growth | OECD.
Epstein, N. (2022), Quarterly Projection Model for Vietnam, International Monetary Fund.
Fitch Ratings (2022), Viet Nam Banks' Capital Needs.
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IMF (2017), Quarterly National Accounts Manual - 2017 Edition.
IMF (2024a), Central Bank Independence: Why It’s Needed and How to Protect It.
IMF (2024b), Vietnam: 2024 Article IV Consultation.
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Kwon, E. (2022), The US–China Trade War: Viet Nam Emerges as the Greatest Winner, Journal of Indo-Pacific Affairs.
Lenain, Patrick (2022), “Tax for Development: Does Viet Nam Need Tax Reform?”, Viet Nam Investment Review, July
NFSC (2018), Development Strategy of Viet Nam Banking Sector to 2025 with Orientations to 2030.
OECD/ADB (2019), Government at a Glance Southeast Asia 2019 | OECD.
OECD (2014), Recommendation on Principles for Independent Fiscal Institutions, OECD, Paris,
OECD (2018a), OECD Investment Policy Reviews: Viet Nam 2018 | OECD.
OECD (2018b), Tax Policy Reforms 2018.
OECD (2019a), Budgeting and Public Expenditures in OECD Countries 2019 | OECD.
OECD (2019b), OECD Economic Surveys: Japan 2019 | OECD.
OECD (2020), Multi-dimensional Review of Viet Nam | OECD.
OECD (2021), OECD Economic Surveys: Chile 2021 | OECD.
OECD (2023a), Government at a Glance 2023 | OECD.
OECD (2023b), OECD Economic Surveys: Viet Nam 2023 | OECD.
OECD (2024), Adult skills and productivity: New evidence from PIAAC 2023, OECD Policy Briefs, No. 11 | OECD.
Rawdanowicz, L. (2021), Constraints and demands on public finances: Considerations of resilient fiscal policy | OECD.
Redonda, Agustin, Lucas Millan, Christian von Haldenwang, Sofia Berg and Flurim Aliu (2024), “The Global Tax
Expenditures Transparency Index Companion Paper: Revised Version”, IDOS and CEP.
State Bank of Viet Nam (2025), SBV - Monetary Policy Objectives.
Vietnamnet (2024a), Public investment: Active disbursement but the destination is still far away.
Vietnamnet (2024b), VN projects 16% credit growth for 2025, targets removal of credit room limits.
Vietnamnet (2025a), PM orders decentralization to resolve 1,533 stalled investment projects.
VinaCapital (2024), VinaCapital-Insights_Tourism-Surge-Boosts-Vietnams-Economy.pdf.
World Bank (2021), How Will Viet Nam Blossom? Systematic Country Diagnostic-Update 2021.
World Bank (2023), Technical Assistance to Support Debt Management Reforms in Vietnam.
World Bank (2024b), Viet Nam 2024 | Public Expenditure and Financial Accountability (PEFA).
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2 Towards more inclusive growth

By Patrick Lenain

Viet Nam’s rapid economic expansion has delivered large benefits to its citizens,
including remarkable improvements in living standards and overall well-being.
Extreme poverty has been nearly eradicated, and a growing middle class is
experiencing rising incomes. Income inequality has been contained. Despite this
general improvement of material living standards, several groups have lagged
behind, especially in remote locations where access to public services is challenging.
Additionally, the large numbers of workers in informal employment receive lower
salaries, lack unemployment insurance, and are not entitled to old-age pension
benefits. Women remain less represented than men in many leadership positions.
Finally, vulnerable people living in temporary housing are more exposed to extreme
climate events, such as typhoons. This chapter reviews the progress made so far to
promote inclusive growth and discusses parametric reforms to provide more
universal social coverage and reduce informality.

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2.1. Viet Nam has reduced poverty and contained inequality, but several groups
lag behind
Viet Nam has almost eradicated extreme poverty over the past decades with the help of sustained economic
growth and social protection policies. Extreme poverty as defined by the World Bank’s international poverty
line (income of less than USD 2.15 per day at 2017 purchasing power parities) declined from 45% in 1992 to
less than 1 % in 2022, one of the lowest poverty rates among peer countries (Figure 2.1). Using the benchmark
for lower middle-income countries (income of less than USD 3.65 per day), poverty has declined to 4.2%, and
it remains significant at 19.7% if the benchmark for upper middle-income countries is used (income of less
than USD 6.85 per day). This suggests that, while few persons live in extreme poverty, almost one in five
Vietnamese remain in vulnerable situations and are a risk of falling back occasionally into poverty in the
aftermath of economic shocks or natural disasters.
Multidimensional poverty has also significantly declined over the past two decades, encompassing not only
monetary income but also social dimensions such as employment, nutrition, healthcare insurance, and adult
education. Multidimensional poverty affected only 4.1% of the population in 2024 according to official figures,
highlighting the broad delivery of public services. However, the multidimensional poverty rate was almost 40%
in 74 poor and especially disadvantaged districts in coastal and island areas, where the poverty rate was 24.9%
and the share of near-poor households was approximately 15%

Figure 2.1. Poverty indicators

Note: PPP stands for purchasing power parity. Comparisons in USD PPP correct from differences in price levels across countries and time.
Source: World Bank Poverty and Inequality Platform (PIP).

StatLink 2 https://stat.link/rmiecu
Together with the decline of absolute poverty, income inequality has in general been contained. In 2023, Viet
Nam recorded a Gini coefficient of 0.37, reflecting lower income inequality than in peer countries like Malaysia
and the Philippines (both at 0.41). Viet Nam's inequality level is similar to that of Indonesia (0.38), Lao PDR
(0.39), and Thailand (0.35). The decline in income inequality from high levels in the previous decade was
particularly notable during the COVID-19 pandemic and the energy crisis following Russia’s invasion of Ukraine
(Figure 2.2). This reduction can be attributed to several key factors. First, high-income groups have been more
adversely affected by the disruptions, especially in urban areas where production has been halted owing to
confinement rules and the temporary dislocation of global supply chains. In addition, the government
implemented tax and transfer measures aimed at supporting lower income groups, thus effectively mitigating

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  49

their income losses and reducing overall income inequality. Finally, the large informal sector has demonstrated
more resilience than the formal sector, thus helping to prevent a widening of the income gap.

Figure 2.2.Income inequality has retreated

A. Gini index, whole country B. Ratio top income quintile to lowest income
quintile

0.44 12
0.43
0.42 10
0.41 8
0.4
0.39 6
0.38
0.37 4
0.36
0.35 2
0.34
2002
2004
2006
2008
2010
2012
2014
2016
2018
2019
2020
2021
2022
2023
0
2010 2012 2014 2016 2018 2019 2020 2021 2022 2023

C. Average income per capita D. Average income per capita

Ratio urban / rural Ratio province / whole country
2.5 1.4
1.2
2.0 1
0.8
1.5 0.6
0.4
0.2
1.0 0
South East Red River Mekong North Central Northern
0.5 Delta River Delta Central area Highlands midlands
and Central and
0.0 coastal area mountain
areas
2002
2004
2006
2008
2010
2012
2014
2016
2018
2019
2020
2021
2022
2023

Source: General Statistics Office of Viet Nam, provisional data for 2023.

StatLink 2 https://stat.link/9ml0o7
Analysis of inequality using the methodology developed by Commitment to Equity (Lustig et al., 2023) confirms
the good performance of Viet Nam. This approach employs fiscal incidence analysis to evaluate how
government interventions affect income distribution among different socio-economic groups. The
methodology involves allocating taxes and public expenditures to households to determine their net effect on
income levels, thereby identifying which policies are progressive or regressive. Such analysis helps
policymakers in designing strategies that promote equity and reduce poverty. This methodology was applied
to Viet Nam by the World Bank using pre-COVID data in 2014 (World Bank, 2016a) and 2018 (World Bank,
2022). The analysis suggest that Viet Nam’s low level of income inequality is predominantly the result of the
low level of inequality in pre-fiscal market earnings (i.e., pre-tax and pre-transfer incomes). However, it is
important to note that the estimates shown in Figure 2.3refer to 2018 and that important changes in social
policy have been introduced in the context of the pandemic. Regular updates would be beneficial for the
design of adequate social protection policies.
While these indicators of inequality are useful, they may not provide a complete picture, as they fail to account
for the concentration of income among the top 1% or 0.1% and do not capture the rapid rise in wealth
inequality observed in many countries. These indicators may therefore underestimate the extent of social
disparities. Research indicates that nations maintaining social cohesion through inclusive growth strategies
tend to achieve better long-term outcomes (Acemoglu and Robinson, 2002). Viet Nam should therefore
continue prioritising an inclusive growth pathway to sustain equitable and robust development in the future.
In this context, it is a concern that the country’s system of taxes and cash transfers as a whole does little to
reduce poverty (Figure 2.3). While cash transfers have a sizeable poverty reduction effect, this effect is largely

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50 

undone by taxes. The personal income tax system has little redistributive impact, in spite of tax rates ranging
from 5% to 35%, because of the complex system of tax expenditures comprising personal and dependent
allowances, as well deductions of mandatory contributions (Chapter 1). In addition, the redistributive effect
of personal income taxes is more than offset by the incidence of indirect taxes – VAT and Environmental
Protection Tax – thus resulting in little income redistribution impact (World Bank, 2022).
Figure 2.3. The tax system does little to reduce poverty
Percentage Point Reduction
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
Cash transfer PIT Other direct SSC/HI After direct Electricity VAT Excise Environmental After direct
taxes and indirect subsidy tax and indirect
taxes and taxes
transfers
(consumable
income)
Source: 2018 VHLSS and World Bank calculations (2022).

StatLink 2 https://stat.link/kvaq9p

Box 2.1. Viet Nam’s statistics on labour, income and household welfare
The General Statistics Office (GSO) of Viet Nam conducts annually the Viet Nam Household Living Standards
Survey (VHLSS) to observe the living and working conditions of different population groups and to monitor
the implementation of government strategies. The survey contains information on education, health care,
employment, income, consumption, housing, poverty and living conditions. It is conducted with the
support of the World Bank. The sample size approaches 47,000 households selected across various
geographic levels. Face-to-face interviews are conducted throughout the year with heads of households
and family members. The results are used to determine different levels of poverty prevailing in the country
and make comparisons with peer countries. The most recent data for 2022 were released in early April
2024.
The GSO also compiles the Labour Force Survey (LFS) following standards agreed in the context of the
International Labour Organisation (ILO) and with the support of this organisation. The sample includes
235,000 households surveyed every year, with a distribution across urban and rural areas, and across
provinces and cities. Among various statistical reports, the LFS is used to estimate the number and
characteristics of Viet Nam’s workers with informal employment.
The rich sets of microdata compiled with these two surveys are routinely used by researchers at GSO and
other organisations to prepare socioeconomic studies, including on living standards, household welfare,
migration, remittances and gender gaps (VHLSS), as well as studies of employment structure, returns to
skills and informality (LFS).

The declines in poverty and inequality are also reflected in a narrowing income gap between urban and rural
areas. In 2002, urban incomes were about 2.3 times higher than those in rural areas, but by 2023, this ratio
had decreased to approximately 1.5 times. Nonetheless, horizontal inequality remains a persistent issue in
Viet Nam, particularly among underprivileged groups and regions that have not benefited from rapid
economic development (Nguyen and Tran, 2022). The Southeast region, which includes Ho Chi Minh City,

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consistently reports the highest average monthly incomes (Figure 2.2). In 2023, the average income in this
region was approximately 1.3 times higher than the national average. In contrast, the Northern midlands and
mountain areas, characterized by limited infrastructure, report average incomes that are approximately 0.7
times lower than the national average. Ethnic minorities, who predominantly live in remote and rural areas,
remain among the most disadvantaged groups. They face higher poverty rates and lower income levels
compared to the majority Kinh population, contributing disproportionately to the nation’s poor. Further
improving the various tools to deliver social protection and increase access to public services will be crucial to
further reduce these various divides. Regular assessments of poverty developments, involving a community
of stakeholders, could help the government fine tune existing anti-poverty policies.

Table 2.1. Past Recommendations on Inclusive Growth

Key Recommendations Actions Taken Since April 2023
Expand the current old-age social pension for those aged over 80 to Amendments to the Law on Social Insurance approved in 2024 (effective
cover those who are not covered by the compulsory public pension but from 01/07/2025) introduce several changes in the pension system.
have reached pensionable age. These amendments aim to increase the provision of old-age pensions,
Restrict the lump sum withdrawal scheme for those who have not improve the benefits for pensioners instead of allowing lump-sum
reached pensionable ages, eventually phasing it out. withdrawals, and mandate the participation of small businesses in the
social insurance system.
Raise the statutory retirement age faster and to a higher level (65) than No action.
currently planned, while removing the difference between men and
women.
Simplify and reduce various administrative and financial burdens for No action.
household businesses to encourage them to formalize and grow.
Ease unemployment insurance eligibility conditions for non-regular No action.
workers, by applying the extended reference period of 36 months for
seasonal workers to other unstable jobs, such as construction workers.
Expand the client base of Employment Service Centres to reach non-
insured job seekers through enhanced coordination with outside
institutions.

2.2. Access to social protection could be further improved

Broadening the coverage of social protection policies would help to mitigate this worrisome incidence of
horizontal inequality and help groups left behind. Viet Nam provides social protection with three pillars: social
insurance, social assistance and active labour market programmes (World Bank, 2019). Social insurance is the
largest pillar, with well-established old-age pensions, maternity benefits, healthcare, and unemployment
insurance. These benefits are funded by contributions from workers and employers in the formal sector.
However, given that a majority of the workforce —68.5% of employment— operates in the informal sector,
these benefits are only available to a minority of workers. Social assistance consists of poverty alleviation
programmes and non-contributory pensions financed through general tax revenue, but this amounts to only
a low 0.7% of GDP, a rate that is well below regional and global benchmarks and results in patchy coverage
and very low benefit levels. This duality leaves many workers vulnerable to economic shocks. Active labour
market programmes are also limited in scope (0.1% of GDP).
Social cohesion in Viet Nam would therefore benefit from expanding social assistance programmes to reach a
greater proportion of vulnerable households. However, such expansion must be carefully designed, as existing
evidence from other countries points to the need to maintain strong incentives for formal job creation to avoid
a shift toward informal employment. This shift can happen when the additional benefits available to formal
workers are not perceived as worth the amount of contributions, thus encouraging workers and firms to avoid
paying social contributions and income taxes (World Bank, 2019). Recipients of social benefits may also change
their labour supply behaviour, resulting in inactivity rather than active participation in the job market. An
expansion of social assistance should therefore consider the social protection system as a whole and ensure
policy coherence, with the aim of providing universal basic benefit coverage for informal workers while

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52 

maintaining strong formalisation incentives. Achieving more universal access to social protection and a lower
incidence of informality would make economic growth significantly more inclusive and foster greater equality
of opportunity.

2.2.1. Expanding pension coverage could further reduce old-age poverty

Labour force participation rates in Viet Nam remain high across most age groups for both men and women,
except for younger individuals who pursue education (Figure 2.4). In theory, high participation rates should
ensure workers qualify for old-age pension benefits, providing a safety net against poverty in old age. In
practice, however, few workers become eligible for public pensions upon retirement due to widespread labour
informality. Viet Nam’s contributory social insurance system primarily benefits workers in formal employment,
leaving the vast majority in the informal sector highly vulnerable to poverty in retirement. This disparity
creates significant inequalities: formal workers, often employed in the public sector or by foreign firms, receive
pensions, while informal workers, typically engaged in agriculture, self-employment, and retail trade, do not.
Of the approximately 14.4 million people of retirement age in Viet Nam, only 3.3 million receive monthly Social
Security pensions. To alleviate poverty of other elderly persons, the government has put in place various non-
contributory benefits, such as financial assistance and social support to individuals over 80 years old.
Furthermore, the National Strategy for the Elderly aims to enhance the quality of life for senior citizens by
2030, and includes, amongst others, targets regarding the access to healthcare services.

Figure 2.4. Labour force participation rates have remained high, with more youths in education

A. Total B. Male C. Female

% 2023 2013 % 2023 2013 % 2023 2013
100 100 100
90 90 90
80 80 80
70 70 70
60 60 60
50 50 50
40 40 40
30 30 30
20 20 20
10 10 10
0 0 0
15-24 25-54 55-64 65+ 15-24 25-54 55-64 65+ 15-24 25-54 55-64 65+

Source: International Labour Office, based on micro data from Viet Nam’s Labour Force Survey.

StatLink 2 https://stat.link/rwd730
Improved pension coverage is a crucial objective of amendments to the Law on Social Insurance adopted by
the National Assembly in June 2024 and becoming effective in July 2025. The amendment to the Law brings a
comprehensive reform that broadens the coverage of the social security system with the introduction of a
multi-tiered pension system, the integration of non-contributory pensions, and the creation of a “mixed”
pension for workers with shorter contributory careers. The reformed pension will include a (first pillar) social
pension, for those aged 75 and above with no contributory pension benefits and for those aged 70 to 75 with
low incomes. All Vietnamese citizens who reach 75 years or more without pension entitlements will
henceforth be eligible for a social retirement benefit. The social pension will be paid by the central government
and is subject to fiscal space constraints. The social pension is set provisionally at only VND 500,000 per month
(roughly USD 20), well below the poverty line. Every three years, the government will consider whether to
change the amount. Local governments may pay higher pensions if they have available funds. In addition,
recipients will have their health insurance premiums covered by the state budget. Adding to this, for those with
a work record in formal employment, the minimum number of years contributing to social insurance before

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  53

receiving a pension will be reduced from 20 to 15 years, thus broadening access for workers with careers
comprising periods of informal employment and no contributions.
The amendments to the law also seek to expand the participation in the social insurance system of small
businesses owned by households. These small businesses are characterised by low enrolment rates in social
insurance, and they constitute a large share of informality. By contributing, small business owners will gain
access to various social insurance benefits, including retirement pensions, maternity benefits, and health
insurance coverage, enhancing their social security. In addition, part-time workers and non-salaried managers
of enterprises and cooperatives will also be included in the social insurance system. The government estimates
that about 3 million additional workers will be covered by this change. This reform will broaden social
insurance coverage, ensuring that a wider segment of the workforce receives adequate social protection.
However, it will be important to understand why small businesses have generally not enrolled in the social
insurance system, including whether their limited financial capacity may have been a significant impediment
to their participation (Castel and Pick, 2028). If this is not addressed, the reform will fail to entail a significant
increase in contributions to social insurance, and it may trigger the bankruptcies of many businesses lacking
the financial capacity to pay these contributions.
In addition, amendments to the Law on Social Insurance seek to address the problem of early withdrawal of
contributions from the pension system, which was financially disadvantageous to both workers and the
pension system. Known as a lump-sum social insurance withdrawal, the system enables certain groups of
individuals with less than 20 years of contributions to receive a one-time payment equivalent to two months
of monthly salary per year of contribution. Workers unemployed for more than one year are eligible to this
lump-sum payment, and this was used extensively during the pandemic by those who lost their jobs and
needed to find new sources of income. In addition to this precautionary reaction to an unexpected loss of
income, research has identified other attitudes leading to early withdrawal of pension funds ranging from a
lack of financial literacy to risk-taking behaviour (Do et al., 2023). The reform introduces measures to
encourage employees to keep their contributions in the system rather than opting for this lump-sum
withdrawal of funds. The reduction in the minimum contribution period from 20 to 15 years required for
pension eligibility will broaden the group of workers who can receive a monthly pension instead of having to
withdraw a lump sum payment, such as those who have participated intermittently in the formal labour
market. In addition, employees who choose to keep their contributions in the system instead of taking the
lump-sum payment will benefit from improved pension conditions, health insurance coverage, and monthly
allowances. These incentives are designed to promote long-term participation in the social insurance system
and discourage asking for the lump-sum payment, which results in the loss of future pension benefits and
associated health insurance coverage during retirement.
A complementary policy to potentially discourage lump-sum withdrawals would be to allow workers to borrow
against their social insurance contributions during periods of financial hardship, with the obligation to repay
once their situation improves. This approach, implemented in countries like the United States (through 401(k)
plans) and Singapore, can provide temporary relief without undermining long-term savings. To safeguard the
financial stability of the social insurance system, such loans should be strictly regulated and limited to
exceptional circumstances involving significant income loss. Viet Nam could consider allowing social security
contributors to temporarily borrow against pension contributions during challenging times, while ensuring
that this does not compromise the long-term viability of the social insurance system.
The financial position of the social insurance scheme is generally assessed to be viable at present and is
expected to remain so for the coming decade (ILO, 2023), largely thanks to the demographic dividend enjoyed
by Viet Nam – with the number of working people exceeding the number of older people. However, population
aging is expected to set in after 2035 and, together with the existing pension entitlement parameters, this will
increase pension costs significantly in the absence of reforms (IMF, 2024). The social insurance system is
managed cautiously, with a focus on safeguarding the system’s sustainability rather than the value of benefit
levels, as illustrated by the absence of automatic price indexation. However, in the longer run the projected
increase in the dependency ratio will require mobilising more resources to support older persons and/or

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54 

adjusting benefit levels to maintain financial viability. IMF projections of pension fund viability suggest
financing needs to keep pension assets positive rising from 3.45% of GDP within 30 years to 10% of GDP by
2100.
While these financial challenges will only emerge in the medium term, it is crucial to prepare immediately for
their occurrence. It is therefore welcome that the government decided to increase the pensionable age
gradually to 62 for men in 2038 and to 60 for women by 2035. Nevertheless, the reform should be more
ambitious and accelerated. Differences between the pensionable ages of men and women could be abolished,
as in most other countries. Among ASEAN-6 countries, only Viet Nam has different pensionable ages for
women and men. Pension reforms typically require lengthy political discussions and negotiations and take
time to implement. Many pension reforms have a material impact of pension systems only in the medium
term, such as increasing the minimum periods of contribution, especially if there is a grandfathering of existing
beneficiaries. Introducing a financial buffer to cope with temporary increases of the dependency rate works
also overtime.

2.2.2. Improving cash transfers to protect vulnerable households

Beyond old-age pensions, well-targeted social assistance transfers to vulnerable households in working age
can provide an effective tool to reduce poverty and protect households against economic hardship, including
that arising from job dismissal, price shocks such the recent rise in energy prices (section 2.6) or excessive out-
of-pocket healthcare expenses (section 2.4). Around the world, and especially in Latin America where they
became prominent in the late 1990s, targeted cash transfers have effectively contributed to significant
reductions in poverty (Fiszbein, Schady and Fereira, 2009). The success of such benefits often depends on
effective targeting, including the availability of comprehensive registries of low-income households.
Social assistance transfers can be used to complement Viet Nam’s still nascent unemployment insurance (UI)
system, which provides financial support and employment services to formal-sector workers who lose their
jobs. The scheme is funded by contributions from both employers and employees, with employers
contributing 1% of the monthly salary fund and employees contributing 1% of their monthly salary. To become
eligible for UI benefits, employees must have paid into the system for at least 12 months within the 24 months
preceding unemployment and must register with an employment service center within three months after a
job loss. The benefit amount is calculated as 60% of the average monthly salary of the six months prior to
unemployment, with the duration of benefits ranging from three to twelve months, depending on the length
of contribution. However, with the majority of workers in informal jobs and without access to these benefits,
its coverage rate is still low, at only around 27% of employed workers (or about 13.7 million workers) by end
of April 2022. The recent amendment to the law on social insurance, if successfully implemented, and the
reforms suggested below to encourage shifting to formal employment can help to increase the coverage of
unemployment insurance.

2.3. Reducing barriers to formal employment

Although informality has gradually declined in Viet Nam during recent years, it remains pervasive and is the
source of low coverage with social protection benefits. Attempts to formalise informal workers faced
significant setbacks during the COVID-19 pandemic. The economic disruptions caused by lockdowns and global
supply chain interruptions forced many workers to transition back from formal employment to informal work,
reversing some of the earlier progress made in formalisation efforts. Reflecting this recent setback, informality
remains prevalent. Individuals in the informal sector often face low earnings and heightened vulnerability to
poverty. The informal sector is predominantly composed of small, unproductive firms that are largely
disconnected from the formal economy and demonstrate limited growth potential. These businesses are
particularly unlikely to benefit from the spillover effects of foreign direct investment, perpetuating their status
as low-productivity, low-innovation, and slow-growth enterprises (Chapter 4).

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The General Statistics Office (GSO) publishes informality statistics based on ICLS20 definitions (International
Conference of Labour Statisticians under the auspices of the International Labour Organisation) for informal
workers in all sectors, and ICLS17 for informal non-agricultural workers, using the labour force survey. GSO
estimates that Viet Nam recorded 33.6 million informal workers in 2021, accounting for 68.5 per cent of the
total number of employed workers (GSO, 2023a). In other words, two-thirds of workers are employed without
a labour contract, labour law protection, and social insurance. In a regional comparison, informality in Viet
Nam is much higher than in Malaysia and slightly higher than in Thailand, but lower than in Indonesia, the Lao
PDR and Cambodia (Figure 2.5).
According to the labour force survey, informal workers are typically young workers (15-19 years) entering the
labour market and older workers (60+ years) exiting it. Notwithstanding, informality prevails also in the group
of prime-age workers: only 40% of the 15-60 age group pays social insurance contributions. Informal workers
more frequently live in rural areas, they are typically persons with low educational attainment and skills, their
average labour monthly earnings are around half of that earned by formal workers, and they typically work
longer hours than workers in formal employment. These workers often operate individual household
businesses or small private enterprises, otherwise they are typically family members of the small business
owner and are not declared to the social insurance system and do not pay income taxes.
Informality in Viet Nam is heavily concentrated in agriculture, forestry, and fisheries (Figure 2.6), which
account for 13.7 million of the country's 37.2 million informal workers (37%). While the modernisation of
agriculture and internal migration from rural to urban areas have contributed to a gradual decline in informality,
this alone does not address the broader issue. Significant numbers of informal workers are also found in retail
trade (4 million), construction (3.9 million), transport (1 million), and various manufacturing activities. Addressing
informality, therefore, requires a comprehensive reform strategy that goes beyond the modernisation of
agriculture.
Informal work, concentrated in low-productivity and low-pay activities, provides little in terms of
opportunities for improving incomes and often perpetuates poverty. Conversely, poverty prevents workers
from investing in skills and tools to enhance their productivity, creating a self-reinforcing “vicious circle” of
informal employment and low-paying work (OECD, 2024). Breaking this circle requires comprehensive and
interconnected reforms across multiple policy domains.

Figure 2.5. Informality is gradually declining

A. Informality rate, Viet Nam B. Informality rates in SE Asian countries
% %
90 100
Total Non-agriculture
80 90

70 80
70
60
60
50
50
40
40
30
30
20 20
10 10
0 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Malaysia Thailand Viet Nam Myanmar Cambodia
(2022) (2023) (2023) (2020) (2019)
Source: International Labour Organisation, based on micro data from Labour Force Surveys. In Panel B, data for Malaysia are sourced from Ghorpade
et al. (2024) and Thailand from National Statistical Office (NSO).
StatLink 2 https://stat.link/muadjz
Because informal workers often have low skill levels, raising educational attainment significantly increases their
chances of transitioning into formal employment (ILO, 2021a). Public policies aimed at improving education are
therefore essential in this context. Self-employed workers and small businesses can be encouraged to formalise

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56 

by simplifying regulatory processes and highlighting the benefits of formalisation, as recommended in Chapter
4. Establishing a simplified tax regime, for example, can help to incentivise micro and small businesses to
formalise by lowering tax compliance costs and levying lower tax rates compared to the standard tax system and
can be designed to include a Social Protection financing component (Mas-Montserrat, M. et al., 2023). Reducing
the cost of formal job creation through lower social contributions has been successful in Colombia (Arnold et al.,
2024). In addition to these “carrots,” effective “sticks” are also necessary, such as stronger enforcement of tax
compliance and labour regulations (Chapter 1 and ILO, 2021b). Such measures are particularly effective for
workers and employers in the “upper tier” of informality, who possess sufficient skills and experience and are
more likely to formalise when compliance is strictly monitored (OECD, 2024).
However, it is important to recognise that many informal workers are employed by enterprises that cannot afford
to pay the current level of social security contributions and taxes due to their low productivity. A strong focus on
enforcement —including shutting down these businesses— before addressing other bottlenecks could prevent
workers from accessing the only income generation source they have. If it were to drive more low-income
earners into unemployment than into formal jobs, focusing on enforcement alone could actually worsen poverty.
The experience of fast-growing countries suggests that emerging economies do not simply grow their way out
of informality. While high-income countries generally benefit from lower informality rates than developing and
emerging economies, the relationship is not strong and there is a large degree of dispersion in informality rates
for a given level of GDP per capita (ILO, 2022). Thailand has a similar level of informality to Viet Nam, despite a
significantly higher GDP per capita, with the same holding true when comparing Mexico and Argentina. Hence,
even though Viet Nam enjoys very strong growth rates, a decline in informality cannot be taken for granted in
the absence of specific policy reforms. Viet Nam should follow the experience of countries having reduced
informality with the help of a “virtuous circle” of higher social protection coverage, greater productivity, and
increased probability of formal employment – simultaneously leading to declining poverty and inequality.
Figure 2.6. Informal employment is high in agriculture and retail trade, 2023
Thousands of jobs
12000

10000

8000

6000

4000

2000

0
96 - Other personal service activities

68 - Real estate activities

10 - Manufacture of food products

02 - Forestry and logging

31 - Manufacture of furniture
01 - Crop and animal production, hunting

41 - Construction of buildings

03 - Fishing and aquaculture

56 - Food and beverage service activities

85 - Education
47 - Retail trade, except of motor vehicles

Not elsewhere classified

49 - Land transport and transport via

45 - Wholesale and retail trade and repair

25 - Metal products, except machinery and

43 - Specialized construction activities

97 - Activities of households as employers

95 - Repair of computers and personal
14 - Manufacture of wearing apparel
46 - Wholesale trade, except motor

16 - Manufacture of wood except furniture

and household goods

of domestic personnel
and related services

of motor vehicles
and motorcycles

pipelines
vehicles

equipment

and straw

Note: The sector classification corresponds to the ISIC 2-digit level.

Source: International Labour Organisation, based on micro data processing of labour force survey.
StatLink 2 https://stat.link/4cfd63
As part of a broad package comprising investment in human capital, easier regulation to register businesses
and obtain licenses, and strong enforcement, policies to lower informality in Viet Nam could include lowering
non-wage labour costs for those with low incomes, which reflect the price differential between creating an

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  57

informal and a formal job in a context of imperfect enforcement. Such a reform has proven effective for
reducing labour informality in Colombia (Box 2.2).

2.3.1. High social security contributions likely encourage informality

Within a comprehensive strategy to fight informality, the government could consider reducing social security
contributions for low-income earners, which are typically most affected by informality. Instead, basic social
protection for low-wage workers could rely more on non-contributory benefits, financed from general tax
revenues. This would imply shifting some of the burden of financing social insurance from social security
contributions to other sources of public revenue, while at the same time aiming at universal access to social
protection. Improving access to non-contributory old-age pensions is particularly important, as discussed in
the first part of this chapter.
In Viet Nam, social insurance (SI) contributions are payable by individuals employed with a labour contract.
Income subject to SI contributions includes salary, certain allowances, and other regular payments. Total SI
rates from employers and workers to the various insurance schemes reach 32% (Table 2.2). The payments are
capped at 20 times the basic salary for SI contributions. Health insurance and unemployment insurance
contributions follow the same rules. In addition, workers pay a tax on their personal income with progressive
rates ranging from 5% to 35%. The combination of social security contributions, income taxes and minimum
wages can make the cost of formal labour prohibitive to hire workers with weak human capital and low
productivity. This is likely to encourage employers to operate informally and recruit workers informally
without a labour contract. Hence, it is plausible that high social contribution rates encourage informality in
Viet Nam.

Table 2.2. Social insurance, health insurance and unemployment insurance rates
Employer rate (%) Employee rate (%)
Social insurance, including: 17.5 8.0
Sickness, maternity 3.0 0.0
Occupational diseases and accidents 0.5 0.0
Retirement and death 14.0 8.0
Health Insurance 3.0 1.5
Unemployment insurance 1.0 1.0
Total 21.5 10.5

Source: PWC, Worldwide Tax Summaries, Viet Nam.

Social security rates in Viet Nam are higher than in Thailand, Indonesia, Malaysia, and the Philippines. This is
reflected in Viet Nam’s high revenue collections from social security contributions, relative to non-OECD
countries in the Asia-Pacific region (Figure 2.7). Social security contributions account for about 30% of general
government revenue, which is high in international comparison. Notably, some OECD countries, such as
Australia, New Zealand, and Denmark, do not levy social security contributions at all. Instead, they finance
their social protection systems through other direct and indirect taxes. A similar approach is observed in
Singapore and Hong Kong (China). Viet Nam could draw valuable insights from these policy approaches and
consider shifting its tax mix to reduce reliance on labour taxes, in particular social contributions that typically
apply from the lowest formal incomes and are not levied at progressive rates. This would also imply aligning
social insurance rates more closely with those of its South-East Asian peer countries. For instance, in Thailand,
social security contributions are shared equally by employees, employers, and the government, each
contributing 5% of wages.

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58 

Figure 2.7. Social security contributions generate sizeable government revenues, 2022
% of GDP
7

0
Sri Lanka Malaysia Indonesia Thailand Armenia Kazakhstan Philippines Azerbaijan Mongolia Viet Nam China, PR

Source: OECD Comparative tables of Revenue Statistics in Asia and the Pacific.

StatLink 2 https://stat.link/7es4i9
The cost of reducing social security contributions could be limited by targeting such reductions to low-income
earners, which are typically most affected by informal work. A range of reforms could help reduce the current
disincentives to formal employment at a limited fiscal cost, following the example of other countries:
• Lower contribution rates for workers earning below a certain threshold (Thailand, Colombia, see Box 2.2).
• Grant subsidies to offset the cost of social security contributions for low-productivity workers (France,
South Africa).
• Grant temporary waivers of social security contributions during the transition from informal to formal
employment (Thailand, Mexico).
Still, reducing social security contributions for low-wage earners, and other recommendations made in this
chapter, will require exploring alternative tax bases, such as consumption, carbon emissions, and recurrent
taxes on immovable property, and improvements in the efficiency of existing expenditures. The viability and
success of such reforms will hence hinge on the ability to identify alternative sources of revenues or spending
reductions, which are discussed in Chapter 1 of this Economic Survey.
Reforming social protection systems is often not easy from a political economy perspective. Evaluating
potential obstacles to the political implementation of lower social contributions for low-income earners and
a stronger reliance on tax-financed non-contributory benefits implies identifying those who would win and
those who would lose from the reform. The main winner would be the most vulnerable households that
currently lack access to pensions and/or basic protection against poverty. These are the most vulnerable
segments of the population, but they may not be the ones with the strongest political voice. Beyond low-
income households, there would also be large potential benefits for society at large, as widespread informality
is negatively linked to productivity (Amin and Okou, 2020; Maloney, 2004). By contrast, groups with a less
obvious benefit would include those who are already enjoying the privilege of the formal labour market.
Formal workers in the higher income ranges may oppose the reform to the extent that more of them would
be paying more taxes than before. Since most of these have incomes significantly above those of low-income
households that currently struggle to join the formal sector, the reform would likely have a progressive
distributional effect overall.

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Box 2.2. Colombia’s 2012 tax reform and non-wage labour costs
In December 2012, Colombia’s Congress approved a reform that reduced payroll taxes by 13 percentage
points of wage earnings. In particular, it eliminated employers’ contributions to the public training agency
and the childhood services agency, previously set at 2% and 3% of firms’ payrolls, respectively. The reform
also eliminated employers’ contributions to the health system set at 8.5% of the payroll. These payroll
reductions applied only for workers with wages below a certain threshold. The goal of the reform was to
stimulate formal employment. In the aftermath of the reform, labour informality declined visibly
(Figure 2.8).
Figure 2.8. Informality in Colombia declined in the aftermath of a reduction in payroll taxes
% of total employment % of total employment
72 92
Total (LHS) Rural areas (RHS)

70 90

68 88

Reduction of payroll
66 86
taxes

64 84

Reduction of
62 82
employers' health
contributions
60 80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Note: 12-month averages. Informality is defined as the percentage of workers in employment not contributing to the pension system. Months
from April to August 2020 are missing because of the pandemic some questions were not asked in household surveys.
Source: DANE (Statistical Institute of Colombia), OECD Economic Survey of Colombia (2022).

StatLink 2 https://stat.link/j2la80
Available impact evaluations suggest that the reform led to a 2 to 4 percentage-point reduction in the
informality rate (Kugler et al., 2017; Morales and Medina, 2017; Fernández and Villar, 2017; Bernal et al.,
2017). For self-employed workers, the reform implied no changes in social contributions, explaining why
the effect on increased formality was stronger among employees than self-employed workers. The effects
of the reform have been broad-based and long-lasting, with the manufacturing, services and agricultural
sectors experiencing reduced informality rates (Garlati-Bertoldi, 2018).
Source: OECD (2022), OECD Economic Surveys: Colombia 2022, OECD Publishing, Paris, https://doi.org/10.1787/04bf9377-en.

2.4. Access to public services could be improved

In Viet Nam, the population in urban areas has access to education and healthcare services, including tertiary
education (Figure 2.9), whereas people living in rural areas are less likely to benefit from the full range of these
services. The population in the bottom four income deciles are predominantly living in rural areas and with
low educational attainment, while those in the top six income deciles are mostly in urban areas and are better
educated. Ongoing policy efforts are focusing on better protecting people in lower income deciles, especially
those working in informality, by making them eligible for old-age supplement. Actions are also aimed at
improving access to healthcare services and other public services, with schemes such as waivers on school
fees, public transport discounts, and administrative procedures with no fees. Existing policies also prioritise
facilitating access to concessional credit and seed funding, enabling households to establish enterprises

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60 

without incurring high-interest debt. Finally, with rising occurrence of extreme weather events, recent policy
initiatives seek to help vulnerable groups adapt to climate change.
Figure 2.9. People with low education and those living in rural areas receive lower incomes
Groups in the bottom 40 and top 60 (2022)
Bottom 40% Top 60%
No education 74.87 25.13

Primary education 51.81 48.19

Secondary education 31.72 68.28

Tertiary education 8.86 91.14

0 to 14 years old 49.58 50.42

15 to 64 years old 36.69 63.31

65 and older 39.11 60.89

Female 40 60

Male 40 60

Rural 51.14 48.86

Urban 22.54 77.46

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Share of group in the bottom 40 and the top 60 (%)

Note: The figure provides the profile of the bottom 40% and top 60% of the income or consumption distribution using the latest data. The chart does
so by reporting the share of individuals with a particular characteristic, involving demographics or geographic location, who are in the bottom 40 or
the top 60.
Source: World Bank Poverty and Inequality Platform (PIP).

StatLink 2 https://stat.link/1b0mv8

2.4.1. Primary education is nearly universal, but secondary access remains incomplete
Over the past two decades, Viet Nam has achieved remarkable progress in education, with near-universal
enrolment in primary and lower secondary schools. This widespread access, coupled with a strong emphasis
on building human capital from an early age, has led to impressive outcomes. According to the PISA 2022
results, Vietnamese students scored close to the OECD average in mathematics and slightly below the OECD
average in reading and science. Additionally, the socioeconomic gap in educational performance in Viet Nam
is narrower than in many OECD countries. In the PISA mathematics test, students from the top 25% of socio-
economic backgrounds outperformed their disadvantaged peers by 78 points—a smaller disparity compared
to the OECD average of 93 points. This indicates that Viet Nam’s primary and lower secondary education
systems are operating effectively, both in terms of proficiency and equity, providing significant benefits to 15-
year-old students when they take the PISA assessment.
However, socioeconomic disparities take a severe turn beyond the age of 15 years, as illustrated by incomplete
enrolment in upper secondary education (Figure 2.10). A barrier to full enrolment is likely to stem from the
cost of education being too expensive for vulnerable populations. The VHLSS2022 survey reports education
spending of VND 7 million annually (about EUR 260) – reflecting school fees, contributions to school funds,
extra tutoring and other school expenses – exceeding what vulnerable families can pay. The wealthiest families
spend on average 5.6 times more than the poorest on additional courses outside the school system, a
difference that extends to 10 times more in secondary school (World Bank, 2016b) – which reduces the
equality of access to future opportunities in tertiary education.

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Figure 2.10. Full enrolment in primary education, rising enrolment in secondary education
% 2012 2022
100

90

80

70

60

50

40

30

20

10

0
Primary school Lower secondary school Upper secondary school

Source: General Statistics Office of Viet Nam (2023b).

StatLink 2 https://stat.link/7ndlpw
As a result, differences in enrolment widen when entering upper secondary school, with over a third of
children from households in the bottom quintile dropping out. By age 19, less than 20% of children from poor
households remain in school, while 80% of students from high-income households continue with their
education up to college or university (World Bank, 2022). A greater focus on the impact of socioeconomic
factors in upper secondary education is necessary to provide better opportunities to children from vulnerable
families and those living in remote areas. Information campaigns highlighting the employment opportunities
and increased earning potential associated with completing upper secondary education are crucial for
encouraging children from low-income families to stay in school. Viet Nam decided to fully waive tuition fees
for students attending public schools from preschool through high school nationwide, effective September
2025. In addition, means-tested cash transfers could give all students a chance to complete their education as
the cost of attending school includes expenses such as uniforms, textbooks, and extracurricular activities that
can altogether deter further education. Attracting good teachers to remote schools with financial incentives
has resulted in improved performance in other countries and could be part of a strategy to improve the quality
of upper secondary education.

2.4.2. Access to healthcare is almost universal, but with high out-of-pocket payments
Viet Nam has made strong progress towards achieving universal health coverage, with 93.3 % of people having
health insurance in 2022. The government fully subsidises health insurance premiums for vulnerable groups,
including the poor, ethnic minorities, children under six, and the elderly above 80. Additionally, policies have
been implemented to transition from voluntary to compulsory health insurance membership, aiming to
increase coverage rates, with partial subsidies provided to vulnerable households and students. Despite these
efforts, about 6.7% of the population remains without health insurance coverage. Viet Nam has stepped up
its efforts to improve the health care of populations at the margin of society – such as ethnic groups living in
mountains or remote rural areas –who lacked access to regular health checks and access to hygienic conditions
such as clean water and latrine (Mekong Development Research Institute, 2020). However, out-of-pocket
health expenses still account for 43% of total spending in Viet Nam, often making the cost of healthcare
prohibitive for low-income households. Indeed, research shows that almost 5% of households still faced
catastrophic health expenditures in 2018 (based on the 40% of non-food expenditure threshold). This rate had
gone down over time, thanks in part to increased health insurance coverage, but remained higher than in
Indonesia and Thailand (Thuong 2021).

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Achieving effective universal coverage – close to 100% of the population with sufficient coverage - should be
the government’s goal to increase health equity. Moreover, healthcare is considered essential to prevent the
spread of infectious diseases and alleviate the plight of the sick living in poverty. Research based on pilot
interventions finds that the lack of documentation, administrative complexities and costs of enrolment make
it difficult for some groups to get a health insurance card (Forse et al., 2024). While the government fully
subsidizes health insurance premiums for specific vulnerable groups, there appears to be a lack of awareness
and understanding among the low-income population about the procedures to become eligible. Focusing on
specific groups with low health enrolment and reaching out with information campaign, together with
simplifying procedures, will be essential to achieve universal coverage. Holding a health insurance card alone
will not ensure immediate access to healthcare– obstacles such as overburdened facilities and high out-of-
pocket payments will remain – but it would be a step in the right direction. Targeted social assistance benefits
could provide additional support to low-income households with high out-of-pocket health expenditures.

2.5. Women participate actively in the labour market, but not in senior positions
Women participate in the labour market in large numbers, which has made a crucial contribution to eliminating
poverty is the country (Figure 2.4). Nonetheless, the average participation rate of women (62.5% in 2022)
remains lower than that of men (75%) (GSO, 2023c). The gender wage gap is low both in comparison to peer
countries and to OECD members (Figure 2.11), but at 11%, it nonetheless has further scope for reduction. While
a lower share of women holds informal jobs (65%) than men (71.6%), their informal jobs are often more
precarious and less well paid (ILO, 2024). In addition, traditional stereotypes and prejudices remain a barrier to
women’s progress in their career on the labour market (Country Gender Equality Profile, Viet Nam, 2021).
Government directives have introduced legal and policy provisions to eliminate barriers for women and girls
to access to education, health care, and employment. Revisions to the labour code in 2019 include provisions
to promote gender equality in the workplace, such as equal pay for equal work and protection against gender-
based discrimination. The revisions removed the list of 77 occupations proscribed for women and/or pregnant
and breastfeeding women. Maternity leave (6 months paid), breastfeeding breaks (60 minutes per day) were
codified. The National Strategy on Gender Equality (2021–2030) outlines objectives to reduce gender gaps in
politics, economics, labour, and education, and to enhance women's leadership roles. However, Viet Nam's
paternity paid leave provisions of 5-7 working days, with the exact duration depending on specific
circumstances, is low by international comparison. As an illustration, both Myanmar and Nepal grant 21 days
of paternity leave, both Australia and the United Kingdom grant 14 days of paternity leave, and France
provides 25 days. This positions Viet Nam among countries with relatively modest paternity leave offerings.
Providing paid leave entitlements to both parents to care for a very young child is good for household finances,
child development and parental well-being. It also encourages fathers to use their leave entitlements and get
more involved in childcare, thus increasing opportunities for women to move ahead with their professional
career (Adema et al., 2023). Viet Nam should consider expanding paid leave entitlements available to both
parents, with a significant share - preferably half - earmarked to fathers.

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Figure 2.11. Viet Nam’s gender pay gap is low

%
40
35
30
25
20
15
10
5
0
-5
-10

Korea

India
Indonesia

Cambodia

Myanmar

Japan
ASEAN

Singapore

New Zealand
Malaysia

Philippines

United States
Lao PDR

Viet Nam

Australia

Sweden
Thailand
Note: The average wage include part-time workers. The ASEAN data point excludes data from Brunei Darussalam.
Source: ILO database (https://ilostat.ilo.org/).

StatLink 2 https://stat.link/5ei2fx
Women’s participation is lower than men’s in senior management across both the public and private sectors
in Viet Nam. In Parliament, the proportion of women elected to the National Assembly has risen only modestly,
from 26.2% during the 1997–2002 tenure to 30.3% for the 2021–2026 term. Furthermore, women are almost
entirely absent from police roles (GSO, 2023c). In the private sector, women also hold relatively few leadership
positions. A private-sector survey revealed that women accounted for just 16.6% of board members and only
16% of CEOs in a sample of 50 Vietnamese companies in 2018 (Deloitte, 2019). While Viet Nam lacks
mandatory quotas for women on corporate boards, corporate governance regulations stipulate that boards
should have a gender-balanced composition, with at least two female directors and 30% female
representation (Decree 71/2017/ND-CP). Encouragingly, some prominent Vietnamese companies, such as
Vingroup, are setting a positive example exceeding these minimum quotas. To advance gender equity, Viet
Nam could consider introducing mandatory quotas similar to the European Union’s Directive (EU 2022/2381),
which requires 40% representation of women among non-executive directors and 33% overall among all
directors in large companies. These quotas, enforced with penalties for non-compliance, have proven effective
in increasing female board membership in countries such as France and Norway. A phased-in approach could
ease implementation, initially targeting large public companies and expanding to private and medium-sized
enterprises only after substantial compliance is achieved among larger public firms.

2.6. Achieving an equitable transition to a low-carbon economy

While Viet Nam has made enviable progress in reducing poverty and lowering inequality, this could be
undermined by multiple risks linked to the mitigation of greenhouse gas emissions and the adaptation to
extreme weather events.
As highlighted in Chapter 3, Viet Nam must advance policies to improve energy efficiency and transition from
fossil fuels to renewable energy sources. This transition will require implementing a comprehensive package
of measures, including carbon pricing mechanisms such as carbon taxes and the planned rollout of an
emissions trading system. These measures will likely lead to higher prices for energy products, including
vehicle fuels, coal, electricity, kerosene, and LNG (Chapter 3).
Even though Vietnamese low-income households consume less energy than high-income households, they are
nonetheless at risk of being severely burdened by the price increases entailed by the energy transition.
Encouragingly, several mitigating factors are already in place to reduce this burden. Viet Nam’s electricity retail
tariffs are somewhat progressive, with lower prices for the initial blocks of monthly household consumption.

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64 

This structure ensures that low-income households can access essential electricity at lower costs. Small rural
enterprises benefit from relatively low tariffs, providing further relief to vulnerable segments of the economy.
These measures are critical to preventing energy poverty and protecting vulnerable households from
significant price hikes, as seen in other countries with similar support schemes, such as France’s “chèque
énergie” or the UK’s “Warm Home Discount” and fuel vouchers. To further shield vulnerable populations from
rising energy prices, Viet Nam could consider additional programmes, including:
• Direct cash transfers: Means-tested social assistance transfers could help to alleviate the financial burden
on vulnerable households, potentially conditional on adopting cleaner technologies such as solar panels,
microgrids, or clean cooking solutions.
• Enhanced progressive tariffs: Adjusting electricity tariffs to further lower prices for the initial consumption
blocks.
• Targeted financial support to help small firms and farmers adopt less energy-intensive production
techniques.
In all countries the energy transition will result in sectoral reallocations, as workers and capital move from
high-carbon to low-carbon activities. In Viet Nam, this will affect local communities that are heavily focused
on coal extraction, coal processing, coal-thermal power generation and energy-intensive manufacturing such
as steel and cement production. Workers specialised in fossil fuel-based sectors such as manufacture and
maintenance of combustion engine vehicles and petroleum product refineries and distribution will also be
affected. Many of these workers will likely find new employment opportunities in “green activities”, such as
wind power and solar farms, but the required skills are not the same and locations are different. For example,
Viet Nam has 39 coal-fired power plants, which employ 13,500 workers; together with indirect jobs, the value
chain is estimated to employ 35,500 people. The coal mining sector is estimated to employ between 77,000
and 111,000 workers (Socialist Republic of Vietnam, 2023).
New employment prospects are emerging in renewable energy development, energy efficiency projects, and
electric vehicle value chains. To help workers transition to these jobs, Viet Nam is investing in skills training,
retraining programmes, and local economic development initiatives to ensure that workers can adapt to the
demands of a decarbonized economy while minimizing social disruptions. Since not all workers in high-carbon
industries will be able to move into new jobs rapidly, the government should be prepared to provide support
to affected workers. This could include access to social assistance benefits, temporary jobs and -if needed-
early-retirement packages. In addition, the government could encourage workers to relocate in other regions
with better employment opportunities. In addition to information provided by public employment services,
means-tested support to meet the cost of relocating would facilitate the transition of workers, especially
homeowners leaving depressed regions and moving to cities with high housing prices.
Climate change is expected to intensify the frequency and severity of extreme weather events, such as
typhoons, droughts, and floods. Helping households cope with the impact of climate change will become
increasingly important. Typhoon Yagi serves as a stark reminder of the destructive power of such events and
their impact on infrastructure, livelihoods, and living conditions, and underlines the need for contingency
planning to support vulnerable populations following extreme weather events. People living in temporary
dwellings are particularly vulnerable to weather events when their housing is made of substandard materials
that cannot withstand extreme weather events like heavy rainfall, strong winds, or heatwaves. Limited or non-
existent drainage systems in slums also exacerbate flooding risks. Recognizing the threats to livelihoods posed
by events such as heatwaves and typhoons, the government is prioritizing urgent measures to improve
housing and infrastructure in poverty-stricken areas. The government has initiated a comprehensive plan to
construct nearly one million social housing units between 2021 and 2030, which is a step in the right direction
to replace temporary dwellings in locations likely to be hit by extreme weather events, but could be
accelerated. A campaign is underway to eliminate temporary and precarious settlements vulnerable to
extreme weather, with the objective of completing the construction of about 100,000 units by the end of
2025. The government estimates that it will require approximately VND 12 trillion to provide proper housing.

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Funding for this initiative will come from the state budget, complemented by contributions from civil society,
including businesses, community organizations, and philanthropists.

Table 2.3. Recommendations on more inclusive growth (Key recommendations in bold)

MAIN FINDINGS RECOMMENDATIONS

Monitoring poverty developments
Despite the availability of useful microdata on the labour force and Prepare regular assessments of poverty developments, involving a
population groups, the redistributive impact of taxes and transfers community of stakeholders, to fine tune existing anti-poverty policies.
could be measured more systematically.
Reducing barriers to formal employment
Informal employment affects 68.5% of workers. This precludes them Establish a comprehensive strategy to foster formalisation, including
from access to social security, while reducing productivity and tax through lower non-wage costs, stronger enforcement and lower
revenues. administrative burdens to register a business and obtain licenses.
High charges on formal labour hold back formal job creation and Reduce the tax burden on labour income by lowering social security
sustain high labour informality, especially among low-income contributions for low-income earners and shifting the financing of basic
earners. social protection towards general taxation.
Few workers become eligible for public pensions upon retirement Implement plans to achieve universal pension coverage by expanding
due to widespread labour informality. basic, non-contributory old-age pensions while ensuring the
sustainability of the contributory pension system.
The pension system is projected to face large financing needs in the Conduct regular actuarial assessments of pension system sustainability and
long term in the absence of reforms owing to population ageing. The consider reforms to improve it, including by raising the retirement age,
pensionable ages are lower than in OECD countries, with a aligning it for men and women and pre-funding future pension expenses.
difference between men and women.
Improving access to public services
The average number of years of schooling is low at 9.3 years. Only Improve access to upper secondary education by making attendance
58% of students complete secondary education. mandatory, while improving its quality.
Despite universal enrolment in primary education, many students Provide means-tested scholarships to help cover the cost of education
cannot afford to attend secondary school, and dropouts in upper beyond school fees. Use financial incentives to attract excellent teachers to
secondary education are predominantly from low-income families. remote schools.
About 6.7% of the population does not have access to healthcare Reduce administrative barriers to access healthcare cards.
insurance, and health facilities are out of reach in remote areas.
Out-of pocket expenses for healthcare services can be high. Use targeted social assistance benefits to support low-income households
facing high out-of-pocket healthcare expenses.
Reducing gender gaps
Although women are entitled to 6 months of paid maternity leave, Increase paid parental leave entitlement available to both parents, with a
men are granted only 5-7 days, thus reducing opportunities for share significant minimum earmarked for fathers.
responsibility of parental care and slowing women’s return to work.
Women are under-represented in both public and private leadership Consider mandatory quotas to raise the share of women in public positions
positions, thus undermining their role model. and senior business positions.
Achieving an equitable climate transition
Energy prices will increase during the climate transition as measures Use targeted social assistance benefits to support vulnerable people
such as carbon pricing and stricter regulation will increase production affected by higher energy prices.
costs.
Workers in coal sector and other high-carbon industries will need to Facilitate the acquisition of skills in green sectors.
reallocate themselves to other sectors. Use targeted social assistance benefits and early retirement packages for
workers in coal-related activities who are unable to find new jobs.
Extreme weather events are likely to become more frequent, with Prepare contingency plans to support vulnerable populations following
destruction of housing and infrastructure disproportionately affecting extreme weather events.
vulnerable communities. Accelerate the supply of affordable housing to replace temporary dwellings
in locations likely to be hit by extreme weather events.

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3 Unlocking low-carbon economic

growth
By Patrick Lenain

Viet Nam is highly vulnerable to the impacts of climate change, with low-lying areas
in its megacities at significant risk from flooding, rising sea levels, and extreme
weather events. The government is implementing a range of strategies to adapt to
these climate challenges, including flood management systems, urban planning,
new farming practices, and when unavoidable relocation of households. The country
is also committed to achieving carbon neutrality by 2050 and implementing a robust
green growth strategy to support this transition. Viet Nam’s rapid expansion of
renewable energy capacity has been remarkable, positioning it among the world’s
fastest adopters of clean energy. Shifting the energy mix toward domestic low-
carbon sources while reducing reliance on imported fossil fuels also enhances
energy security. However, despite progress in renewables, surging electricity
demand has driven coal consumption to record levels, leading to increased
greenhouse gas emissions. The transport sector, as the second-largest energy
consumer, exacerbates urban congestion and deteriorates air quality. To address
these challenges, greater reliance on effective price signals, such as carbon taxes
and market-based mechanisms, could unlock low-carbon economic growth.
Complementing these measures with well-designed regulations that prioritise
energy efficiency will further strengthen Viet Nam’s transition to a sustainable, low-
carbon future.

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3.1. Viet Nam is acting to mitigate and adapt to climate change

Climate change is having a significant economic impact on Viet Nam. Due to its geographic characteristics—
approximately 3,260 km of coastline and two densely populated river deltas—Viet Nam is particularly
susceptible to rising sea levels and extreme weather events. The country regularly experiences significant
damages, including saltwater intrusion into rice fields, flooding of roads and urban areas, land erosion and
landslides, shifting ecosystems, and extreme heatwaves in cities. In September 2024, Typhoon Yagi, one of the
most powerful storms to hit Viet Nam in three decades, caused economic damage estimated at 0.7% of GDP
(World Bank, 2024). Further economic damages and human losses are likely because projections indicate that,
even with moderate global mitigation efforts, the global average temperature could increase by over 2.5°C by
2100, surpassing the Paris Agreement's targets (IEA, 2024a).
Viet Nam accounts for only 1% of global GHG emissions and has contributed to just 0.3% of cumulative CO2
emissions. Despite this relatively modest contribution to global emissions, the country is firmly committed to
participating in international efforts to address climate change. Viet Nam has pledged to achieve net zero
carbon emissions by 2050, with interim targets for 2025 and 2030. In its Nationally Determined Contribution
(NDC), Viet Nam has committed to an unconditional reduction of 15.8% of total GHG emissions by 2030
compared to the business-as-usual scenario, and a reduction of 43.5% conditional on receiving international
support in the form of financial aid, technology transfer, and capacity building (Figure 3.1). Viet Nam’s
commitments have been integrated into detailed green growth plans, notably the Law on Environmental
Protection (LEP), the National Strategy on Climate Change, the Eighth Power Development Plan (PDP8), the
Action Plan to Reduce Methane Emissions, the National Strategy for Climate Change Adaptation, and
measures to strengthen the circular economy. However, GHG emissions have not yet peaked in Viet Nam and
recent trends suggest, in the short term, further increases of emissions from fossil fuel consumption (IEA,
2024b). Bucking the trend of carbon emissions will require a package of strong measures to promote clean
energies and improve energy efficiency.

Figure 3.1. Viet Nam’s conditional pathway implies a lower carbon footprint

(in millions of tCO2eq GHG emissions)

Projections
1000
900
800
700
600
500
400
300
200
100
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050

Historical data Conditional contribution Unconditional contribution Business as usual

Source: Crippa et al. (2024) for historical data; Viet Nam’s Nationally Determined Contribution official objectives for 2025 and 2030 (update 2022),
linear extrapolation to net zero thereafter.

StatLink 2 https://stat.link/vniczp

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Some of the recent reform initiatives undertaken by Viet Nam are in line with recommendations made in the
2023 OECD Economic Survey of Viet Nam (Table 3.1). In addition, Viet Nam is also making significant efforts
to adapt to climate change. A priority area is to protect its largest agglomerations from the effects of rising
sea levels, including through flood management systems, urban planning, new farming practices, and when
unavoidable relocation of households.

Table 3.1. Past recommendations on green growth

Recommendations Actions taken since April 2023

Adopt a clear and predictable climate strategy, with consistent long-term Viet Nam is finalising its legal framework for climate change and participating
goals, especially in relation to greenhouse gas emissions and energy in mechanisms such as the Just Energy Transition Partnerships (JETP) and
sector reform. the Asian Zero-Emission Community (AZEC) initiative.
Accelerate the implementation of the carbon market, starting with an Draft amendments to Decree No. 06/NĐ-CP propose detailed provisions
emission trading system in high emission sectors, including the power on GHG emission quota allocation and trading, and carbon credit
sector, and eventually expand its coverage, in order to ensure that mechanisms. During 2025-2026, Viet Nam plans to allocate quotas for
energy prices can duly reflect cost and increasingly include the negative GHG emissions from thermal power generation, steel production, and
externalities from greenhouse gas emissions. cement production, to be expanded to other sectors.
Halt investment in new coal-fired power plants as planned, and New coal-fired plants feature in the power development plan, but no such
strengthen investment incentives for renewable energy sources, new plant has been authorised. Feed-in-tariffs for renewable electricity
especially onshore and offshore wind energy. generation are being reformed to become auction based and legislation
on power purchase agreements has been approved by parliament.
Set up a simple, comprehensive and well-coordinated evaluation The government is promoting climate-smart agriculture and encourages
framework to monitor progress in reducing agriculture emissions. farmers to adopt low-emission rice varieties.
Develop a comprehensive programme for decarbonising the transport Fiscal incentives to encourage EV adoption have been put in place, in
sector and promoting the shift to electric vehicles (EVs). addition to the planned wider roll-out of charging stations.

3.2. The energy mix is changing, but not enough to reduce emissions
Access to energy has been pivotal in Viet Nam's rapid economic development. The use of fossil fuels has
supported rapid development of electricity generation and industrial activities (Figure 3.2). The rapid increase
in energy consumption was made possible by expanding the reliance on fossil fuels, in particular coal (47.5%),
oil (23.8%), and natural gas (5.3%) (Figure 3.3). Nonetheless, this traditional framework of intensive energy
use to fuel development is increasingly reaching its limits. Electricity demand has outpaced what Viet Nam’s
electricity producers can reliably supply and severe outages have become more frequent, such as in June 2023
when industrial parks in the northern provinces of Bac Ninh and Bac Giang faced significant power blackouts,
disrupting the operations of multinational manufacturers operating in these hubs. To meet energy demand,
Viet Nam has to increasingly rely on imports of fossil fuels, which reached USD 27 billion in 2022, the second
largest category of imports after electrical and electronic equipment. In a more fragmented world economy,
relying heavily on foreign suppliers of energy goods increasingly raise concerns of energy security. The
intensive use of fossil fuels has also deteriorated local air quality in urban centres, with deleterious health
consequences. Viet Nam is therefore implementing policies to diversify its energy mix by encouraging
investments in renewable energy sources. This strategy has been successful in achieving a gradual increase in
the share of renewables, with solar power accounting for 4.9% and wind power 1.9%, in complement to
hydropower maintaining a large presence (15.5%).

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Figure 3.2. Electricity generation is the main source of GHG emissions

In million tCO2eq

Source: Crippa et al. (2024)

StatLink 2 https://stat.link/a05zm1
However, the shift toward low-carbon sources has not yet led to a decline in carbon emissions, which are
estimated to have reached 373 million tons of CO2 in 2023, more than in Thailand, Malaysia and the Philippines
(Crippa et al., 2024). According to preliminary indicators, CO2 emissions were even higher in 2024 owing to
the rapid increase in the consumption of coal, which is used extensively to generate electricity (IEA, 2024b).
As a result, Viet Nam is likely to have overtaken South Korea in coal-fired emissions in 2024 and thus become
the fourth-largest coal-related emitter in Asia, behind China, India and Japan.

Figure 3.3. Fossil fuels continue to dominate Viet Nam’s energy mix
(Primary energy consumption by sources)

TWh
1400
Oil Coal Gas Hydro Wind Solar Geothermal, biomass and other
1200

1000

800

600

400

200

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Energy Institute – Statistical Review of World Energy (2024).

StatLink 2 https://stat.link/o6l758

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A fundamental pillar for achieving net zero is to decouple CO2 emissions and economic growth. This is an area
where Viet Nam has scope for further progress, as evidenced by the country's rising fossil CO2 intensity of GDP
over the past decade (Figure 3.4). A key step in this direction would be to improve energy efficiency. Between
2013 and 2023, primary energy consumption increased by an average of 7.5% per year, while GDP grew by
6.0% annually. In 2023, Viet Nam's energy consumption rose by 9.2%, outpacing GDP growth of 5%. In
contrast, most peer nations and G20 countries have seen improvements in energy efficiency during the same
period, driven by the adoption of increasingly stringent regulations and standards designed to promote more
efficient energy use and encourage energy conservation. By contrast, Viet Nam’s National Energy Efficiency
Programme (VNEEP) for the period 2019–2030, which aims to achieve energy savings of 5-7% during the
period 2019-2025 and 8-10% during 2019-2030, has so far not been effective in replicating the progress made
in other countries. Despite this plan, primary energy consumption has continued to grow at a pace exceeding
that of economic activity. Improving energy efficiency requires a combination of actions across various sectors,
including investment in research and development, technological adoption, stringent regulatory standards,
fiscal incentives, and public awareness campaigns.

Figure 3.4. CO2 emission intensity is declining in many countries, but not in Viet Nam
(Fossil CO2 emissions per unit of GDP, change in % between 2013 and 2023)
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
United States
Japan
United Kingdom

Germany

Saudi Arabia

Russia
South Korea

Italy

Mexico

Brazil

Indonesia

Argentina
India

Türkiye
World
Malaysia

Canada
EU27

Australia

Thailand

Philippines

Viet Nam
China

South Africa
France

Source: Crippa et al., 2024.

Note: Fossil CO₂ refers specifically to carbon dioxide emissions resulting from the oxidation of carbon in fossil fuels and industrial processes involving
fossil carbon. This excludes biogenic or natural carbon sources. Emissions from countries are compiled using the methodology of the EDGAR
(Emissions Database for Global Atmospheric Research) database.

StatLink 2 https://stat.link/8vent2

3.3. Climate actions include both price-based and regulatory measures

3.3.1. Decarbonisation efforts would benefit from more effective coordination
Addressing climate change is one of the most significant economic challenges and requires comprehensive
policy packages that combine diverse measures such as carbon pricing, regulatory frameworks, public
investments, fiscal incentives, green finance, and public awareness campaigns. Recent research highlights that
integrated policy packages are more effective than stand-alone measures and can be tailored to ensure a more
equitable transition (Anadon et al., 2022; Blanchard, Gollier, and Tirole, 2022; Fries, 2021; Lenain, 2024;
Stechemesser et al., 2024). Stand-alone policies, like carbon pricing, often carry unintended consequences,
such as carbon leakage (the relocation of emissions to jurisdictions with less stringent regulations) and waterbed

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effects (emissions shifting within the same regulatory market). Research also suggests that while carbon pricing
can significantly reduce emissions, achieving net-zero objectives through this approach alone would require price
levels far higher than current expectations. Moreover, stand-alone climate actions frequently encounter low
political and public acceptance.
Comprehensive policy packages offer a solution by addressing complementary challenges, including the slow
adoption of new technologies, limited uptake of incentives, regulatory barriers, skills mismatches, and supply
chain disruptions. However, not all policy combinations are effective. Poorly designed packages can lead to
adverse outcomes, underscoring the need for careful planning and implementation to maximise their impact
and ensure a just transition to a low-carbon economy.
Public-sector coordination is therefore essential for the design and implementation of packages comprising
multiple climate actions across a range of ministries and bodies. In Viet Nam, several ministries are responsible
for climate policy in their area of expertise such as the Ministry of Agriculture and Environment (MAE), Ministry
of Industry and Trade (MOIT), Ministry of Construction (MOC), Ministry of Finance (MOF), as well as State Bank
of Viet Nam. The National Steering Committee on Climate Change is an inter-ministerial body responsible for
guiding the implementation of the green growth strategy that was established to oversee and coordinate the
country's commitments to climate action, particularly following its carbon neutrality pledge at COP26. These
national agencies interact with provincial governments and international partners.
In peer emerging-market economies, Climate Change Councils - composed of experts, academics, and other
stakeholders -- advise the design and monitoring of climate policy (Box 3.1). These councils foster
transparency, hold governments accountable, and ensure that climate policies are grounded in science, which
is essential for sustained and effective climate action. By leveraging cross-sector expertise and acting as a
watchdog, these climate change councils help bridge gaps between policy, implementation, and public
accountability. Viet Nam could continue to reform its climate policy governance in this direction.

Box 3.1. Climate Change Councils

A climate change council can be highly effective in guiding climate mitigation actions. More than 25
governments have established such councils, which cooperate under the umbrella of the International
Climate Councils Network. These councils operate autonomously from governments, providing scientific,
economic, and policy expertise to shape national climate strategies. For instance, in the Philippines, the
Climate Change Commission acts as an independent body that helps to design policies and monitor their
implementation, enhancing accountability. In South Korea, the Presidential Committee on Green Growth
has been crucial in advancing green technology and emissions reduction policies. South Africa's National
Climate Change Committee ensures the country's transition to a low-carbon economy through rigorous
review and monitoring processes. Similarly, in Mexico, an independent council helps to ensure that climate
goals, such as the commitments to renewable energy, are met by reviewing progress and making policy
recommendations. Costa Rica benefits from independent advice that helps maintain its leadership in
environmental sustainability and its pursuit of carbon neutrality.

3.3.2. Carbon prices implied by current environmental protection taxes could be

raised
Putting a price on carbon emissions to increase the price of fossil fuels relative to clean energy can take the
form of carbon taxes or mandatory carbon emission permits. Excise duties on fuels have the same effect of
changing the relative price of energies. Viet Nam does not have a carbon tax at present. Instead, it collects an
environmental protection tax (EPT) on fossil fuels emitting carbon dioxide: gasoline, diesel, fuel oil, jet fuel,
and various categories of coal. Natural gas and LNG are not subject to the EPT. The tax is not based on the
carbon content of these fossil fuels and therefore does not send effective price signals that would encourage

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a shift to the less carbon-intensive energies. For instance, diesel fuel is taxed at half the rate of gasoline,
although diesel engines tend to produce more CO₂ per litre of fuel burned compared to gasoline.
Like in many other countries, Viet Nam decided to reduce taxes on fuels in early 2023 to help consumers faced
with rapidly rising energy prices and high inflation (Table 3.2). The EPT rates on petroleum products were
halved in April 2023. This is estimated to have reduced tax collection from 0.54% to 0.41% of GDP. The lower
EPT rates were extended several times, the latest extensions until end-2025 being announced with the
Resolution 60/2024/UBTVQH15. In view of the fiscal cost of this measure, and the detrimental impact on the
energy transition, EPT rates should return to their original level, as now planned as of 2026. This would also
be an opportunity to define the tax burden in terms of carbon content. Aligning the EPT on gasoline and diesel
at the level of 4 000 VND/litre could be a reasonable starting point. Raising the EPT on coal used for power
generation would also be crucial in view of its very low level in terms of CO2 content. This would encourage
the adoption of cleaner practices in thermal plants and accelerate the shift to low-carbon electricity.
In addition to the environmental protection tax, other taxes are applied to petroleum products, such as the
environmental protection fee for emissions, value-added tax, special consumption tax, import tax, resource
tax, business expenses charge, profit norm, and a contribution to the stabilisation fund. These different taxes
raise the price of gasoline in Viet Nam (0.80 USD/litre), though it remains below prices in Indonesia (0.83
USD/litre), the Philippines (1.09 USD/litre) and Thailand (1.315 USD/litre) (prices at end-March 2025). Raising
the EPT rate as suggested above would bring the price of gasoline close to that of peer countries.

Table 3.2. Viet Nam’s environmental protection tax has been reduced
Goods Tax rates in 2024/25 Tax rates in early 2023 In USD per ton of carbon in
2024/25
Gasoline, excluding ethanol 2 000 VND/litre 4 000 VND/litre
0.079 USD/litre 0.16 USD/litre 35 USD per tCO2
Diesel fuel 1 000 VND/litre 2 000 VND/litre
0.039 USD/litre 0.079 USD/litre 15 USD per tCO2
Mazut (heavy fuel oil) 1 000 VND/litre 2 000 VND/litre
0.039 USD/litre 0.079 USD/litre 13 USD per tCO2
Anthracite coal 30 000 VND/ton 30 000 VND/ton
1.18 USD/ton 1.18 USD/ton 0.42 USD per tCO2

Source: Resolution 579/2018/UBTVQH14 dated September 26, 2018, of the Standing Committee of the National Assembly on the Environmental
Protection Tax Schedule and subsequent updates.

While the various taxes imposed on gasoline and diesel increase pump prices, and therefore encourage a
lower consumption, they are not high enough to reflect the externalities entailed by the use of these fuels. In
addition to negative externalities resulting from the deleterious effect of climate change, the use of gasoline
and diesel also entails negative externalities resulting from local air pollution, particularly in mega-cities such
as Ho Chi Minh City and Hanoi.
In addition, the use of combustion engine vehicles contributes to negative externalities in terms of traffic
congestion, road accidents, and damages to roads. The IMF estimates an “efficient” price of gasoline reaching
the equivalent of 2.06 USD/litre in 2021 prices to reflect all these externalities in Viet Nam (Black et al., 2023).
The difference between the actual price and this efficient price can be considered an “implicit fossil fuel
subsidy” – i.e., a transfer from those affected by negative externalities to drivers consuming gasoline and
diesel. With similar estimates across a range of fossil fuels, the IMF estimates that fossil fuel subsidies
accounted for 14.3% of GDP in 2022, most of which being implicit subsidies. Although building the political
consensus for raising prices of gasoline and diesel high enough to eliminate the implicit subsidy will probably
take time, the trend should gradually go in this direction. In parallel, policies should be designed to help those
relying on passenger vehicles – especially low-income commuters -- to shift to cleaner forms of transportation,
such as electric two-wheelers and mass transit systems.

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3.3.3. The implementation of domestic carbon markets should be accelerated

Viet Nam has initiated the establishment of a domestic carbon market, with both mandatory and voluntary
segments. Decree No. 06/2022/ND-CP on Mitigation of GHG Emissions and Protection of Ozone Layer and
amendments provide the legal foundation of the market. In the initial phase (2023-25), companies must start
collecting, and reporting by 2025, their carbon inventory in view of their future participation in the mandatory
market. Companies emitting more than 3,000 tonnes of CO2eq annually -- such as thermal power plants, steel
mills, and cement factories - are required to conduct GHG inventories and submit their inventory to the
relevant authorities. It is expected that about 2 200 facilities will be subject to this obligation.
Starting in 2025-26, the government will allocate free emission quotas to a set of companies. Businesses that
exceed their emission limits will be required to take measures to reduce their emissions in accordance with
their quotas. The carbon market will start to operate on a pilot basis from 2025, and it will be formally launched
in 2028, enabling the bidding, transfer, borrowing, and return of GHG emission quotas as well as the use of
carbon credits to offset GHG emissions. The aim is to create an economic incentive for businesses to reduce
emissions, while leveraging market mechanisms to ensure that mitigation takes place where it is least costly.
Drawing on the experience of carbon markets operating around the world, Viet Nam could accelerate this
implementation and start the operation at an earlier date than in 2028.
In addition to trading GHG emission quotas, the market will allow voluntary transactions of carbon credits
(“verified emissions reductions”) on the carbon credit exchange market. These carbon credits could originate
from verified emission reduction certificates in forestry and land use, renewable energy, energy efficiency and
fuel switching, agriculture, waste disposal, transport, household devices, and chemical processes/industrial
manufacturing. A key requirement for the success of the exchange market will be the credibility of the
validation process. In addition to the initial certification by an independent third party, the certificates will
need to be verified every 5 years in order to ensure the ongoing compliance and accuracy of the carbon credit.
Strong verification mechanisms will require transparency, accountability, integrity, and credibility within the
market. This will be essential to eventually integrate Viet Nam’s domestic carbon market with regional and
global systems, a step that will allow greater participation and facilitate broader market liquidity. Agreement
reached among governments at the COP29 talks in Baku in November 2024 will facilitate trading in voluntary
international carbon markets and could help like Viet Nam to get the funding needed for their climate actions.
A first step in this direction was the credit transaction related to the protection of forest arranged with the
World Bank in March 2024. Viet Nam benefits from a forest coverage of 42%, with an absorption potential
estimated at nearly 70 million tons of CO₂ annually. This could generate carbon credits through forestry-based
projects, which can then be sold in voluntary and mandatory carbon markets, which would generate financial
rewards for preserving its forests, and thus support poverty alleviation in forest-dependent communities. An
important milestone was a first verified carbon credit for reducing emissions from deforestation and forest
degradation (known as REED+). This transaction resulted from 10.3 million tons of carbon emissions reduced
between February 2018 and December 2019. Viet Nam received a payment of 51.5 million USD for verified
emissions reductions under the World Bank Forest Carbon Partnership Facility (FCPF). The payment benefits
forest owners and communities, including ethnic groups living in the forest, distributed through a sharing
mechanism. The forest management programme is generating emission reductions in excess of the volume
contracted with the FCPF, which can be sold as carbon credits to third party buyers or used to fulfil the
country’s Nationally Determined Contributions.
Combining a mandatory carbon market with a voluntary market comes with the benefits of using both
“carrots” and “sticks”. While mandatory markets impose a price on carbon emissions by limiting the amount
of emissions, voluntary markets generate financial rewards for reducing emissions, together with potential
co-benefits in terms of protecting the biodiversity and supporting local communities. There are multiple risks,
however, with the use of carbon credits, which are discussed in Box 3.2.

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Box 3.2. Interplay between mandatory and voluntary carbon markets

As countries increasingly combine mandatory with voluntary carbon markets, the two sometimes overlap,
creating potential risks. One risk is double counting, which occurs when both the seller country and the
buyer of carbon credits claim the same emission reduction. To avoid this, corresponding adjustments are
crucial, especially under Article 6 of the Paris Agreement. These adjustments ensure that emission
reductions are accounted for only once. Without these adjustments, claims of carbon neutrality could be
compromised.
Fraudulent activity with the registration of carbon credits has also brought integrity at the forefront of
discussions. Recent evaluations have found that approximately half of the carbon credit-generating
activities in the market are considered low quality. This can result, as an illustration, from the over-issuance
of credits and weak methodologies, particularly for certain project types like avoided deforestation or
cookstove projects. Several initiatives can be established to enhance the integrity of the carbon markets.
These include carbon credit ratings agencies, which independently evaluate risks such as additionality,
quantification accuracy, and non-permanence of emission reductions.
Maintaining robust integrity in carbon markets, with clear verification processes, transparent
methodologies, and ongoing monitoring will be essential to ensure the credits sold genuinely contribute to
global emission reductions. Without such mechanisms, voluntary carbon markets will lack the credibility
required to attract the participation of private-sector participants, which do not desire to be seen as
engaging in greenwashing or take the risk of carbon credits losing their certification following ex-post
evaluations.
Source: Wetterberg et al. (2024)

3.3.4. Environmental regulations should be more stringent to complement carbon

markets
Like other countries, Viet Nam has tightened its environmental regulations, including regulations on energy
efficiency, as part of its transition to a low-carbon future. In many countries, environmental regulations
involve, inter alia, energy efficiency standards for electric appliances, emission limits for thermal power plants,
fuel efficiency standards for cars, bans of the sale of new fossil fuel cars, and bans on the installation of new
boilers using natural gas and heating oil. These policies are usually found to be effective, although they may
result in costs for consumers. This may be particularly difficult for low-income consumers but could be
addressed by targeted policies to help low-income households master the energy transition. As an illustration,
California’s building energy codes have been found to have undesirable financial effects on low-income
consumers (Bruegge et al., 2019).
In this context, assessing the stringency of current environmental regulations can be a useful starting point.
The OECD has developed an Environmental Policy Stringency index, with a sub-indicator that aims at capturing
rigidity and intensity of non-market based regulatory policies. This indicator compiles information and allows
comparisons across countries.
Calculations prepared for this chapter suggest that Viet Nam’s environmental regulations could be made more
stringent across several dimensions. At present, regulations are less stringent not only than those of OECD
countries but also when compared to China or India (Figure 3.5). This suggests that Viet Nam has room to do
more on the regulatory dimension of environmental policies.

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Figure 3.5. Environmental regulations remain less stringent than in OECD economies
Stringency of non-market based environmental policies (EPS) Index, Scale 0 (least stringent) to 6 (most stringent)

FIN

IRL
IDN

MYS

VNM

NOR

IND
JPN

GRC

KOR

GBR

ITA
BRA

TUR
ZAF

RUS
THA

AUS

CHN

FRA
DEU

HUN

NLD
PRT

AUT

CZE
DNK

SVK
SVN
ESP

USA
CHE
CAN
BEL

POL

SWE
Source: OECD, OECD Environmental Policy Stringency Index; OECD calculations.

StatLink 2 https://stat.link/wk32qe
Regulatory standards for appliances, coupled with enforcement mechanisms for manufacturers, and public
awareness campaigns focused on energy conservation are critical to encouraging behavioural changes and
fostering a culture of efficiency. Under decision No. 14/2023/QD-TTg, the Vietnamese government plans to
phase out the use of low-efficiency electrical equipment and to promote energy-efficient technologies. The
decision targets home appliances (such as fluorescent lamps and air conditioners), office equipment and
industrial equipment. It prohibits to import, manufacture, or sell products that fail to meet the minimum
energy efficiency standards, with roadmaps specifying the timeline for phasing out low-efficiency equipment.
The decision also covers power generation, banning the development of low-efficiency coal and gas-fired
power plants that do not meet minimum efficiency requirements. Viet Nam also regulates the use of cooking
fuels to reduce the traditional reliance on biomass fuels like firewood and charcoal, while promoting the use
of LPG, natural gas, and electricity. However, traditional biomass fuels still prevail in rural areas and more
could be done to encourage their replacement and improve air quality and public health. In addition to existing
regulation, the adoption of modern cooking fuels would benefit from incentives and information campaigns
directed to low-income households.

3.4. Decarbonising electricity generation will be key for emission reductions

With over 40% of Viet Nam’s greenhouse gas emissions stemming from direct emissions in the power sector,
advancements in low-emission electricity generation are critical to achieving the country’s emission reduction
targets. It will be important to make progress in this area before large-scale electrification can have the desired
effects on emission reductions. To meet rapidly growing electricity demand and prevent shortages, Viet Nam
Electricity (EVN) continues to rely heavily on fossil fuel-based generation. At the same time, significant
investments are being directed toward expanding wind and solar power capacity. Simultaneously, the
government is taking swift action to modernise the electricity market’s structure and implement regulations
aimed at fostering further investment in clean energy. Renewables hold much potential to improve energy
security, a crucial issue in light of the power outages in the summer of 2023 and May-June 2024.

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3.4.1. Coal remains the main source of electricity generation

Coal plays a key role in Viet Nam’s electricity system, as it does in other countries in Asia. The country relies
on coal-fired power plants for a substantial portion of its electricity, with around 50% of the national power
supply coming from coal, which is the most emission-intensive way of generating electric power. In 2024, coal-
fired generation and emissions both increased by 15% compared to the previous year and reaching an
historical record (Figure 3.6).

Figure 3.6. Coal-fired powerplant generation and emissions keep on rising fast
(generation in TWh, emissions in million tCO2 –12 months of each year)

160
Coal fired emissions Coal fired generation
140

120

100

80

60

40

20

0
2021 2022 2023 2024
Source: Ember data.
StatLink 2 https://stat.link/3xv1mh
Viet Nam's substantial reliance on coal has historically been influenced by its affordability and domestic
availability, especially given the significant coal reserves in the Quang Ninh region. However, the extensive use of
coal has exceeded the extraction capacity of its mines (Figure 3.7), and the country has increasingly relied on
foreign suppliers. Imports of coal are estimated to have further increased in 2024 due to strong electricity demand
and low hydropower output (IEA, 2024b). As a result, Viet Nam is projected to become the fifth largest coal
importer globally (IEA, 2024b), with detrimental effects on the foreign trade balance and potential risks for energy
security.
At COP26 in November 2021, Viet Nam pledged to phase out unabated coal power by the 2040s or as soon as
possible thereafter. Though the government has plans to build new coal-fired power plants until 2030, it has
also decided to terminate some of these projects, such as the Song Hau 2 coal-fired plant cancelled in July
2024. The government plans a gradual reduction in coal's share, capping it at around 30 GW by 2030 (as
compared to 27.2 GW in 2023, Figure 3.8), with a goal to phase it out almost entirely by 2050.
Carbon emissions could be reduced substantially by elaborating decommissioning, repurposing, and
refurbishment plans for coal-fired power plants, while investing in alternative clean facilities (UNDP, 2024).
The oldest thermal plants, which have poor efficiency, such as the Pha Lai 1 coal-fired plant that entered in
operation in 1983, are slated either for closure or conversion. Clean options for these plants include switching
them to biomass, flexible gas turbine units combined with battery energy storage systems, solar power, and
carbon capture and storage. Social transition plans in case of coal phaseout are essential for the sizeable
numbers of workers employed directly or indirectly by coal mining activities, transportation, and power
generation, particularly across remote areas. Support should include re-training and re-skilling not only of
affected workers, but also communities indirectly affected, so as to mitigate the local economic impact and
garner popular support for the energy transition (UNDP, 2024).

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Figure 3.7. Viet Nam’s consumption of coal exceeds its production

Exajoules
2.5
Coal consumption Coal production

1.5

0.5

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Energy Institute (preliminary data for 2023).
StatLink 2 https://stat.link/x26otj
Low-carbon alternatives to coal-fired power generation are now widely available at levelised costs that have
declined rapidly over the past decade. Hydro, solar and wind power are affordable sources of electricity
because they convert natural energy directly into electricity, bypassing the heat generation stage required by
thermal power plants. Viet Nam has significant opportunities to expand its low-carbon electricity generation
thanks to a its large potential from hydraulic, solar and wind sources (Figure 3.8). It is estimated that Viet Nam
has potential solar power of up to 500 GW, combining utility PV, floating PV panels and rooftop solar (EREA &
DEA, 2024). The potential of solar power can be found across the country, with the best resources located in
the South and South Central. However, installing solar power takes land areas away from agriculture, and
taking this into account the largest available potential is in the North of the country. There is also considerable
potential for wind power, with 217 GW of onshore wind potential located in the Highlands, Southwest and
South-Central regions. Viet Nam has also excellent conditions for offshore wind: fixed-based wind power of
101 GW and additional floating offshore wind of 117 GW are estimated in areas with a distance to shore
between 6 nautical miles and 150 km outside of shipping lanes (EREA & DEA, 2024).
Figure 3.8. Viet Nam has a considerable renewable energy potential

Source: EREA & DEA (2024), Viet Nam Energy Outlook Report, Pathways to Net-Zero.

StatLink 2 https://stat.link/95oc0m

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Viet Nam is therefore heavily investing in solar and wind power capacity, which increased from 17 GW in 2020
to 23 GW in 2023 and now exceeds that of Thailand (4.7 GW) and Indonesia (0.7 GW) though it is less than in
Korea (29 GW), Japan (93 GW), India (118 GW) and China (1052 GW) (Kaelin and Jones, 2024). Looking ahead,
natural gas and liquefied natural gas (LNG) plants are expected to see rapid developments, with the eighth
Power Development Plan (PDP8). Notwithstanding this ongoing contribution of fossil fuels, the main source
of new capacity will come from clean power sources, which the government plans to increase from about 45
GW in 2023 to 80 GW in 2030 (Figure 3.9). Viet Nam is also exploring the potential of hydrogen and ammonia
as future energy sources.
Parliament has agreed to restart the Ninh Thuận nuclear power project of 2GW, which was shelved following
the accident in Fukushima. Investments to build small modular reactors (SMRs) are also being considered,
including both land-based and floating versions, with the potential to produce dispatchable energy during
peak consumption hours. Nuclear power could help to decarbonise electricity in Viet Nam, particularly where
innovations can make it a source of cost-effective electricity. Nuclear power can contribute to improving
energy security and nuclear electricity production is more stable over time compared to intermittent
renewables while also being low-carbon, although concerns involve high-impact negative risks in case of
severe nuclear accidents. It is important for nuclear projects, as well as any other energy project, to be
underpinned by transparent and comprehensive life-cycle cost-benefit analyses that inter alia account for the
cost of constructing power plants, storing nuclear waste and decommissioning disused power plants. Such
analysis must also consider the (direct and indirect) subsidies granted through the entire production cycle.

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Figure 3.9. Viet Nam has elaborated concrete plans to expand low-carbon electricity
generation
(in gigawatts, historical data up to 2023 and government targets thereafter)

Coal Solar
Gigawatts Gigawatts
40 40

35 35

30 30

25 25

20 20

15 15

10 10

5 5

0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Wind Hydro
Gigawatts Gigawatts
40 40

35 35

30 30

25 25

20 20

15 15

10 10

5 5

0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Gas+LNG Bioenergy
Gigawatts Gigawatts
40 40

35 35

30 30

25 25

20 20

15 15

10 10

5 5

0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030

Source: Ember (historical data 2010-2023); and PDP8 objectives (Prime Minister Decision QD-TTg).

StatLink 2 https://stat.link/1xjz8f

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3.4.2. Stronger competition in renewable electricity markets

Reforming the electricity market design would help to make the expansion of renewables happen more
rapidly, more cost effectively, and with a greater participation of private-sector investment. Viet Nam has
already unbundled the generation of power from its transmission, though EVN still dominates electricity
production. Electricity prices remain regulated by the government, with tariffs that involve cross subsidies
between producers and between consumers. Reforming these regulations and easing the infrastructure
bottlenecks mentioned earlier are critical to unlock renewable electricity investments.
The issuance of Decree No. 80/2024/ND-CP (“DPPA Decree”) on July 3, 2024, marks a significant step toward
deregulating electricity distribution by authorizing direct power purchase agreements (DPPAs). The decree
allows renewable energy producers to sell electricity directly to large corporate consumers. It introduces two
mechanisms: physical DPPA (transmission via private network at negotiated prices) and synthetic DPPA (via
the national grid at official prices). Previously, all electricity transactions had to go through the state-owned
EVN and its subsidiaries, apart from limited exceptions. The DPPA reform aligns Viet Nam with other nations
utilising similar direct power purchase agreements, such as Australia, France, India, the United Kingdom, the
United States, and Taiwan. If implemented without overly stringent mechanisms, this will foster competition
and support the adoption of clean electricity in Viet Nam.
The government is also working on the gradual launch of Viet Nam’s Wholesale Electricity Market (VWEM) to
ensure competition and efficiency in the power sector. Large thermal and hydropower plants are generally
required to participate in the VWEM, but large producers are authorised to bypass the market and sell directly
to EVN. In addition, the market lacks a competitive environment due to the lack of independence of the largest
operators from EVN and regulations requiring market prices to strictly follow production cost, as opposed to
mechanisms used in other countries such as market-based pricing or merit-order bidding procedures.
Encouragingly, Viet Nam’s National Assembly adopted a new Electricity Law on 30 November 2024 and, in
early March 2025, the government issued Decree No. 56/2025/ND-CP, which provides detailed guidance on
the implementation of a number of provisions regarding developing power projects. The new law introduces
several key reforms aimed at modernising the design of the electricity market and at addressing various
obstacles discussed earlier in this section. It introduces a multi-component pricing system to gradually
eliminate cross-subsidies between electricity consumers, aiming for more equitable and market-reflective
electricity tariffs. The Electricity Law also establishes a comprehensive legal framework to promote renewable
energy sources. It creates a streamlined procedure for the approval of energy projects, which simplified rules
for processing projects and land conversion requests when investments are urgently needed to meet growing
energy demand. It provides supportive regulation for offshore wind projects, in particular for land leases and
sea allocation. Finally, it creates new rules to increase the dynamism of the wholesale electricity market.
These recent reforms, when fully implemented, will provide a strong impetus to the emergence of clean
electricity generation. Further reforms could be considered to modernise Viet Nam’s electricity market:
• Introducing demand-side management (DSM) programmes, including time-of-use tariffs and dynamic
pricing with smart meters, which would encourage consumers to shift their electricity use to off-peak hours,
alleviating pressure on the grid and making energy consumption more cost-effective.
• Allowing Distributed energy resources (DERs), such as micro grids involving rooftop solar and small-scale
wind, which would play a crucial role in areas with unreliable grid access.
• Supporting net metering or peer-to-peer energy trading would enhance energy security and decentralised
power generation.

3.4.3. Renewable investment incentives could be strengthened

Since 2017, Viet Nam has offered attractive feed-in tariffs (FiTs) for electricity generated from renewable
sources such as wind and solar. The initial solar FiT programme launched in 2017 set a rate of USD 0.0935 per
kWh, which led to a wave of investment culminating in 4.46 GW of solar capacity by 2019. For onshore wind,

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the FiT was set at USD 0.085 per kWh, and for offshore wind, at USD 0.098 per kWh. The FiTs are administered
by Viet Nam Electricity (EVN) and were meant to involve charging end-users at prices sufficient to recover
them. However, this has not unfolded as planned and resulted in significant losses. While no overall estimates
of FiTs’ costs are available, it is noteworthy that EVN is facing financial challenges: a recent audit revealed a
significant financial loss of 34.24 trillion VND for 2023 (approximately 0.3% of GDP, and 6.5% of production
and business costs).
Subsidising utility-scale solar power investment no longer seems necessary as it is already the cheapest source
of new bulk generation in Viet Nam in terms of levelised costs of electricity (44-50 USD/MWh, Ember 2024),
lower than power from coal-fired units (USD 84-104/MWh, BloombergNEF, 2023). In November 2023, the
government revised the procedure used to establish feed-in tariffs. They are now set annually, rather than on
a 20-year basis, as was previously the case, which means that prices can vary across the life span of the
investment. Viet Nam Electricity was assigned the responsibility of calculating the annual FiTs based on the
fixed and operational costs of the operators. The electricity regulator (ERAV) will approve these tariffs, which
are set separately for the three regions to take into account local conditions, such as lower solar radiation in
the North than elsewhere. The FiTs will ensure that renewable energy developers receive a set price per
kilowatt-hour for power that cover their costs. Overtime, Viet Nam plans to transition to an auction-based
system, with developers submitting bids for new renewable projects, as done in other countries, which will
help to ensure that they reflect economic realities. Offering contracts for differences set around these auction-
based prices would help to derisk the arrangements, both for the government and private investors.
In addition to FiTs, Viet Nam also offers tax incentives to operators of renewable units. Companies investing
in renewable energy projects can enjoy a preferential corporate income tax rate of 10%, compared to the
standard 20%. This rate applies for 15 years from the first year of income, extendable up to 30 years in
exceptional cases with the prime minister’s approval. Tax incentives are used in many countries to promote
low-carbon investments, especially at initial deployment stages where levelised costs are not yet competitive
and obtaining market funding is difficult because investors consider these investments as not bankable in the
absence of government support. However, tax incentives create distortions in market forces and deprive the
government from revenue. They should be subject to sunset clauses, evaluated periodically, and terminated
as soon as investments become cost-effective without official support.
Accelerating the switch to renewable energy will require addressing the various barriers currently hindering
the expansion of new renewable capacity. This includes the need to strengthen the transmission grid and
enable new connections, build up storage to handle the intermittency of renewables, such as pumped hydro
and large-scale batteries, ease administrative obstacles to land acquisition and obtaining permits, and identify
financial resources. Importantly, the installation of renewables and pylons for the grid will need to be accepted
by local communities, with measures to make these investments beneficial for all. Viet Nam is currently
working on some of these issues, including investing in grid infrastructure improvements and cross-border
electricity trade, particularly with neighbouring countries like Laos.

3.4.4. Green finance mechanisms can help to finance massive investment needs
Moving towards low-carbon energy sources will have an upfront economic cost and will entail massive
investment needs over the next decade to develop new generation capacities, strengthen the transmission
grid, and address intermittency with battery storage systems and other technologies. Investments will not
only be needed to replace current fossil-fuel based generation, but also to meet the rapid increases in
electricity demand. The most recent estimates of investment costs produced by the IEA (2024c) suggest a
rapid increase in total investment reaching USD 60 billion per year in 2045, which is about 15 times higher
than average annual power sector investments over the 2018 to 2022 period. Funding will also be important
to help the transition of communities affected by the low-carbon transition, which will create social challenges,
as it entails large sectoral reallocations of capital and labour.

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Electricity consumption per capita of 2.9 MWh/capita in 2023 is less than the global average (3.7 MWh/capita)
and less than in Thailand (3.1 MWh/capita) and Malaysia (5.6 MWh/capita). As income levels rise, so will the
demand for electricity. Importantly, the transition to carbon neutrality involves a large-scale electrification of
energy uses such as ground transportation (EVs), heavy industries (electric arc furnaces), household cooking
(electric stoves), and data centres. Higher electricity demand will require more generation capacity, an
expanded transmission grid, and a more flexible electricity market.
Another factor driving higher energy consumption is the increase in air temperatures, especially during days
of extreme heat, which pushes up the use of cooling equipment. Climate change has intensified heatwaves,
with temperatures frequently exceeding 40°C in some regions. In Viet Nam, the number of very hot days
(>35°C) in a given year has increased by around 10-40 since the mid-20th century. Viet Nam may experience
up to 40-60 additional very hot days by 2100 (UNDP, 2023). This not only poses challenges for individual health,
but it also results in a surge of cooling demand, with peaks in power consumption during days of heat stress.
Electricity of Viet Nam (EVN) has reported daily consumption records of 1 billion kWh during hot days in late
May 2024, higher than average peak usage of 940 million kWh in 2023 (EVN, 2024).
Viet Nam is taking significant steps to attract financing to clean energy projects and narrow the large funding
gap entailed by the transition to a low-carbon economy. This includes the issuance of green bonds and loans,
which attract financing earmarked specifically to low-carbon projects, with certified auditing to provide
credibility. By mid-2024, outstanding green credit volumes reached VND 680 trillion (around USD 24.9 billion),
representing about 4.5% of total bank loans. Institutions like EVN Finance play significant roles in raising green
capital through bonds. In 2023, Viet Nam's state-owned bank BIDV partnered with the World Bank to issue a
USD 104 million equivalent green bond - the first senior, unsecured, and unguaranteed green bond by a local
Vietnamese commercial bank. This was followed by the country's first sustainability bond, valued at the
equivalent of USD 122 million. The Asian Development Bank (ADB) has also helped Viet Nam to issue financing
certified as a Green Loan by the Climate Bonds Initiative, a syndicated USD 173 million package for the Lotus
project, which combines three wind power projects with a total capacity of 144 megawatts.
International funding for shifting to a low-carbon economy has been provided under an agreement with a
coalition of jurisdictions, under the Just Energy Transition Partnership (JETP). The coalition has committed to
providing Viet Nam with USD 15.5 billion over the next three to five years, with a mix of public and private
finance to assist the country in meeting its climate goals. Under the agreement, Viet Nam has pledged that its
greenhouse gas emissions would peak in 2030, five years earlier than initially planned. It has also agreed to
limit coal-fired power to 30.2 GW, down from the previously planned 37 GW. Finally, the country has pledged
to achieve at least 47% of renewable electricity generation by 2030, compared to the earlier target of 36%. In
addition to clean energy goals, the partnership includes strategies to protect vulnerable communities,
particularly those employed in the coal and heavy industry sectors. However, concerns have been raised about
the debt servicing costs entailed by this financing because only around 2% is provided as grants and 14% as
sovereign concessional loans, with the remainder provided as non-concessional loans at market rates. This
has limited progress in disbursements so far. The pace of progress made by Viet Nam toward its low-carbon
objectives has also been an obstacle. Accelerating the pace of reforms to promote a low-carbon economy – in
particular a more rapid implementation of the mandatory carbon market and easier regulations to start
operations – would create better conditions for private equity investments, including foreign investments,
thus reducing debt servicing costs.
The monetary authority State Bank of Viet Nam (SBV) has also updated its regulations to encourage
commercial banks’ lending to low-carbon activities. SBV supports green banking through initiatives like
refinancing and rediscounting to encourage financial institutions to offer favourable terms for green projects.
At the same time, in its supervisory role to prevent banking difficulties, under Decision 1663/2024 issued in
August 2024, SBV created a legal basis requiring all domestic and foreign banks operating in Viet Nam to
implement internal regulations on environmental risk management, particularly in credit-granting activities.
Banks are expected to assess environmental risks and ensure compliance with local environmental laws.

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A step further in this direction would be to require that commercial bank undertake “green stress tests”. This
should include an assessment of damages and NPL-impact of extreme floods in Hanoi and HCMC, as well as
typhoons, through combining disaster scenarios with macroeconomic and financial modelling. NPLs could
increase as a result of direct losses of residential and borrowers affected by damages, and indirect losses
resulting from reduced demand of goods and services through macroeconomic channels, such as income
losses in affected regions. Early knowledge of these possible credit delinquencies would help commercial
banks, and their supervisors, make preparedness plans that would mitigate the financial impact.
A taxonomy of low-carbon activities is still missing. Issuing a taxonomy would provide a clear framework for
investors, companies, and financial institutions to identify which projects or activities are considered by the
government as environmentally sustainable, making it easier to direct capital toward these projects. This
would reduce the uncertainty that currently prevents more active participation of lenders in this market
segment. To facilitate international financing, the taxonomy should be aligned on international standards,
such as the EU Green Taxonomy. It should cover sectors like renewable energy, sustainable agriculture, green
buildings, and water management, among others. Involving the private sector in the development of the
taxonomy, as Chile is doing, is also key to ensure legitimacy and building acceptance. To prevent carbon lock-
in when defining transition economic activities, the taxonomy should include sunset clauses, whereby an
activity counts as a transition activity until a set date and must meet stricter requirements thereafter.

3.5. Reducing emissions from ground transportation

Transport is the second-largest energy-using sector in Viet Nam and is projected to have the highest energy
and emissions growth in future years. Due to the limited availability of rail infrastructure, road transport
represented in 2019 the bulk of passenger transport (63% of kilometre-passengers), with domestic aviation
accounting also for a significant share (33%). For freight transport, coastal shipping is the main form of
transport (56% of tonne-kilometres in 2016), with road transport representing the second type (24%) (Huu, et
al., 2021).
The development of mass transit systems in Viet Nam would be an effective way to reduce congestion and
pollution in major cities like Ho Chi Minh City and Hanoi, but it has faced several obstacles that have slowed
progress. A key issue is the complexity of securing sufficient funding for large-scale infrastructure projects,
which often require a mix of public and private investment as well as international loans. Delays in
disbursement, budget constraints, and coordination challenges among various government agencies further
complicate project timelines. Additionally, land acquisition for transit routes can be slow due to legal and
compensation issues, often leading to public opposition or disputes. Viet Nam's rapid urbanisation also
outpaces planning efforts, making it difficult to implement comprehensive transit networks efficiently.
Furthermore, regulatory hurdles, lack of expertise in managing such large projects, and reliance on motorbikes
and cars as the dominant modes of transport reduce the urgency for immediate mass transit solutions. This
combination of financial, administrative, and logistical challenges has hindered the rapid progression of Viet
Nam's mass transit systems. Enhancing the capacity of local institutions to plan, implement, and manage mass
transit projects effectively would be a crucial approach, with a clear framework that support sustainable urban
mobility. To cope with limited public funding, Viet Nam could also explore diverse funding sources, such as
public-private partnerships and innovative financing models to ensure the financial sustainability of mass
transit projects.
The rising take-up of internal combustion engine vehicles – cars, motorbikes, trucks, buses – has led to higher
consumption of car fuels, with deleterious effects on air quality in large cities and punishing health impacts.
Hanoi is now ranked the 8th most polluted city in the world. On average in 2023, Viet Nam’s PM2.5 readings
were nearly six times the WHO recommended levels.
Only 3% of vehicles sold during January-September 2024 were hybrid electric vehicles, with pure electric
vehicles (EVs) representing only a marginal proportion of sales of new vehicles. Many countries have
introduced fiscal incentives and regulatory measures to encourage the development of electric mobility, which

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is not only cleaner but also more energy-efficient than mobility using internal combustion engines. Rather
than stand-alone measures, it is the complementarity of interventions that seems to increase the adoption of
electric vehicles because adoption is a slow process that require both “carrots” (subsidies and tax credits) and
“sticks” (carbon taxes, feebates, bans, and other stringent regulations). As an illustration, high car fuel taxes
encourage reduced use of fossil-fuel vehicles, while scrapping incentives promote their replacement, and EV
incentives encourage the adoption of cleaner cars. These measures can effectively promote the
decarbonisation of national car fleets. China and Norway are examples of countries that have successfully
spurred the adoption of electric vehicles (Benoit and Lenain, 2023).
To spur the adoption of electric vehicles, Viet Nam offers several tax incentives. Viet Nam has reduced or
exempted import taxes on certain types of EVs, especially components and parts used for the production of
electric vehicles. This makes it more cost-effective for companies to manufacture EVs domestically and also
for consumers to purchase imported EVs. These vehicles are subject to a much lower excise tax compared to
gasoline and diesel vehicles: battery electric vehicles (BEVs) with up to 9 seats benefit from an excise tax rate
of 3%, significantly lower than the rate for internal combustion engine (ICE) vehicles, which can be as high as
35-40%. In 2022, the government approved a policy to exempt EVs from registration fees for the first three
years, and for the following two years, EVs are subject to only 50% of the standard registration fee applicable
to gasoline vehicles.
In many countries, subsidies for electric vehicles (EVs) have been highly effective during the early stages of
market development, addressing key barriers such as high vehicle prices, uncertain resale value, range anxiety,
and limited charging infrastructure. However, as the EV market matures, governments typically shift from
direct purchase subsidies to other policy measures, aiming to establish a self-sustaining market over the
medium term. Germany has already terminated its “Umweltbonus” subsidy for EV purchases, while the UK
has discontinued most direct support for retail EV buyers. France and Norway are gradually reducing EV
subsidies and China is phasing out its subsidies for the EV consumer market. This transition reflects a broader
strategy to balance market incentives with fiscal responsibility.
A gradual pivot from subsidising EV purchases to supporting charging infrastructure is logical, as the
widespread availability of charging points is critical to achieving mass EV adoption. Viet Nam currently has
around 150,000 charging ports operating across its provinces and centrally-run cities. While sufficient for now,
the charging network will need to expand significantly to meet future demand, particularly in growing urban
areas. Government support will be essential for establishing charging infrastructure in remote areas, where
initial utilisation may not justify investment costs. Additionally, regulations to standardise charging plugs,
harmonise payment systems, and ensure electricity prices reflect actual costs are vital to creating a cohesive
and accessible charging network. These measures will play a crucial role in sustaining EV market growth and
ensuring a smooth transition to electric mobility.
Regulation can also play a useful role to ensure that internal combustion engines respect air quality standards.
Through Decision No.14/2023/QD-TTg regarding vehicle emissions, Viet Nam has mandated the inspection of
motorcycle emissions starting from 2025, with more stringent regulations for automobiles as well. This effort
is part of broader environmental policies aiming to reduce greenhouse gas emissions from the transport
sector. In addition, Viet Nam could consider establishing low-emission zones in Hanoi and Ho Chi Minh City,
as illustrated by their successful deployment in the United Kingdom (Box 3.3).

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Box 3.3. UK restrictions on the use of polluting vehicles

In central London, since 2003, a congestion charge (GBP 15 per day) must be paid by most cars and motor
vehicles during traffic peak hours. In addition, since 2008, commercial vehicles driven in Greater London’s
Low Emission Zone (LEZ) must meet specific emission standards or pay daily fees ranging from GBP 100 to
GBP 300. Finally, since 2019, cars need to meet minimum emissions standards when travelling within the
London Ultra Low Emission Zone (ULEZ) or pay a daily charge (GBP 12.50). The proceeds of these various
fees are generally earmarked to invest in the public transport network, and therefore help mobility while
improving air quality. Other UK cities have also adopted similar clean air programmes either based on
payments of fees or outright bans of driving diesel vehicles (e.g., Bristol). Research finds that the LEZ and
ULEZ have “significantly improved air quality, benefiting Londoners’ physical and mental health” (Fichera
et al., 2023).

3.6. Adaptation investments are needed to reduce environmental damages

All countries are subject to the growing physical impact of climate change, such as extreme heatwaves,
droughts, wildfire and rising sea levels. In addition to losses of human lives, climate risks may have severe
socioeconomic consequences on employment, health, productivity and public finances. Governments need to
adopt adaptation investment frameworks to mitigate these risks (OECD, 2024). This includes strategic
planning, such as through Viet Nam’s National Adaptation Plan (NAP) that identifies climate risks and
mainstreams them into policy development. Beyond planning, governments need to take concrete actions to
fill gaps in adaptation investments, identify resources to finance these investments, and adopt good
implementation and evaluation practices.
Viet Nam is increasingly exposed to various climate risks. It ranks 16th in the World Risk Index (2024) mainly
due to its high exposure to climate events and limited adaptative capacities. Within the Notre Dame Global
Adaptation Initiative (ND-GAIN), Viet Nam’s score is 47.1, positioning it within the medium resilience category.
These scores indicate that while the country has made progress in adapting to climate change, significant
challenges remain in reducing vulnerability and enhancing adaptive capacity. According to long-term model
simulations by the Asian Development Bank (2024b), Viet Nam is among the most vulnerable countries in the
Asia Pacific area. Under a high-end emission scenario following IPCC’s scenario SSP5-8.5, GDP would be about
10% below a trajectory without climate change in 2040, 20% below in 2055, and 35% below in 2070. The bulk
of these losses would result from a rising sea level and the erosion of coastal areas. As an illustration of these
losses and damages, it has been estimated that about USD 300 billion of assets held by the commercial and
industrial sector are vulnerable to climate-related disasters (World Bank, 2022). A second source of activity
contraction would stem from lower productivity, particularly in the agricultural sector.
Viet Nam’s densely populated areas are heavily vulnerable to the rise of the sea levels. The country has two
megacities situated in low-elevation coastal zones, which are already at significant risk of storm surges that
periodically lead to flooding in both urban and manufacturing areas. The rapid population growth in Ho Chi
Minh City, spurred by the migration of rural workers, has led to a sprawl of settlements in low-lying areas
prone to flooding. Located in the Mekong River delta, the city is experiencing a dual threat from both rising
sea levels and significant land subsidence, exacerbating its vulnerability to flooding. Approximately 40–45% of
the city lies less than one meter above sea level, making it particularly susceptible to flooding. Recent studies
indicate that the city is subsiding at an average rate of 2–5 centimetres annually, with certain commercial
zones experiencing subsidence up to 7–8 centimetres per year. This rate of subsidence exceeds that of the
current sea-level rise, which is estimated at around 4.1 millimetres per year along the southern coast,
according to the World Bank Climate Change Knowledge Portal. The projected sea level increase by 1 meter
by 2100 would inundate 47% of the delta and displace up to 5 million people (UNDP, 2023). Revising land
occupation plans and authorisations along coastal zones will become increasingly important considering the

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projected sea-level rise. Preparing for the displacement of agriculture land in vulnerable coastal areas may
also be part of an adaptation strategy, but this may require financial support for affected subsistence farmers.
Viet Nam's extensive coastline, spanning over 3 260 kilometres, is vulnerable to climate-induced hazards. This
is exacerbated by rapid urbanisation and economic development in coastal regions, where approximately 12
million people reside in areas at high risk of flooding, and over 35% of settlements are situated on eroding
coastlines (de Vries Robbé et al., 2020). Approximately 65% of the country’s dike system may not be able to
withstand an emergency situation. At the same time, these coastal areas host thriving economic sectors,
underscoring their pivotal role in economic development, with activities in agriculture, aquaculture, tourism,
and manufacturing. Notably, the Mekong River delta is major hub for aquaculture (catfish and shrimp farming)
and is the country’s “rice bowl”, with approximately half of national output. To protect these vital regions,
Viet Nam has developed a programme to enforce spatial planning, promote nature-based solutions, and
strengthen disaster preparedness and response capacities. Investments in climate-resilient infrastructure,
aiming to safeguard livelihoods and sustain economic growth in the face of escalating climate risks, have been
prioritised.
Hanoi and Ho Chi Minh City have plans to strengthen their systems of dikes, drainage, and water retention
areas to reduce the risk of flooding – which all require costly public investments. Viet Nam estimates that
adaptation to climate change would cost as much as USD 55-90 billion by 2030 in infrastructure investments
and support to affected people and businesses, with concrete financing plans only existing for a fraction of
this cost (Ministry of Natural Resources and Environment, 2024).
Integrating adaptation considerations into infrastructure planning and urban mobility systems will be another
potential line of action. This requires comprehensive planning of land use, settlement patterns, and
infrastructure projects that consider climate risks. Investing in resilient mass-transit infrastructure can
mitigate risks for commuters. Future public transport infrastructure expansion plans should incorporate
climate change risk assessments upfront and allocate responsibilities for climate-related risks. OECD guidelines
for building climate-resilient infrastructure, covering design, institutional frameworks, and public-private
partnerships, can inform these efforts (OECD, 2018). In addition, the government should actively inform the
public about climate risks and encourage preparedness and resilience. This includes messages so that people
take proactive action, such as creating emergency kits, developing evacuation plans, and adopting sustainable
practices to reduce long-term risks. Information campaign should also cover retrofit work to protect buildings
from floods and storms and awareness of property insurance options.
Viet Nam has experienced a notable increase in land temperatures over recent decades, with an average rise
of approximately 0.6°C since 1971, which has accelerated during the most recent period. Projections indicate
that, by the late 21st century, additional increases in average temperatures could reach 1.0°C to 4°C,
depending on future emission scenarios. These temperature increases will have profound implications for
agriculture and water resources. Higher temperatures lead to increased water demand for crops and
heightened water stress. In the Mekong River delta, a critical rice-producing region, rising temperatures
coupled with sea-level rise contribute to salinity intrusion, adversely affecting rice yields and reducing arable
land. Additionally, the Central Highlands, a major coffee-growing area, has faced prolonged droughts, severely
impacting coffee production and threatening the livelihoods of farmers. The combination of rising
temperatures and altered precipitation patterns exacerbates the frequency and severity of droughts, leading
to significant challenges in water availability for both agricultural and domestic use. These climatic changes
call for the adoption of climate-resilient agricultural practices and improved water management strategies to
mitigate adverse impacts on Viet Nam's agriculture and water resources. A recently approved programme will
support the development of one million hectares of low-emission rice in the Mekong River delta by 2030,
which involves the reorganisation of the production system along the rice value chain, the adoption of
sustainable farming practices to enhance production and economic efficiency, and the improvement of
income and livelihoods for farmers.
Rising temperatures exacerbate local air pollution, which causes at least 70,000 deaths each year in Viet Nam,
shortening the average lifespan by 1.4 years (Pratt et al., 2024). Populations with lower socioeconomic status

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are more likely to be exposed to high concentrations of air pollution than are populations with higher
socioeconomic statuses. Commuters using bicycles and motorbikes are those most exposed to fine particles
(Le Thi Huong et al., 2024). Without action to address these health effects, air pollution could jeopardise the
significant gains in life expectancy Viet Nam has achieved in recent decades. Poor air quality also reduces the
productivity of workers, diminishes crop yields and livestock production, reduces domestic and international
tourism revenues and weighs on international investment.
In addition to these gradual changes in weather patterns, Viet Nam is also affected by extreme weather events,
in particular typhoons. These hit the country of average four to six times annually, primarily impacting its
central and northern coastal regions. While the frequency of these storms has remained relatively stable over
recent decades, their intensity and associated economic damages have escalated. The most severe typhoons
disrupt industrial production, damage agricultural lands, and necessitate substantial expenditures for recovery
and rebuilding. The aftermath of Typhoon Yagi, for example, flooded over 300 000 hectares of crops and
damaged nearly 235 000 homes. Looking ahead, climate change is projected to increase the intensity of
typhoons making landfall in Viet Nam. Model simulations suggest that future typhoons may be about 8% more
intense at landfall, with faster movement and more concentrated rainfall, thereby amplifying their destructive
potential (Tran et al., 2022). These events underscore the pressing need for enhanced disaster preparedness
and resilient infrastructure to mitigate future economic and human losses.

Table 3.3. Policy recommendations from this chapter (Key recommendations in bold)
MAIN FINDINGS RECOMMENDATIONS
Horizontal mitigation policies
The Environmental Protection Tax has been halved during the period of Restore environmental protection tax rates to pre-crisis levels and
high inflation, as elsewhere, resulting in low fuel prices. define them in terms of carbon content. Bring the diesel tax in line
with the gasoline tax.
Gradually increase the coal tax to better reflect coal’s large impact
on carbon emissions.
Energy consumption increases faster than GDP, illustrating the lack of Accelerate the deployment of Viet Nam’s mandatory emission
price signals trading system.
The energy transition involves a social cost, especially for low-income Recycle carbon pricing revenues to support affected consumers and
consumers and workers in the coal sector, who may require reskilling. communities currently dependent on coal-related activities.
Climate policy needs to be based on scientific evidence to provide Further improve the governance of climate policy with additional input
advice to the multiple policymakers at the national and provincial levels. from independent scientists, social researchers, and other stakeholders
in the work of the National Steering Committee.
Decarbonising the electricity and transport sectors
GHG emissions from energy are largely the result of a strong reliance Further encourage the expansion of renewable energy sources.
on fossil-fuel energy. The low-carbon transformation of the electricity, Streamline licensing procedures for low-carbon activities and
heavy industries and transport sectors faces regulatory headwinds. infrastructure, especially regarding land acquisition.
The electricity market benefits from feed-in-tariffs and direct purchase Consider electricity market innovations such as day-ahead pricing, time-
power agreements. More innovations would help its transformation of-use tariffs, dynamic pricing with smart meters, micro grids, net metering
toward a clean energy mix. and peer-to-peer energy trading.
Road transport is rising fast, with an increasing fleet of internal Accelerate the deployment of clean transport (electric buses, clean
combustion engine cars, trucks, buses and motorbikes. This results in vehicles, trains, metro, ride sharing, bicycle lanes) and restrict the use of
poor air quality and traffic congestion. polluting vehicles (low emission zones).
Adapting to climate change
The projected increase of sea levels by 1 meter by 2100 would displace Revise land occupation plans and authorisations along coastal zones to
up to 5 million people and make large parts of some land unsuitable for prepare for the projected sea-level rise.
its current use, with higher impact on vulnerable people. The projected In megacities, strengthen the systems of dikes, drainage, water retention,
rise in temperatures of up to 4°C by the late 21st century would and expand resilient mass-transit infrastructure.
contribute to heightened water stress in several regions and reduce food Support the adoption of climate-resilient agricultural practices and
production. improved water management strategies.

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4 Harnessing trade and investment

flows to boost productivity
By Randall S. Jones

Achieving Viet Nam’s objective of reaching high-income status by 2045 requires

faster productivity gains to support economic growth as demographic trends
become less favourable. A key priority is to leverage inflows of foreign direct
investment (FDI) to boost productivity. First, it is essential to promote continued FDI
inflows, which will become more challenging after recent tariff increases for Viet
Nam’s exports. Reducing FDI restrictions, notably in network industries and ensuring
adequate infrastructure can help to reap new opportunities. Second, deepening the
linkages between domestic companies and foreign-owned firms offers important
opportunities for productivity spillovers. This requires expanding firms’ absorptive
capacity for foreign technology by upgrading the education system, especially at the
tertiary level, improving domestic firms’ innovation capacity, and boosting the
export contribution of services. Government policies to help domestic suppliers
achieve global standards and to match domestic suppliers with foreign-owned firms
would also promote technology transfers. Given that 70% of firms are micro-
enterprises, helping small firms scale up would create opportunities for joining GVCs
while achieving productivity gains through economies of scale. Increasing their
access to financing would promote scaling up. Finally, declining capital productivity
suggests a misallocation of resources. Scaling down the state-owned enterprise
sector, which gets preferential access to credit, and ensuring fair regulation of state-
owned banks and enterprises, would boost productivity.

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4.1. Viet Nam aims to achieve high-income status in two decades

The Doi Moi reforms launched in 1986 laid the foundation for rapid growth, transforming Viet Nam from a
virtually closed, centrally-planned agrarian economy to a major exporter and destination for foreign direct
investment (FDI). Real GDP rose at a 6.7% annual average rate between 1990 and 2023 (Figure 4.1, Panel A).
On a per capita basis, it rose by 5.7 times over that period, surpassing the Philippines and nearly matching
Indonesia (Panel B). Economic growth improved well-being as reflected in the increase in life expectancy from
69 to 75 years over the same period and a reduction in poverty. In 1990, around half of the population lived
in extreme poverty. By 2020, the share had fallen below 1%. Still, 19% had incomes below the Upper Middle-
Income Country poverty rate (USD 6.85 per day) (World Bank, 2024b).

Figure 4.1. Rapid development was supported by FDI inflows and international trade

Note: Panel B shows GDP per capita in PPP exchange rates (constant 2021 USD).
Source: Panel A, OECD Economic Outlook 116 database; Panel B, World Bank, GDP per capita, PPP (constant 2021 international $) | Data, accessed 5
November 2024. Panel C and D, World Bank, World Development Indicators.
StatLink 2 https://stat.link/hyaic6
Large capital and labour inputs fuelled Viet Nam’s economic take-off as workers shifted from agriculture to
manufacturing. The manufacturing sector was driven by FDI inflows that amounted to 4.8% of GDP over 2015-
23, exceeding its ASEAN peers, as well as India and China (Figure 4.1, Panel C). During the past decade, FDI
accounted for 15% of Viet Nam’s total investment, exceeding domestic private investment at 14% (World Bank,
2024b).

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With respect to trade flows, Viet Nam is one of Southeast Asia’s most open markets following its accession to
the World Trade Organisation (WTO) in 2007 and 17 bilateral and plurilateral free trade agreements (FTAs),
with three more under negotiation. Agreements cover 53 countries that account for 87% of world GDP. These
agreements, which cover 85% of Viet Nam’s imports and 70% of exports, cut its average applied tariff on
manufactured goods from 16.6% to 1.1% (World Bank, 2024b). Total trade flows (the sum of imports and
exports) rose from 19% of Viet Nam’s GDP in 1988 to 184% in 2022, making it Asia’s most trade-dependent
economy after Singapore. Viet Nam’s share of world trade climbed from 0.1% in 1996 to 1.5% in 2023,
surpassing its ASEAN peers (Panel D). Viet Nam is now the 19th largest exporter in the world. The composition
of exports has changed over the years. Initially dominated by agricultural products in the 1980s, it shifted to
textiles and footwear in the 1990s and 2000s. By now, electronics and machinery account for nearly half of
exports as Viet Nam moves up the value chain and away from labour-intensive exports (see Chapter 1).
Foreign-owned firms (i.e., affiliates of multinational enterprises), which produce 73% of Viet Nam’s exports,
have driven Viet Nam’s integration in world trade. Their share of imports, primarily parts and components, is
also high at 56% despite government incentives for foreign-owned firms to purchase from local suppliers.
Viet Nam, one of the poorest countries in the world in 1985, achieved “lower middle-income country” status
in 2011, as defined by the World Bank (Figure 4.2). The government has set a target of reaching upper middle-
income status by 2030 and high-income status by 2045. The 2045 target is ambitious, as the relevant threshold
is 3.3 times Viet Nam’s 2023 per capita income level, requiring per capita incomes to increase at an annual
rate of 6% over the next 20 years. Given the decline in the share of the working-age population, labour
productivity would have to increase at a 6.3% annual growth rate. The required growth rates are higher than
those achieved during 1990-2010. The difficulty is heightened by the deceleration in world trade; after growing
at 1.5 times faster than world GDP over 1990-2011, world trade growth has been slower during the past
decade. In addition, global FDI flows have declined.

Figure 4.2. Viet Nam’s ambitious target to achieve “high-income status” by 2045
USD
14000
GNI per capita Path to high-income status High-income threshold
12000

10000

8000
Low-income status Lower middle-income
status
6000

4000

2000

0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Note: Gross national income per capita is expressed in US dollars using the Atlas Method. details. The World Bank’s high-income threshold is set at
a GNI per capita of USD 13 845 USD as of 2022.
Source: World Bank, GNI per capita, Atlas method (current US$) | Data, accessed 5 November 2024.
StatLink 2 https://stat.link/ohycga
The following sections discuss the benefits of Viet Nam’s opening to FDI and international trade and its
productivity performance in recent decades. Viet Nam’s growth strategy based on FDI and exports is
threatened by recently imposed tariffs for exports to the United States, which can reach up to 46%. This makes
it even more important to implement policies to sustain FDI inflows by reducing restrictions, improving
infrastructure and easing regulations, as discussed in section 4.4. Policies to deepen the connections between
domestic firms and foreign-owned firms (i.e., affiliates of multinational enterprises) in Viet Nam are even more
crucial given the likely challenges in attracting FDI in the future. Beyond its direct contribution to capital and
employment, FDI can benefit host economies through knowledge and technology spillovers that increase

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domestic firms’ productivity. A range of policies could help increase productivity spillovers from FDI, including
upgrading education and training, strengthening domestic firms’ technological and innovation capacity,
increasing the share of domestic services embedded in exports and implementing policies to improve supplier
firms and match them with foreign investors, as discussed in section 4.5. Section 4.6 focuses on policies to
promote the scaling up of small firms, thereby facilitating their connections to foreign-owned firms and
allowing them to boost productivity through economies of scale. Policies to improve resource allocation, in
part through a more level playing field between private firms and state-owned enterprises, and reducing
corruption, are discussed in the sections 4.7 and 4.8. The chapter concludes with policy recommendations to
boost productivity growth.

4.2. The positive impact of FDI and trade on the Vietnamese economy
Viet Nam’s FDI inward stock has increased at a 13.1% annual rate since 2007, when the country became a
WTO member (Figure 4.3). The surge in inflows has been supported by: i) Viet Nam’s integration in the world
trading system with a global network of FTAs, including CPTPP, Regional Comprehensive Economic
Partnership, and FTAs with the EU and the United Kingdom; ii) Viet Nam’s location near major suppliers and
consumer markets; iii) a stable political and macroeconomic environment; iv) a rapidly growing domestic
economy with a rising middle class; v) a long coastline with major ports; and vi) a young and affordable
workforce, with wages below many neighbouring countries (Figure 4.4).
In addition, the government offers corporate income tax (CIT) incentives, such as preferential rates. The
standard CIT rate in Viet Nam is 20%, but some projects are taxed at 10%, 15%, or 17% for 15 years, depending
on the sector, location, and investment size. Some projects can qualify for tax holidays, where they do not
have to pay CIT for a certain period, usually four years, followed by a partial tax holiday, where they only pay
50% of the payable tax for nine years (ADB, 2024). Foreign investors also receive favourable treatment on
import duties and the use of land. The provincial level Investment Promotion Agencies (IPAs) can also offer
incentives independently of the national government. However, provincial IPAs should not trigger unhealthy
cross-regional competition for foreign investment (World Bank, 2022a). While tax incentives have helped
attract FDI inflows, they also have drawbacks from a domestic and international perspective and there may
be a case for re-evaluating their broader costs and benefits. Tax incentives reduce much-needed fiscal
revenues and shift more of the tax burden to the domestic economy, including local companies. In addition,
the OECD-led global tax agreement that requires a minimum 15% effective tax rate may reduce the scope for
these incentives in the future (Lenain and Redonda, 2022).

Figure 4.3. The stock of inward FDI has increased at a rapid pace since 2007

Source: UNCTAD (2024), World Investment Report | UNCTAD.

StatLink 2 https://stat.link/zuypjq

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Figure 4.4. Wages remain relatively low compared to ASEAN peers

Monthly average wages of manufacturing workers in 2024

Note: TWN indicates Chinese Taipei and HKG indicates Hong Kong SAR (China), including Macau.
Sources: Panel A --JETRO (2024), Fact-finding Survey of Japanese Companies Expanding Overseas Asia and Oceania; Panel B--2024 OECD Economic
Survey of Malaysia.
StatLink 2 https://stat.link/wcu0a3
In recent years, FDI inflows to Viet Nam have been stimulated by the diversification of many multinational
enterprises (MNEs) away from China and toward other regions, particularly Southeast Asia. This shift was
driven in part by the imposition of tariffs on Chinese imports by the United States in 2018. The ad valorem
duty on Chinese goods (on top of the standard tariff rate) was 25% on 6 874 goods and 10% on 3 771 items.
In response, many companies, including some in the United States, have adopted a diversification strategy of
moving production out of China to avoid tariffs barriers imposed by the United States. Viet Nam appears to have
gained more FDI inflows from the US-China trade dispute than any other nation as it is a key alternative
destination for global firms (Kahn et al., 2024).
FDI inflows have brought significant benefits to Viet Nam’s economy which will be important to sustain in a
changing global economy. They provide key resources, including capital, technology, management skills,
entrepreneurship, brand and market access (Cong et al., 2017). This leads to higher labour productivity growth
and greater research and development (R&D) intensity in sectors receiving more FDI (OECD, 2023c).

Figure 4.5. China accounted for the largest share of investment projects in 2023
No. of projects No. of licensed projects (2023) Registered capital (2022) Million USD
800 7000

700 6000

600
5000
500
4000
400
3000
300
2000
200

100 1000

0 0
China Korea Singapore Hong Kong SAR Japan Chinese Taipei United States
(China)

Source: CEIC.
StatLink 2 https://stat.link/v3jtm5

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The higher productivity in foreign-owned firms reflects their larger size and participation in international trade.
Indeed, Vietnamese firms that are exporters and importers have productivity levels that are 27% and 45%
higher, respectively, than domestic firms that are not engaged in international trade, after controlling for firm
size and sector (Figure 4.6). For firms participating in GVCs, which can be done directly through trade (i.e., by
supplying companies located abroad) or indirectly (i.e., by establishing linkages with foreign-owned firms
located in Viet Nam), the productivity premium is 55% (domestic firms) and 70% (foreign-owned firms). The
premia are higher for firms in advanced manufacturing sectors, such as chemicals, transport and electrical
equipment, and lower in labour-intensive sectors, such as apparel. The significant productivity differences are
reflected in the wage premia for firms involved in international trade and global value chains (World Bank,
2024b).

Figure 4.6. Participation in international trade and GVCs boost firms’ productivity and wages

Exporters Wage

Labour productivity

Importers Wage

Labour productivity

Domestic Wage
GVCs
Labour productivity

Wage
Foreign
GVCs
Labour productivity

0 10 20 30 40 50 60 70 80 %
Note: Productivity and wage premia measured relative to firms operating in the domestic market (not engaged in imports or exports) after controlling
for firm size and sectoral differences.
Source: World Bank (2024), Viet Nam 2045: Trading up in a Changing World – Pathways to a High-Income Future.

StatLink 2 https://stat.link/kmtv2b
FDI inflows have had a positive impact on productivity through numerous channels:
• FDI has been concentrated in the manufacturing sector, which accounted for 61% of the stock of inward
FDI in 2023 (Ministry of Planning and Investment, 2023). Consequently, the share of manufacturing – a
high-productivity sector – in GDP jumped from less than 8% in 1990 to 27% in 2022, while agriculture’s
share declined sharply (Figure 4.7).
• Foreign firms in Viet Nam accounted for nearly three-quarters of the country’s exports in 2023. Their share
was 90% in key products, such as phones, computers, machinery, apparel and textiles (VietnamPlus, 2024).
One firm alone (Samsung) accounts for about one-fifth of Viet Nam’s exports. Viet Nam is now the second-
largest smartphone exporter in the world.
• Foreign-owned firms’ share of Viet Nam’s formal workforce rose at a 5.6% annual average rate between
1995 and 2019, boosting its share to 35%. About half of employment depends -- directly or indirectly -- on
exports, reflecting foreign-owned firms’ large share of exports (World Bank, 2024b) In contrast,
employment growth linked to domestic demand fell between 1995 and 2019.
• FDI inflows have boosted Viet Nam’s human capital through training and education by leading MNEs, with
spillovers to other parts of the economy. For example, Samsung has made major investments in education
and training whose benefits extend beyond the areas in which its manufacturing facilities operate, to
populations that the company does not employ (Box 4.1).
• Foreign-owned firms play a large role in innovation, as around 26% invest in R&D compared to 15% of
domestic firms.

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• FDI has promoted urbanisation, (Testard, 2024) which has been a source of economic growth. More than
two-thirds of FDI inflows over 1988-2017 were in areas around Ho Chi Minh City and Hanoi, helping to
double the urban area’s share of the population for less than 20% in 1986 to 40% in 2023 (Kim, 2024).
Overall, the surge in Chinese FDI in Viet Nam has been concentrated in the northern part of the country,
which has traditionally been less prosperous than the south. Consequently, many provinces in the north
are now rapidly catching up with those in the south.

Figure 4.7. FDI inflows have helped to boost the share of manufacturing in the economy
Percentage of GDP by sector

% of GDP 1990 2000 2010 2022

50

45

40

35

30

25

20

15

10

0
Agriculture Manufacturing Services Other

Source: Asian Productivity Organisation (2024), APO-Productivity-Databook-2024_PUB.pdf.

StatLink 2 https://stat.link/zrcg0s

4.3. Productivity growth in Viet Nam has outpaced its peers, but the level
remains relatively low
Boosting productivity is the key to avoiding the “middle-income trap” and achieving high-income status.
Indeed, productivity accounts for half of the gap in income per capita between high-income and developing
countries (Grover Goswami, Medvedev and Olafsen, 2019). Before the Doi Moi reforms, labour inputs
accounted for over half of the then much lower output growth. Viet Nam’s robust growth since 1990 has been
based primarily on capital accumulation. With fixed investment accounting for around one-third of GDP,
capital accounted for 62% of output growth over 2010-22 (Figure 4.8).
Total factor productivity (TFP), which measures the efficiency with which labour and capital inputs are used
together in the production process, has played a more modest role, contributing 0.3 percentage points to GDP
growth between 1970-2022, accounting for only 5% of GDP. In contrast, TFP contributed 1.8 points to China’s
GDP growth (equivalent to 25% of GDP over the same period) (Asia Productivity Organisation, 2024). TFP in
Viet Nam has made a larger contribution since 2010, accounting for more than one-fifth of growth (Figure 4.8).
However, this is below the 45% target set in the Socio-economic Development Plan for 2021-2025
(Government of Viet Nam, 2021).

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Figure 4.8. Buoyant investment has accounted for most of output growth since 1985

Annual average % Hours worked Labour quality Capital TFP GDP growth
10

-2
1985–1990 1990–1995 1995–2000 2000–2005 2005–2010 2010–2015 2015–2022

Source: Asian Productivity Organisation (2024), APO-Productivity-Databook-2024_PUB.pdf.

StatLink 2 https://stat.link/z9yb42
Labour productivity, which reflects both growth in TFP and capital per worker, grew at an annualised rate of
5.7% over 1990-2022 in Viet Nam, exceeding its ASEAN peers (Figure 4.9, Panel A), supported by significant
capital investment. Nevertheless, Viet Nam’s productivity level was relatively low in 2022 (Panel B). Moreover,
the productivity growth rate slowed from an annual rate of 5.9% between 2000 and 2010 to 4.6% between
2010 and 2022, well below the 6.5% target set by the Socio-economic Development Plan for 2021-2025.
Achieving faster productivity growth depends partly on increasing technology spillovers from FDI inflows and
international trade. Indeed, the 2021-25 Plan aims to “improve productivity, quality, efficiency and
competitiveness of the economy”.
Viet Nam’s changing demographics underline the importance of productivity growth in achieving high-income
status. During the quarter century from 1995 to 2020, the working-age population (20-64) increased by 75%,
more than twice as fast as the total population. Consequently, Viet Nam benefitted from a “demographic
dividend” as the working-age group’s share of the total population climbed from 48% in 1995 to 61% in 2020
(Figure 4.10). Such a transition is typical in largely agrarian developing economies with historically high fertility
rates. The shift to a more urban society with lower fertility is reducing the share of the dependent population
and boosting per capita income growth (Lee and Mason, 2006). Looking ahead, the population pyramid will
become more of a rectangle, reflecting the decline in Viet Nam’s fertility rate from 6.3 children per woman in
1960 to 2.0 by 2005. Consequently, demography will become a headwind, as the working-age group’s share
of the total population is projected to edge down to 59% by 2045. The elderly dependency ratio (persons aged
65 and over as a share of the working-age population) will rise from 12% in 2020 to 30% in 2045. In contrast,
China benefited from the demographic dividend until 2010, when its per capita income was 48% higher than
Viet Nam in 2023 (Testard, 2024).

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Box 4.1. Viet Nam and Samsung: developing a synergistic and symbiotic relationship
Samsung, the largest foreign investor in Viet Nam, began producing colour television sets for the
Vietnamese market in 1996. Its presence has expanded significantly since 2009 with the creation of four
wholly-owned subsidiaries in mobile phone manufacturing. In 2023, Samsung was the top investor in Viet
Nam with USD 22 billion and one of the biggest employers with 112 000 workers. Consequently, Samsung
and Viet Nam have become increasingly interdependent: Viet Nam accounts for around half of Samsung’s
global production of mobile telephones while Samsung alone comprised 30% of Viet Nam’s merchandise
exports in 2017.
Samsung has also been a catalyst for additional FDI inflows from the major suppliers in its global supply
chains. In 2014, Samsung had 67 tier-1 suppliers located in Viet Nam, of which 63 were foreign firms (and
53 were Korean). The four Vietnamese tier-1 suppliers were relegated to supplying packaging materials. By
2017, Samsung had 25 tier-1 Vietnamese suppliers, but none produced parts and components for
Samsung’s final products. Instead, they provided services such as meal catering, recreational travel,
cleaning and security, as well as packaging. The government estimated in 2017 that the value of goods and
services procured locally by Samsung as a proportion of the value of goods produced by Samsung in Viet
Nam was around 30%. Foreign suppliers that had followed Samsung to Viet Nam produced most of this
domestic value-added.
Despite Samsung’s strong impact on Vietnamese employment and exports, the overall benefit fell short of
government expectations that FDI would generate the positive spillovers necessary to create sustainable
industrial development in Viet Nam. Domestic firms faced growing competition in product and factor
markets as a result of foreign-owned firms’ entry. The majority of Samsung employees in Viet Nam were
semi-skilled workers, as they mainly worked in assembling products. Indeed, 89% were secondary school
graduates and only 4% had university degrees.
Some developing countries have turned to coercive measures, such as local content and technology
transfer requirements, to increase the domestic value-added in products produced by foreign-owned firms
and technology spillovers. However, international trade agreements and Vietnamese law prohibits such
measures. Instead, the government has used persuasion to encourage Samsung and other major foreign-
owned firms to engage with local companies. For example, since 2014, Samsung has collaborated with the
government in organising “The Samsung Sourcing Fair”, which allows Vietnamese firms to showcase their
products. Although more than 200 domestic suppliers at the Fair expressed interest in supplying parts to
Samsung, none of them met Samsung’s exacting standards.
The need to strengthen the capabilities of local firms has been highlighted repeatedly by foreign investors.
Provincial governments have largely failed to provide sufficient investment in local technical and vocational
education and training (TVET) institutions to meet the rising skills demands that their own FDI policies
generate. While improved TVET was not needed to fill the low-skilled assembly jobs, it is necessary to
expand access to higher-skilled jobs. Foreign-owned firms also called for more emphasis on science and
technology and bringing more foreign tier-1 suppliers to Viet Nam to create more opportunities for
domestic firms to become tier-2 suppliers. In response, the government launched the Programme on the
Development of Supporting Industry for 2016-25 (Box 4.5).
Samsung has made major investments in education and training whose benefits extend beyond its
employees. It created the “Samsung Smart School” programme in rural and remote areas, “New Hope
Schools” in impoverished areas, Samsung’s “Innovation Campus” to provide ICT education and a
programme to embed digital resources in schools. Samsung also invested USD 220 million to create a
research centre in Hanoi in 2022. The cooperative relationship between Samsung and Viet Nam brings
benefits to both.
Source: Sheldon and Kwon, 2023; Tong et al., 2019.

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Figure 4.9. Labour productivity growth exceeds peer countries but the level remains relatively
low
A. Average productivity growth, 1997-2022 B. Productivity level per employee, 2022
Thousand
%, p.a. USD
6 200
180
5
160

4 140
120
3 100
80
2
60

1 40
20
0 0
IDN

IND
JPN

THA
HKG

PHL
AUS
USA

SGP
KOR
TWN

MYS
KHM

CHN
VNM
EU15

IND

IDN

THA

JPN
KHM

VNM
PHL

CHN

MYS

KOR

HKG
AUS
TWN

USA
SGP
EU15
Advanced economies Developing economies Developing economies Advanced economies

Note: TWN indicates Chinese Taipei and HKG indicates Hong Kong SAR (China).
Source: Asian Productivity Organisation (2024), APO-Productivity-Databook-2024_PUB.pdf.
StatLink 2 https://stat.link/noe3jq

Figure 4.10. The positive demographic dividend recorded during 1995-2020 will disappear
A. Population pyramid, 1995 B. Population pyramid, 2020 C. Population pyramid, 2045
Age Age Age
Men Women Men Women Men Women
groups groups groups
100+ 100+ 100+
95-99 95-99 95-99
90-94 90-94 90-94
85-89 85-89 85-89
80-84 80-84 80-84
75-79 75-79 75-79
70-74 70-74 70-74
65-69 65-69 65-69
60-64 60-64 60-64
55-59 55-59 55-59
50-54 50-54 50-54
45-49 45-49 45-49
40-44 40-44 40-44
35-39 35-39 35-39
30-34 30-34 30-34
25-29 25-29 25-29
20-24 20-24 20-24
15-19 15-19 15-19
10-14 10-14 10-14
5-9 5-9 5-9
0-4 0-4 0-4
-5 0 5 -5 0 5 -5 0 5
Millions Millions Millions

Source: United Nations, Department of Economic and Social Affairs, Population Division (2024). Data Portal, available at
https://population.un.org/DataPortal/ (accessed 15 November 2024).
StatLink 2 https://stat.link/soc01i

4.4. Sustaining inflows of foreign direct investment to Viet Nam

Given the significant benefits from FDI in Viet Nam, policies to promote continued FDI inflows are a priority.
Global FDI flows have fallen by more than one-third since their peak in 2015, from USD 2.06 trillion to USD
1.33 trillion in 2023. Geopolitical and technological trends are disrupting the world economy, fragmenting and
disrupting trade networks and global supply chains and undermining the stability and predictability of global
investment flows (UNCTAD, 2024). The concept of "reshoring" (sometimes called “onshoring”) – the relocation

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of production back to the investor's home country – appears to have become more prevalent as firms rethink
their global supply chains, especially in light of recent tariff increases.
Addressing quality challenges with respect to Viet Nam’s domestic suppliers may support future FDI inflows
and strengthen supplier linkages with local firms. The innovation capacities of local firms influence FDI location
decisions (OECD, 2023e). Resilient, reliable and innovative SMEs have become a strategic asset in
multinationals’ investment strategies. The World Economic Forum (WEF) executive opinion survey on “local
supplier quality” ranked Viet Nam 116th out of 137 countries, trailing far behind Malaysia (23rd), Indonesia
(54th), the Philippines (73rd) and Thailand (74th) (World Economic Forum, 2024). Lower-quality suppliers and
rising wages may prompt some MNEs to shift their investment away from Viet Nam to countries at an earlier
stage of development and lower wages. Indeed, real wages in Viet Nam have risen at a 5% annual average
rate since 2006, more than double its ASEAN peers, though still below the 8% rate in China (Figure 4.4, Panel
B). Labour retention has emerged as a problem for many firms amid inter-firm competition for workers
(Sheldon and Kwon, 2022).
Recently announced high US tariffs on Vietnamese exports to the US could constitute risks for sustained FDI
inflows. Sustaining foreign investment will more than ever depend on policy improvements, including easing
restrictions on FDI inflows, improving infrastructure and easing licensing and regulatory requirements, in
addition to addressing corruption (Section 4.7) and ensuring adequate energy supply (Chapter 3).

4.4.1. Easing restrictions on foreign direct investment

Viet Nam’s restrictions on FDI inflows in 2023 were more than four times higher than the OECD average,
though slightly below China and the ASEAN average (Figure 4.11, Panel A). Much of the more restrictive policy
stance than in OECD economies can be traced back to restrictions in service sectors. Opening up services
markets to competition and FDI will be key for moving into higher-value ladders of global value chains.
Productivity benefits from FDI can arise from the adoption of best technologies within the same sector, but
they can also work across sectors through sourcing relationships, as improvements in intermediate goods
markets can improve productivity downstream (Bourlès et al., 2013). Evidence suggests that access to more
competitive service inputs, including as a result of FDI in services, can have significant productivity benefits for
downstream manufacturing companies (Arnold et al., 2016; Arnold et al., 2011). In India, for example, stronger
competition in service sectors has brought large productivity gains to downstream manufacturing sectors
using these services as inputs (Arnold et al., 2016). Viet Nam’s membership in the CPTPP will require it to
reduce barriers to FDI, including in services.
Viet Nam’s FDI regulations on the telecommunications sector are significantly higher than in the OECD and
ASEAN averages (Figure 4.11, Panel B). Communications services must be offered through commercial
arrangements with an entity established in Viet Nam and licensed to provide international telecommunication
services. While foreign ownership of up to 65% is allowed in non-facilities-based services, the prohibition on
majority ownership in facilities-based telecommunications services limits foreign investors’ interest in Viet
Nam. Moreover, investment in services with network infrastructure are subject to strong policy discretion as
it requires the Prime Minister’s approval (OECD, 2023b). The telecommunications market should be further
opened to foreign and domestic investors by reducing entry barriers and lifting the foreign ownership ceiling.
RCEP and the ASEAN Framework Agreement on Services require Viet Nam to widen market access to foreign
investors in this sector. FDI in the telecommunications sector is crucial to promote progress in digitalisation.
It is also essential to create a level playing field between private firms and the state-owned enterprises that
dominate the telecommunications market. The Telecom Law asserts that the state must hold a controlling
number of shares in important communication network service providers. Consequently, the government
owns shares in all three of the main fixed operators and three of the four main mobile operators (OECD,
2023a).

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Figure 4.11. Viet Nam’s FDI restrictions are significantly above the OECD average but close to
other ASEAN countries

Note: The OECD FDI Regulatory Restrictiveness Index covers only statutory measures discriminating against foreign investors (e.g., foreign equity
limits, screening and approval procedures, restrictions on key foreign personnel, and other operational measures).
Source: OECD FDI Regulatory Restrictiveness Index, 2023.
StatLink 2 https://stat.link/jh91vg

Some other key service sectors, including banking, are still partly off limits to foreign investors (Figure 4.11,
Panel B), holding back potential economy-wide productivity gains. Financial, banking and insurance activities
accounted for only 0.2% of Viet Nam’s stock of inward FDI at the end of 2023. Potential foreign competition
is limited by the government’s large ownership shares in key commercial banks: 80.9% in BIDV, 74.8% in
Vietcombank, 64.5% in Vietinbank, and 100% in Agribank. The shares of total bank assets in 2022 was 42.0%
for the seven state-owned banks combined in 2022, 43.8% for private banks and 9.7% for foreign banks.
Foreign banks appear anxious to enter the Vietnamese market to service foreign-owned investors in Viet Nam.
However, their ownership in Vietnamese banks remains capped at 30%, although the Prime Minister can
authorise a higher ceiling for restructuring weak financial institutions. While some major international banks
have entered the Vietnamese market, their minority shareholding position reduces the scope for meaningful
changes to internal management and corporate governance systems in the acquired firms (OECD, 2018).
Opening the financial sector to foreign participation may raise concerns among national authorities and local
financial institutions that foreign-owned banks will ignore SMEs and rural clients, and cherry-pick the best
clients, thereby weakening local banks. While the client profile of foreign-owned banks usually differs

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  107

considerably from that of local banks, the role of foreign-owned banks often expands SMEs’ access to finance
from local banks. Faced with more intense competition from foreign banks in the upper segments of the
market, local banks frequently focus more on SMEs (OECD, 2018).
International experience shows that foreign banks tend to have positive effects on competition, stability and
financial development in their host countries, stemming from numerous positive effects: i) lower costs of
financial intermediation and lower rents; ii) increased access to financial services, including for SMEs; iii)
enhanced economic and financial performance of borrowers resulting from the introduction of new and more
diverse products and services; iv) accelerated domestic reform as a consequence of pressures on governments
to increase transparency and improve regulation and supervision to achieve international best practice; and
v) greater financial stability as foreign banks are generally more capable of absorbing shocks occurring in the
host market, and hence providing a more stable source of capital. Foreign banks also help reduce connected
lending, as they are usually not as politically connected as local banks, thereby improving resource allocation
(see below).
Scope for reducing entry restrictions may also exist in the distribution sector (Figure 4.11, Panel B). In Mexico,
the market entry of multinational retail chains demonstrated the potential of FDI to reduce input prices,
resulting in productivity gains for domestic suppliers and cost-of-living benefits for households (Javorcik,
Keller, and Tybout, 2008; Iacovone et al., 2015; Maloney et al., 2024).

4.4.2. Improving infrastructure

Transport and storage accounted for only 1.3% of the stock of inward FDI at the end of 2023 (Ministry of
Planning and Investment, 2023). In the World Bank’s 2023 Logistics Performance Index, Viet Nam ranked 43rd
out of 140 countries and behind Malaysia, Thailand and the Philippines (World Bank, 2023). As with
telecommunications and banking, transportation has large spillovers on other sectors. Continued FDI inflows
and urbanisation require major infrastructure upgrades (Vina Capital, 2021). While real GDP rose about 3.5
times over 2004-22, freight transport jumped eight-fold (World Bank, 2024b). Viet Nam is ranked 103rd out of
160 countries in road quality (World Economic Forum, 2022), as only two-thirds of its roads are paved. The
government envisions major projects, such as a highway and a high-speed train connecting Hanoi and Ho Chi
Minh City, a distance of around 1 500 kilometers. It also plans to expand the current 1 290 kilometers of
national highway to 5 000 kilometers by 2030, while upgrading road surfaces and expanding connections to
major ports, airports, and rail stations (Viet Nam Briefing, 2022b). Road infrastructure’s limited quantity and
quality is problematic because 79% of domestic and international freight shipments (on a tonnage basis) are
carried by road, with railways and airways accounting for only 0.6% (Kahn, Liao and Zheng, 2024). Developing
transportation infrastructure was cited as the third-highest priority by US companies in Viet Nam (American
Chamber of Commerce in Viet Nam, 2024).
Private investment in infrastructure has been relatively low in Viet Nam at about 10% of the total. Its share is
expected to rise to 20% in coming years, in part through public-private partnerships. Allowing more private,
including foreign, investment to support transportation and other infrastructure projects would be beneficial,
although lessons from OECD countries point to the importance of achieving the right degree of risk-sharing
between the public and private sectors and properly accounting for all present and future contingent fiscal
liabilities in the national budget. In addition to the low level of private infrastructure investment, a relatively
small share has been in transportation, due in part to the large number of state-owned enterprises (SOEs) in
this sector (Figure 4.12). Indeed, there are still 37 SOEs under the auspices of the Ministry of Transportation,
despite the government’s equitisation programme. Foreign majority ownership of enterprises providing
maritime, surface and air transportation is not allowed. Moreover, participation in maritime, railway and air
transportation and the construction of seaports, airports, railways, and national highways require approval
from the Council of Ministers and the State Committee for Co-operation and Investment (OECD, 2018).
A second key infrastructure concern is energy, sparked by power outages in the summer of 2023 and May-
June 2024. Shortages are particularly a concern in energy-intensive industries, such as semiconductors.

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Investment in power infrastructure, both generation and transmission, is essential to ensure energy security,
particularly in the northern part of the country. At the same time, it also offers opportunities to accelerate the
shift towards renewable energy sources (see Chapter 3).

Figure 4.12. Private investment in transportation infrastructure is relatively low in Viet Nam
% Energy ICT Municipal Solid Waste Transport Water and sewerage
100

90

80

70

60

50

40

30

20

10

0
China Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Thailand Viet Nam

Note: Percentage shares of private infrastructure investment by sector over 1999-2023.

Source: World Development Indicators database.

StatLink 2 https://stat.link/nbkc0d

4.4.3. Easing the burden of licenses and regulation on foreign firms

Regulatory and governance challenges were cited as the most pressing issue in a company survey (American
Chamber of Commerce in Viet Nam, 2024). Viet Nam’s investment law applies to both domestic and foreign
investors. FDI is further regulated by the Enterprise Law, sector-specific laws and policies and international
agreements (World Bank, 2022b). The main concerns in the 2024 survey of firms were: i) inconsistent laws,
regulations, and enforcement (69%); ii) an inefficient government bureaucracy (49%); and iii) regulatory
compliance risks and insufficient time to comply with new regulations (47%). It is essential to simplify business
regulations, including through stronger use of digital technologies in areas such as tax payments and
insolvency procedures (OECD, 2023b).

4.5. Better leveraging foreign direct investment and international trade to

boost productivity
Enhancing business linkages between domestic companies and foreign-owned firms can provide strong
benefits for all parties involved:
• Domestic companies can increase employment, improve their competitiveness and move up the value
chain. Foreign-owned firms’ requirements for higher product quality can drive local suppliers to upgrade
their production management and technology. Demonstration effects are important as local companies
observe MNEs’ products and technology.
• Foreign investors can reduce costs by sourcing more parts and components from local companies.
• The Vietnamese economy can upgrade its competitiveness through gains in productivity, innovation, skills
and wages.
Productivity spillovers from foreign-owned firms to domestic firms often materialise through supplier
relationships (Javorcik, 2004; Haskel, Pereira and Slaughter, 2007; Keller and Yeaple, 2009). The scope will
depend on the degree to which the foreign firms are embedded in the local economy, in addition to the size
of the productivity gap between the foreign-owned firms and local firms (OECD, 2023d).

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4.5.1. The positive impact of FDI is limited by the low domestic content of exports
Although FDI has brought important gains to Viet Nam by boosting economic growth, exports and jobs, it has
been less successful in developing backward linkages with the domestic economy. Overall, imports account
for about four-fifths of the inputs into Viet Nam’s final exports (OECD, 2021a). Taking account of assembly and
other processing, the foreign value-added accounted for 48% of Viet Nam’s gross exports in 2020, up from
36% in 2005 (Figure 4.13, Panel A). In other words, Viet Nam produces only about half of the value in the goods
that it exports. The foreign value-added in Viet Nam’s exports is high compared to Indonesia, Malaysia and
Thailand, where it has drifted down since 2005. In sum, foreign foreign-owned firms operate, to some extent,
in “enclaves” that import much of the intermediate inputs or invite their global suppliers to establish affiliates,
thus limiting the integration with the local economy and its potential as a catalyst for growth. By industry, the
foreign value added as a share of Viet Nam’s gross exports is highest in the more technology-intensive sectors
of machinery and electronics (Figure 4.13, Panel B), which have expanded as Viet Nam has moved up the value
chain. However, even for apparel exports, the foreign value-added has risen since 2005 and is much higher
than its ASEAN peers.
Figure 4.13. Foreign value-added in exports is high but participation in global value chains is
low

Sources: Panels A and B: OECD’s Trade in Value Added (TIVA) database, 2023 edition.
StatLink 2 https://stat.link/lyvua1

4.5.2. Policies to strengthen the links between foreign-owned firms and local firms
Policies intended to attract FDI are very different from those aimed at capturing gains from deeper
connections between local domestic firms and foreign-owned firms to raise productivity. The large gap
between domestic companies that are connected to foreign-owned firms and those that are not provides an
important opportunity for productivity gains. The government’s objective has been for domestic firms to
become successful exporters, in part by participating in global value chains. However, domestic firms tend to
record significant trade deficits that are more than offset by large surpluses by foreign-owned firms. In 2023,
domestic companies incurred a trade deficit of USD 21.7 billion while foreign-owned firms in Viet Nam
recorded a merchandise trade surplus of USD 49.7 billion.Over the medium term, stronger links between
domestic firms and foreign-owned firms would reduce Viet Nam’s reliance on FDI inflows and enhance its
resilience to global shocks.
The experience of major FDI recipients, including Viet Nam, shows that the strength of business linkages
between foreign-owned firms and domestic companies is influenced by: i) the characteristics and institutional
framework of the host country, such as its domestic innovation system, labour market regulations, intellectual
property rights, access to finance and industrial policy; ii) the characteristics of foreign investors, notably the

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length of their presence in the country, their technological intensity, the motivation behind their investments,
their global sourcing and production strategies and their degree of foreign ownership; and iii) the
characteristics of the domestic firms, including their human resources, technological and R&D capacity, and
scale of production (Farole et al., 2014). This implies the need to focus policy efforts on five major issues to
deepen the connections between domestic firms and promote productivity spillovers – education and training,
increasing the innovation capacity of domestic firms, promoting technological transfers from advanced
countries, increasing the contribution of the service sector, and government policies to develop supplier firms
and match them with domestic firms. In addition, helping small firms scale up would also facilitate their
partnership with foreign-owned firms.

Upgrading education and training and increasing the innovation capacity of domestic firms
Viet Nam’s growth based on FDI inflows and international trade has made ample use of its comparative
advantage – an abundant supply of low-skilled workers producing low-valued-added goods. Indeed, about
85% of the manufacturing jobs in 2018 in the export sector were lower-skilled production jobs, with the
remainder in engineering and managerial positions and support services (Figure 4.14, Panel A). The share of
production workers in Viet Nam is substantially higher than in other ASEAN countries, including those at an
earlier stage of development (Panel B). Moreover, over 90% of manufacturing jobs are classified as low-skilled
(World Bank, 2024b). According to a government survey, 72% of the labour force had no technical
qualification. Viet Nam should aspire to the rapid development of some East Asian economies based on a
strong symbiotic relationship among education, innovation, and economic growth.

Figure 4.14. Production workers account for about 85% of employees in the export sector

Source: World Bank (2024), Viet Nam 2045: Trading up in a Changing World – Pathways to a High-Income Future.
StatLink 2 https://stat.link/7zq9lu
The weakness in human capital at the upper secondary and tertiary levels in combination with rising
manufacturing wages, which almost tripled to nearly USD 5 per hour over 2010-22 (Figure 4.4), may pose risks
to Viet Nam’s international competitiveness. Upgrading education and training to increase the supply of high-
skilled workers is a priority to sustain FDI inflows and strengthen connections between foreign-owned firms
and domestic companies. A study of 60 Vietnamese provinces from 2000 to 2016 found that human capital is
the key determinant of domestic firms’ ability to benefit through productivity spillovers from foreign-owned
firms (Huynh et al., 2021). Furthermore, human capital must surpass a critical threshold before a province can
realise productivity spillovers generated by the foreign-owned firms.

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Strengthening secondary education

Spending per student between the ages of 6 and 15 was USD 13 000 (PPP) in 2019, less than one-fifth of the
OECD average. Nevertheless, Viet Nam ranked close to the OECD average in the assessment of the skills of 15-
year-olds in the 2022 Programme for International Student Assessment (PISA) and well above the average in
low and middle-income countries (Figure 4.15). Moreover, academic performance showed relatively minor
variations across students from different socio-economic status, which is a challenge for many other countries
including in the OECD. For example, students in the top quarter of socio-economic status outperformed the
bottom 25% in mathematics by 78 points, compared to an average difference of 93 points across OECD
countries. The share of low-performing students was below the OECD average, as was the share of high-
performing students (OECD, 2023d). However, school enrolment rates are lower for students from low-income
households. For lower secondary schools, the percentage of out-of-school children was 17.9% for the lowest
income quintile compared to 1.7% for the top quintile (UNICEF, 2018).

Figure 4.15. Vietnamese students performed well in the 2022 OECD PISA test
A. Mathematics B. Reading C. Science

SGP SGP SGP

TWN JPN JPN
HKG KOR TWN
JPN TWN KOR
KOR EST EST
EST CAN HKG
CHE USA CAN
CAN FIN
HKG
OECD USA
VNM OECD OECD
USA VNM VNM
MYS MEX MYS
MEX BRA MEX
BRA MYS BRA
IDN IDN IDN
PHL PHL PHL
350 400 450 500 550 600 350 400 450 500 550 600 350 400 450 500 550 600
Score points Score points Score points
Source: OECD PISA 2022 database.
StatLink 2 https://stat.link/i37qhc
The average number of years of school in Viet Nam has risen rapidly from 3.8 years in 1970 to 9.3 years in
2021 (Figure 4.16), but still well below the 13.4-year average in Japan and Korea. The lower number in Viet
Nam reflects a low secondary school graduation rate. A household survey measuring the secondary school
completion rate for the first time found that it was only 58.1% in 2021. One reason may be the low return on
a secondary school degree, both in terms of the probability of finding wage employment and higher earnings
(Demombynes and Testaverde, 2018). In 2017, the median income of a secondary school graduate was only
7% more than a worker who only completed middle school. However, obtaining a university degree boosted
earnings by 25% above a middle school graduate (OECD, 2020). Continued increases in enrolment rates, by
better enforcing lower secondary school attendance and making upper secondary school mandatory, are a
priority. At the same time, enhancing the quality of education by raising spending per student and focusing
more on STEM subjects is essential to boost the financial rewards attached to upper secondary education and
improve the quality of the labour force.

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Figure 4.16. Workers’ average years in school rose rapidly but remain low
Years
Japan, 13.4
13 Korea, 13.4

12
Singapore, 11.3
11 Malaysia, 10.4
China, 9.7
10
Thailand, 9.6
9 Vietnam, 9.3

8 Indonesia, 9.1

7 Myanmar, 6.9
India, 6.3
6
Philippines, 5.8
5 Cambodia, 5.3

0
1970 1980 1990 2000 2010 2020
Source: Asian Productivity Organisation (2024), Asia QALI database, Asian Productivity Databook 2024.
StatLink 2 https://stat.link/qiu4bg

Expanding tertiary education and professional training

A 2020 survey found that 80% of manufacturing companies faced difficulties hiring skilled workers (World
Bank, 2024b). In 2022, only 5% of the manufacturing workforce was considered high-skilled. Moreover, 10%
of the population held a bachelor’s degree and 3% held tertiary vocational degrees (Figure 4.17, Panel A). In
these two measures, Viet Nam ranks below all of its ASEAN peers (except Indonesia). In 2009, 9% of firms and
6% of exporters identified an inadequately educated workforce as a major constraint. By 2023, this had risen
to 12% of firms and 20% of exporters (OECD, 2024). The government has recently taken steps to boost the
number of engineers in the semiconductor industry (Box 4.2). Given the intense worldwide competition in this
industry, a broad-based effort to develop human capital is needed.
University enrolment in 1990 accounted for less than 3% of the university-aged population (Figure 4.17, Panel
B). Over 2000-21, enrolment surged from 0.9 million to 2.15 million. The government has implemented
measures to improve university education while enhancing the autonomy of universities. In addition,
pathways were created among vocational education institutions, and between vocational colleges and
universities, which are under the responsibility of different ministries. Six foreign universities have established
branches in Viet Nam. The government recently announced that universities among the top 500 in the World
University Rankings will be allowed to establish branches in Viet Nam. Further internationalisation of the
university sector would improve its quality.
Enrolment as a share of the university-aged population rose to nearly 30%, though it is still one of the lowest
in East Asia (Figure 4.17, Panel B). The government target of increasing the number of university students to
3 million by 2030 faces a number of obstacles: i) the absence of a clear financing plan to achieve quantitative
targets; ii) a fragmented tertiary education system consisting of universities, colleges, and TVET institutions
managed by multiple ministries; iii) a regulatory framework that is inconsistent with the planned private sector
expansion of tertiary institutions; and iv) under-development of alternative modes of education including e-
learning and open online courses.
Demographics make an expansion of tertiary education urgent. Viet Nam’s population aged 20 and below
amounted to 30.6 million in 2020, accounting for 31.2% of the total population (Figure 4.10). By 2045, the size

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of this age cohort will fall by more than 8 million and its share of the total population will drop to 23%.
Providing tertiary education to the large cohort of young people is an opportunity to accelerate Viet Nam’s
progress to high-income status.
Achieving the government’s goal of boosting university enrolment to 4.5 million requires increasing the
capacity of the university system and lowering the cost, which makes it difficult for students from lower-
income households to enroll. Government spending on education fell from 4.9% of GDP in 2008 (around 18%
of government spending) to 2.9% in 2021, below many of its ASEAN peers (Figure 4.18). Much of the decline
was due to reductions in spending at the tertiary level, as increased autonomy for tertiary institutions reduced
the government’s share of public spending for tertiary education from 68% in 2004 to 22% in 2017. Public
expenditure on tertiary education was estimated at 0.3% of GDP in 2016 (1.1% of total government spending
and 6.1% of total government spending on education and training) (World Bank, 2020). This is well below the
0.6% in Indonesia and Thailand, 0.9% in China and more than 1.0% in Singapore and Malaysia. The OECD
average was 1.5% in 2021 (OECD, 2024a).

Figure 4.17. The share of tertiary graduates and enrollment is low

obtained
50
Bachelor's degree of higher Vocational degree

40

30

20

10

0
Indonesia Viet Nam Malaysia Thailand Korea Philippines Singapore

B. Long-term trends in gross enrolment ratios in tertiary education (1990-2017)

60%
China Indonesia Malaysia Thailand Viet Nam

50%

40%

30%

20%

10%

Source: Panel A --World Bank (2024), Viet Nam 2045: Trading up in a Changing World – Pathways to a High-Income Future; Panel B-. UNESCO Institute for Statistics
(UIS) database.
StatLink 2 https://stat.link/cmqn4g

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Figure 4.18. Government spending on education is relatively low

In 2022, as a % of GDP
OECD average
European Union
China
Malaysia
Philippines
East Asia & Pacific
Cambodia
Viet Nam
Thailand
Singapore
Indonesia
Lao PDR

0 1 2 3 4 5 6
% of GDP
Source: World Bank, Government expenditure on education, total (% of GDP) - World | Data, accessed on 12 December 2024.

StatLink 2 https://stat.link/fbd01h
Most of the decline in public spending was offset by rising tuition fees, which now account for 55% of tertiary
education funding, making Viet Nam an outlier in this regard. In OECD countries, government spending
accounts for two-thirds of financing for tertiary education (OECD, 2024a). The low level of public funding and the
overreliance on tuition fees places severe financial constraints on poorer households. Moreover, current
scholarships and need-based loans suffer from low coverage, low amounts, and unattractive repayment terms
(World Bank, 2020).
Consequently, Viet Nam has significant inequalities with respect to access to tertiary education and the final
stages of secondary education, in contrast to the remarkably equal access to quality education at age 15
revealed by the country’s PISA scores. A pressing challenge is to reduce the 67 percentage-point gap in
enrolment rates between students from the top income quintile and those in the bottom quintile. About 40%
of the gap is due to differences in secondary school graduation rates and the remainder is explained by less
access to university education for lower-income students (World Bank, 2024b). Policies to make university
more accessible should thus be accompanied by measures to raise enrolment and graduation rates for
secondary school, which is not compulsory, as noted above. In addition to boosting productivity, expanding
university education would enhance inclusiveness. Indeed, just one in four workers who complete upper
secondary education find employment in the formal sector. Workers with tertiary education are less likely to
work in farming and much more likely to hold formal jobs. Almost 90% of people with a university or higher
degree hold a wage job with a contract (Demombynes and Testaverde, 2018).
Expanding tertiary enrolment should be accompanied by measures to improve the quality of education and
its alignment with the skills demanded by firms. The high unemployment rates of recent university graduates
have raised concern about a mismatch between skills and employers’ needs (Demombynes and Testaverde,
2018), This requires a market-driven and competency-based approach that allows employers, who currently
have little role in curriculum development, to play a key role in ensuring that education meets their evolving
needs (World Bank, 2020). In Viet Nam, student enrolment in tertiary programmes in natural sciences,
mathematics and statistics, and ICT is only 0.6% and 1.0%, respectively, compared to OECD averages of 5.0%
and 6.4%. The low share is surprising, given that the employment rate of ICT graduates was the highest of the
ten fields of study at 93% in 2017. Moreover, their earnings were the second highest, suggesting a lack of
information about the job market that could be ameliorated with better career guidance for students (OECD,
2020).

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Less than 6% of tertiary education graduates worked for foreign-owned firms in 2017, as foreign firms hired
mainly low-skilled workers. This suggests that university education does not develop valuable skills for foreign-
owned firms. Instead, more than two-thirds of university graduates work in the state sector. Increasing the
role of Vietnamese workers in foreign-owned firms requires adjusting the curriculum to make it more relevant
to foreign-owned firms. Sector skills councils that involve employers and training institutions can facilitate this
alignment, ensuring that educational offerings meet the evolving needs of employers and prepare workers for
emerging jobs and skills. The approach should be results-oriented and evidence-based (World Bank, 2024b).

In addition to expanding tertiary education, there is a need to strengthen the TVET system. In 2021, less than
7% of Viet Nam’s labour force had received vocational training at TVET institutions. Skill mismatches in the
labour market are significant; 43% of young people said their training did not match their job (OECD, 2021a).
TVET has been too theory-based and lacking in practical experience. The shift of control of vocational
education from the Ministry of Labour to the Ministry of Education and Training in 2025 should improve the
quality of vocational education. Viet Nam could benefit from the Meister School approach used in German-
speaking countries that has been successfully introduced in Korea (Box 4.3).

Given the weakness in vocational education, most TVET graduates need additional training (Sheldon and
Kwon, 2023). However, Viet Nam does not have public programmes aimed at improving the skills of workers,
which has prompted some large foreign-owned firms in Viet Nam to create their own vocational training
programmes to fill the gap (Box 4.1). There is also scope to boost on-the-job training. In 2023, 8.7% of firms
provided training in 2023, well below Singapore and the Philippines, where the share tops 40% (Figure 4.20,
Panel A).

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Box 4.2. Viet Nam’s semiconductor industry

Semiconductors, a critical input into a wide range of industries, including the information communications
technology (ICT) industry, electronics, and motor vehicles, is a highly geographically concentrated industry
in which the top five economies account for about three-quarters of global semiconductor value added
(Haramboure et al., 2023). In 2021, Viet Nam was the tenth-largest semiconductor exporter, with 2% of
global export value (Figure 4.19). Semiconductors account for 7% of the country’s exports. Viet Nam
currently has around 26 000 engineers in the semiconductor industry, which consists of approximately 50
chip-design companies and seven assembly, packaging and testing facilities. However, Viet Nam does not
produce semiconductors. Without a semiconductor foundry, Viet Nam relies heavily on semiconductor
imports. Indeed, it had a semiconductor trade deficit of USD 25 billion in 2022, compared to a surplus
twenty years earlier.
The government has ambitious plans to make Viet Nam a hub of the semiconductor industry despite its
shortage of skilled engineers and workers. In its planned three-phase programme, Viet Nam intends to
train 50 000 engineers between 2024 and 2030. In 2024, around 20 universities began creating a major in
chip design. It will also focus on attracting foreign investment and forming a network of at least 100 chip
design firms, one semiconductor manufacturing factory, and ten chip packaging and testing facilities.
During the second phase of the strategy (2030-40), Viet Nam plans to boost the semiconductor industry by
combining self-reliance and FDI inflows. By the final phase (2040-50), Viet Nam aims to complete an
autonomous semiconductor ecosystem, master semiconductor R&D and become a leader in some stages
and segments of the global chip manufacturing chain.
Under the 2023 U.S.-Viet Nam Comprehensive Strategic Partnership, the two countries signed a Memorandum
of Cooperation on Semiconductor Supply Chains, Workforce and Ecosystem Development that “will formalise
this bilateral partnership to expand the capacity of the semiconductor ecosystem in Vietnam”.
Figure 4.19. Viet Nam is the 10th-largest global exporter of semiconductors
Rest of world China
Viet Nam
10% 22%
Germany 2%
3%

Philippines
3%

Japan
5%

United States
6%

Chinese Taipei
Malaysia 19%
8%
Singapore Korea
9% 13%

Source: World Bank (2024), Viet Nam 2045: Trading up in a Changing World – Pathways to a High-Income Future
StatLink 2 https://stat.link/ckbj7q
Global competition in the semiconductor industry will remain intense, in part as some countries offer
generous subsidies in this sector, and it is difficult to foresee Viet Nam’s future opportunities in this sector
will be. The availability of skilled labour will be an important factor. In addition, the large amount of
electricity needed to produce semiconductors has been a roadblock in the past, making adequate
generation capacity a priority.

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Box 4.3. Meister schools in Korea

In 2010, Korea introduced Meister secondary schools, which follow the German dual system of combining
education and work experience to improve vocational education at the secondary level. Their curriculum
is developed jointly with industry representatives, and internships are mandatory. The focus on practical
skills taught in classes is accompanied by hands-on experience acquired at partner companies. Meister
schools aim to make vocational education more attractive in a country where parents spend large amounts
on after-school tutoring to enable their children to enter elite universities. Indeed, more than 80% of
secondary school graduates in Korea continue to college or universities, creating labour market
mismatches and an “over-education problem”. One of the objectives of Meister schools is to enable
students to be hired directly from secondary school, thus avoiding excessive and unnecessary competition
to obtain additional educational qualifications.
Thus far, Korea has established more than 50 Meister schools and their graduates have achieved
employment rates of more than 90%. In contrast, only about one third of graduates of regular vocational
secondary schools enter the job market, while the remainder enroll in colleges or universities. In addition,
the 2013 Work-Study Dual Programme and the 2018 Work First-Study Later scheme have allowed
secondary school students to combine study with internships.
Source: 2022 OECD Economic Survey of Korea.

Figure 4.20. Increased employer-based training and R&D could promote innovation
A. Percentage of firms offering formal training to B. R&D spending as a % of GDP
their employees
2011 2021

Myanmar
Indonesia Viet Nam
Viet Nam
Cambodia
Lower middle income
Thailand
Malaysia
Lao PDR
East Asia and Pacific
World
East Asia & Pacific
Philippines World
Singapore

0 10 20 30 40 50 0 1 2 3
% % of GDP

Source: Panel A -- World Bank (2023), Enterprise Surveys Indicators Data; Panel B – World Bank, Research and development expenditure (% of GDP) | Data,
accessed 12 December 2024.

StatLink 2 https://stat.link/zfiseg

Promoting firms’ technological capacity

Enhanced labour force quality should be accompanied by policies to expand the ability of local firms to absorb
foreign technology and innovate. Viet Nam ranked 44th out of 133 economies in the 2024 Global Innovation
Index of the World Intellectual Property Rights Organisation. Viet Nam was the second highest among 38 lower
middle-income countries and 10th among 17 economies in East Asia and Oceania (WIPO, 2024). Viet Nam’s
R&D spending as a percentage of GDP nearly tripled from 0.15% of GDP in 2011 to 0.43% in 2021, though it
remains below the average of lower-middle income countries, as well as China (2.4%) and Korea (4.9%) (Figure

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118 

4.20, Panel B). Moreover, the number of R&D researchers at 779 per million population in 2021 lags behind
Thailand (1 699) and Korea (9 082) (World Bank, 2024a).
The increase in Viet Nam’s R&D intensity was driven by the business sector, which increased its share of R&D
spending from 26% to 73% between 2011 and 2021. Nevertheless, 84% of Viet Nam’s R&D workforce is in the
state-owned sector, which has a network of 478 science and technology institutions R&D spending. Until the
mid-1990s, scientific research in Viet Nam was performed primarily outside of universities in the “Academy of
Science” and its 38 affiliates, in line with the Soviet model. However, their output has had minimal impact
(World Bank, 2020). The Politburo’s Resolution No. 57-NQ/TW in January 2025 calls for developing science,
technology and innovation and achieving a digital transformation.
Private R&D is concentrated among large multinational companies operating in Viet Nam, such as Samsung,
Apple and Panasonic. For example, Samsung Electronics built a USD 220 million R&D center in Hanoi that
employs 3 000 engineers. While such R&D investment is important, it may not be sufficient to bring domestic
firms into global value chains, given the weak R&D connections between foreign-owned firms and domestic
firms (OECD, 2020). Most private enterprises, the majority of which are SMEs, are not financially capable of
investing in R&D (Pham, 2024). Business entities are allowed to set aside up to 10% of their annual profits in
a tax-deductible R&D fund, subject to certain conditions. However, such incentives are unlikely to induce small
firms and start-ups, which often have no or little profits, to invest in R&D. Instead, more direct support may
be more effective. For example, introducing a voucher system to enable small firms to use the Academies of
Science to help solve their practical problems could help raise their productivity (Box 4.4). More public funding
could help the universities play a more significant role in R&D. Another concern is the weak links between the
business sector, universities and the Academies of Science (OECD, 2021). Fostering mobility of R&D staff
between the three sectors may improve R&D outcomes.

Box 4.4. Innovation vouchers in the Netherlands

Given that SMEs could not make sufficient use of the knowledge available in the innovation system, the
Netherlands introduced a voucher system in 2004 to allow them to use public research institutions. The
vouchers, which range in value from EUR 2 500 to EUR 7 500, enable SMEs to enlist a public research
institution to assist with an innovation-related question or problem. The voucher system has successfully
allowed SMEs to interact with knowledge providers and incentivised public institutions to work with SMEs.
Given the small lump sum available, vouchers are focused primarily on small-scale projects that lead to
product and process improvements rather than achieving breakthrough innovations. Up to ten SMEs facing
similar problems can pool vouchers to boost the size of the project.
Not surprisingly, the demand for vouchers has exceeded the supply, so vouchers have been allocated
randomly through a lottery. An evaluation of the innovation voucher programme found significant benefits
for participating SMEs. The benefits became evident within two years of the lottery and persisted in the
long run. Compared to firms that were not selected in the lottery, SMEs with vouchers had a higher
business survival rate (+4%), were more likely to use the national R&D tax credit programme (+5%), had a
higher level of R&D activities (+12% in terms of working hours) and created more jobs (+12%). A voucher
system could be effective for Viet Nam given its low cost and the availability of public institutions to
perform the research.
Source: OECD (2021), SME and Entrepreneurship Policy in Viet Nam.

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Promoting international technology transfer

The transfer of technology by multinational enterprises to entities in host countries is an important source of
economic growth worldwide, as reflected in the competition to attract FDI inflows. However, policies that aim
to force companies to transfer technology in exchange for permission to gain market access or to operate
under the same conditions as local firms create distortions in FDI flows and international trade (Kowalski et al.,
2017). For example, some governments, primarily in developing countries, have imposed local content
requirements on foreign investors or required them to take local partners. However, this may lead to involuntary
technology transfer and the disclosure of proprietary intellectual property that benefits competing firms.
Viet Nam’s FDI promotion policies target investment projects in specific sectors and provide incentives for
them based on their R&D spending and the technology characteristics of their investments (Kowalski et al.,
2017). Some have argued that foreign-owned firms in Viet Nam should be required to use advanced
production technology and transfer it to domestic firms (Vinh et al., 2024). However, the government has
avoided such policies, which would likely be less effective for Viet Nam, which does not have the same leverage
as a large economy such as China. Moreover, the 2005 Unified Law on Investment explicitly prohibited local
content criteria and other forms of foreign investor discrimination. In addition, trade agreements, including
the CPTPP and the 2015 Korea-Viet Nam Free Trade Agreement, prohibit performance requirements related
to technology transfers. The Japan-Viet Nam Bilateral Investment Treaty forbids requirements such as
transferring proprietary technology and achieving a specific value of R&D. On the other hand, Viet Nam’s FDI
promotion policies target investment projects in specific sectors and provide special treatment for investment
projects based on their technology characteristics. This includes fiscal incentives based on R&D spending by
investing firms and technological characteristics of investments (Kowalski et al., 2017).
Rather than imposing technology transfer obligations on foreign-owned firms, Viet Nam should focus on
enhancing its absorptive capacity to benefit from foreign technology and maximise the positive spillovers to
the domestic economy. The reforms to the education and training systems and measures to boost R&D
discussed above can increase such capacity. A study of 93 multinational enterprises in eight high-technology
sectors found that research collaboration is the most common form of direct technology transfer (Andrenelli
et al., 2019). Viet Nam’s National Strategy for Foreign Investment Cooperation for 2021-2030 (Resolution
52/NQ-CP) emphasizes developing the country’s innovation ecosystems to promote cooperation and
technology transfers between FDI and local firms (Viet Nam Briefing, 2022a).
Effective intellectual property rights (IPR) protection is a necessary condition for technology transfers on
market-based and voluntary terms because it preserves the technology owner’s interests and prevents an
involuntary transfer of technology. Moreover, strengthening IPR promotes technology transfers (Andrenelli et
al., 2019). Viet Nam introduced an IPR law in 2005, which has been revised several times to align it with
international and regional agreements. The law meets the international standards required by the WTO’s
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). However,
enforcement mechanisms still need improvement (US International Trade Administration, 2024). The
government should streamline bureaucratic processes, strengthen enforcement mechanisms and raise public
awareness to help protect intellectual property in Viet Nam (Mondaq, 2024). An international ranking of IPR
protection placed Viet Nam 40th out of 55 countries, well below the average of major OECD countries, as well
as the East Asian economies of Singapore, Chinese Taipei, China, Malaysia and the Philippines (Figure 4.21).

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Figure 4.21. Intellectual property rights protection in Viet Nam is relatively low
U.S. Chamber International IP Index 2024, % available score
Indonesia
Thailand
India
Viet Nam
Philippines
Malaysia
China
Chinese Taipei
OECD average
Singapore
Korea
Japan

0 10 20 30 40 50 60 70 80 90 100 %
Note: The OECD average consists of 24 large OECD countries.
Source: US Chamber of Commerce (2024), GIPC_IPIndex2024_Full-Report_v4.pdf.
StatLink 2 https://stat.link/yunb5s

Enhancing the role of services in Viet Nam’s exports

Another way to increase the share of domestic value added in Viet Nam’s exports is to develop the
contribution of services. The share of domestic services embedded in its total exports fell from 17% in 2005
to 12% in 2018, compared to 27% to 40% in its ASEAN peers (Figure 4.22). This has been offset by a rise in
foreign services’ value-added share in Vietnamese exports to around 19%. Strengthening Viet Nam’s domestic
service sector, while remaining open to imported services, is crucial to increasing domestic value added and
productivity.
Viet Nam’s domestic services’ contributions as inputs into other sectors’ exports is also relatively small,
particularly in manufacturing, where it was 7% in 2018 (Figure 4.22). In a global economy driven by GVCs, it is
increasingly difficult to disentangle manufacturing from services, which are the glue that binds GVCs (OECD,
2017). The “servicification” of manufacturing exports implies that the production of goods increasingly
incorporates services such as R&D, engineering, transport, logistics, distribution, marketing, sales, after-sale
services and IT (World Bank, 2024b). Indeed, the manufacturing sector in particular buys, produces and sells
services (Kim, 2019), such as combining a cell phone with a service contract.
Increasing services value added to Viet Nam’s manufacturing sector would help generate demand for higher-
skilled jobs and boost overall value added. The low level of value added of services in manufacturing reflects
Viet Nam’s small and inefficient domestic service sector (OECD, 2021a). Indeed, it accounted for only 45% of
GDP in 2021, well below the 70% OECD average (Figure 4.7). Competitiveness in manufacturing, as well as in
the service industry itself, thus depends on the availability of cost-efficient and high-quality services.
Consequently, achieving higher domestic value added in Vietnamese exports depends significantly on services.
While Viet Nam is relatively open to trade in goods, its trade in services faces significant restrictions. Indeed,
the OECD’s service trade restriction index (STRI) shows that Viet Nam’s service trade barriers were significantly
higher in 2023 than the OECD average, although they were in line with its ASEAN peers (Figure 4.23). Services
and digital trade face regulatory challenges embedded in domestic laws, which are less transparent and more
complex than tariffs on goods. In addition, restrictions on FDI in the service sector (Figure 4.11), such as data
localisation and commercial presence requirements, and screening and approval mechanisms for majority
acquisitions by foreigners, also limit trade in services. The dominant role of SOEs in some service sectors and
the absence of independent regulatory authorities further limit competition (World Bank, 2024b).

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Figure 4.22. Domestic services’ value added embedded in exports remains low
In 2018
Mexico Türkiye Indonesia Thailand Philippines Cambodia Malaysia Viet Nam
100
90
80
70
60 56

50
40
30
20 12
10 7 4 7

0
Business sector services Manufacturing Mining and quarrying Agriculture, forestry and Total
fishing
Source: World Bank (2024), Viet Nam 2045: Trading up in a Changing World – Pathways to a High-Income Future.
StatLink 2 https://stat.link/kp3t75
Firm-level studies in Viet Nam report positive productivity effects of service trade liberalisation on service
firms and downstream manufacturing firms. For example, the reduction in restrictions on transport, finance
and business sectors between 2008 and 2016 was associated with a 2.9% annualised increase in value-added
per worker. Moreover, the liberalisation in services was associated with a 3.1% rise in labour productivity of
the manufacturing firms that use service inputs, with the largest benefits going to private-sector SMEs (World
Bank, 2024b). This is also in line with international evidence (Arnold et al., 2016; Arnold et al., 2011).

Improving supplier development and the matching of domestic and foreign firms
The cost of producing intermediate inputs locally is often higher for foreign-owned firms than importing them
due to domestic firms’ weakness in human capital, innovation capacity and lack of technology. In addition to
the ideas for addressing those issues, some countries, including Viet Nam, have policies to develop domestic
suppliers and match them with foreign investors, thereby leading to productivity spillovers. The concept of
“supporting industries” originated in the 2003 Viet Nam-Japan Joint Initiative, which aimed to accelerate Viet
Nam’s economic growth by promoting the inflow of Japanese FDI while supporting the development of
domestic supplier companies (JCCI, 2023). Under the direction of the Ministry of Industry and Trade (MOIT),
the government identified in 2007 key sectors for this initiative – textiles and apparel, leather and footwear,
electronics, automobiles, metal products and high-tech industries. In 2015, the government announced a
priority list of supporting industry products for each sector eligible for assistance and incentives. This was
followed by the Programme on the Development of Supporting Industry for 2016-2025 (Box 4.5), which also
aimed to assist domestic firms in entering foreign markets, as well as helping them connect with foreign-
owned firms in Viet Nam. Examples of other countries’ approaches to supplier development programmes are
discussed in Box 4.6.
Domestic firms that meet international certifications and standards are more likely to supply foreign-owned
firms. Conforming to the International Organisation for Standardisation (IOS) criteria, which validate a firm’s
success in meeting quality standards, is a minimum standard requirement. Some certification programmes
include additional training requirements. However, few domestic firms in Viet Nam have received
international standard certifications. Among the members of the Viet Nam Association for Supporting
Industries (VASI), an organisation of 300 supplier firms established in 2017, only 14% of the 132 firms
specialised in metal processing and 25% of the 16 firms in electronics and electrical components had ISO 14
000 certifications, which are related to environmental issues (World Bank, 2017).

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Figure 4.23. Barriers to trade in services remain very high in Viet Nam
The service trade restriction index (STRI) in 2023
0.4
STRI Average

0.3

0.2

0.1

FIN
IRL

ITA

ISR

IND

IDN
ISL
JPN
ESP

CZE
NLD
LVA
DNK
DEU
AUS

LTU

LUX
CHL

SVK

USA

PER

FRA
CAN
ZAF

CHE

HUN

SVN
TUR

CHN

THA

RUS
GBR

PRT
CRI

EST

NZL

AUT
BRA

MEX

BEL

GRC

MYS
KAZ
VNM
COL

SGP

NOR

KOR
SWE

POL
OECD

Note: The STRI indices take values between zero and one, one being the most restrictive. The STRI database records measures on a most favoured
nation (MFN) basis towards third countries. The indices are based on laws and regulations in force on 31 October 2023.
Source: OECD STRI database (http://oe.cd/stri-db) and TiVA databases.
StatLink 2 https://stat.link/o5maq8
Supplier development programmes should help local firms meet the standards of foreign-owned firms, which
are generally higher than the ISO. The government should help by collecting information about the standards
set by foreign companies in their procurement and passing it along to domestic firms. In addition, the
government should help cover the cost of compliance and certification associated with these standards. Such
support needs to be maintained over the medium term, as it takes time for firms to obtain the necessary skills.
Even after meeting basic standards, firms need to continuing improving their technical capacity, digital skills
and innovation capabilities so they can maintain their status as suppliers as technology evolves and to be able
to move up the product chain (Tong et al., 2019).
Another key to facilitating the participation of domestic firms in GVCs is to strengthen the exchange of
information between potential local suppliers and foreign-owned firms. The Programme on the Development
of Supporting Industry for 2016-2025 (Box 4.5) includes partial government funding of trade fairs and
exhibitions between Vietnamese supporting industry companies and foreign-owned firms, which help
potential suppliers gain a better understanding of quality, cost and delivery (QCD) standards. The provincial
Investment Promotion Agencies should play a key matchmaking role in connecting local suppliers and foreign-
owned firms.
Minimising search costs for foreign firms could be achieved by publishing online databases and directories of
local suppliers in English that thoroughly assess these firms’ capabilities (World Bank, 2024b). VASI publishes
an annual directory with detailed information on domestic manufacturing enterprises that have successfully
become contractors of foreign-owned firms. However, it focuses on only three sectors: mechanical,
electronics, and plastic and rubber products. Expanding it to all supporting industries and including
prospective suppliers would make it more effective (OECD, 2021a). Moreover, information on potential
domestic suppliers should be available to foreign investors before they establish their operations in Viet Nam
to increase the potential for links with domestic suppliers (Tong et al., 2019).

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Box 4.5. Viet Nam’s Programme on the Development of Supporting Industry for 2016-25
The Programme includes total outlays of USD 51 million (0.1% of GDP) over 10 years, with specific targets
across several areas.
R&D and technology transfer
Support 1 000 firms in R&D and technology upgrading, with 500 firms receiving technology transfers (USD
27.6 million):
• Diffuse technological processes and technical requirements for supplying industry products
• Develop national standards and regulations in line with international standards
• Support technology transfers through licensing, technology acquisition, and foreign experts
• Promote international cooperation in technology training
Training in business administration and production management
Provide 2 000 firms with training, and have 1 500 achieve international/GVC requirements (USD 10.3 million):
• Assess enterprise management standards and systems
• Prepare training manuals and courses
Promote SME-MNE linkages and attract FDI in supplying industries
Link Vietnamese firms to domestic and foreign manufacturing and assembly firms and support 1 000
Vietnamese firms, and have at least 130 become direct suppliers for manufacturing/assembly of final
products (USD 5.1 million):
• Develop standards for supplying industry products
• Provide technical assistance for enterprises and assessment of enterprise capacity and scale
• Select firms with the potential to satisfy international requirements
• Organise forums between supplying industrial firms and MNEs
• Launch programmes to attract FDI in supplying industries
• Organise fairs to supply industrial products and support advertising and brand registration
Training in human resource development and management
Support 500 firms in human resource training and intensify connections between universities, research
institutes, training bodies and firms (USD 4.5 million):
• Study and assess the human resource needs of enterprises
• Create training programmes for managers and technicians of enterprises
• Organise training programmes on policy, technology and trade for government officials
Database, website and publications on supplying industries and firms
Compile and disseminate information on supplying industry firms (USD 3.3 million):
• Use firm surveys to build a database on supplying firms in different industries
• Provide information on supply and demand of supplying industry products
• Purchase existing databases
• Organise annual workshops and publications
Other measures
• Provide consultancy support for enterprises investing in supporting industries
• Establish Supporting Industry Enterprises Development Centres (SIDECs) to assist enterprises in R&D
and technology transfer, including through testing facilities
Source: Tong et al., 2019.

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Improving the financial position of domestic suppliers would also help them to compete with tier-1 and tier-2
suppliers that relocate to Viet Nam. Foreign suppliers located in export processing zones are exempt from
value-added tax (VAT), whereas domestic suppliers can only be reimbursed VAT after proving their products
are exported, which generates delays, even in a best-case scenario. This tax incentive could be extended to
domestic suppliers that sell more than a certain percentage of their production to firms operating in export
processing zones. Foreign-owned firms also receive favourable treatment on corporate income tax as noted
above. In addition, domestic suppliers have to borrow in local currency, while foreign suppliers can borrow in
other currencies at lower interest rates (OECD, 2021a).
Finally, the government could provide incentives for foreign-owned firms to connect with local firms. Such
incentives should be tied to firm performance, targeted, with sunset clauses, and designed to minimise market
distortions (World Bank, 2024b). Such incentives should include the service sector, which receives less
government support than FDI in manufacturing.

Box 4.6. Supplier development programmes in Chile and Costa Rica

Trade liberalisation prompted Chile and Costa Rica to implement supplier development programmes to
help their domestic firms meet international quality standards. Both were led by key government
institutions – the Economic Development Agency (CORFO) in Chile and the investment promotion agency
(PROCOMER) in Costa Rica.

Chile
CORFO’s approach was based on collaboration between the government, the private sector, NGOs and
universities to encourage investment, innovation and entrepreneurship. Linkages between domestic
suppliers and foreign-owned firms were encouraged by sector-level databases, industry exhibitions, and
training programmes based on private-sector inputs. Costs were shared by CORFO and foreign-owned
firms, while private-sector experts provided management consulting services. A “Pro-SME” Seal is awarded
to large firms that provide timely payments to SME suppliers. An Inter-American Development Bank study
found that these programmes were beneficial to both small suppliers and large buyers in terms of higher
sales and employment growth (Arraiz, 2011).

Costa Rica
Three programmes aimed at strengthening linkages between domestic suppliers and foreign-owned firms
failed during the 1990s, reflecting a lack of coordination and competition between these initiatives.
Moreover, these initiatives lacked a comprehensive strategy to develop suppliers’ absorption capabilities
through improved workforce skills and increased innovation capacity in domestic firms.
The CR Provee initiative, launched in 2001, has been more successful in matching suppliers and buyers, in
part through supply and demand data. The programme provides in-house training and consultancy services
and partnerships with universities. Public agencies help monitor the programme and private-sector entities
are consulted to improve it. The business climate was improved by modifying export processing zones and
simplifying business registration procedures (OECD, 2021a).

4.6. Scaling up domestic firms to boost connections with MNEs

Domestic firms that are integrated in GVCs differ from other firms, most notably in size. While 18% of
Vietnamese firms participated in GVCs in 2023, the share was much higher for large companies (62%) than for
small ones (12%) (Figure 4.24, Panel A). The participation of domestic suppliers in GVCs is closely linked to
their growth and size. First, supplying foreign-owned firms allows domestic firms to expand, thereby achieving
economies of scale and higher productivity. Second, achieving an efficient scale of production is a pre-
condition for participating in GVCs. SMEs’ small scale of production makes it difficult to produce the quantities

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  125

demanded by foreign-owned firms and limits their productivity. In addition, firms engaged in GVCs are more
diversified in terms of products than companies with no connections to foreign firms. Small firms’ lower
participation in GVCs also means that they are less likely to be exporters (Panel B). In sum, small firms tend to
be excluded from GVCs because of their size but find it more challenging to expand because of their exclusion
from GVCs and international trade.

Figure 4.24. Small firms in Viet Nam are less likely to participate in global value chains and
export
A. Share of firms that participate in GVCs B. Share of small firms that are exporters
% %
70 20

60
16
50

40 12

30
8
20
4
10

0 0
Small Medium Large THA MYS PHL VNM IDN TUR E. Asia CHN

Source: Panel A -- World Bank (2024), Viet Nam 2045: Trading up in a Changing World – Pathways to a High-Income Future; Panel B: World Bank (2022), Malaysia:
SME Program Efficiency Review.
StatLink 2 https://stat.link/onez73

4.6.1. Addressing the shortage of SME financing

The SME sector is dominated by family-owned and operated businesses with limited access to finance (OECD,
2020). A 2023 World Bank survey reported that access to finance ranks as the second most significant obstacle
for Vietnamese firms at 21%, considerably above the East Asia and Pacific average (Figure 4.25). The problem
is concentrated among domestic firms, while only 9% of companies with foreign ownership reported access
to finance as a significant obstacle. SMEs accounts for 22% of total bank lending in Viet Nam, in contrast to
their 36% share of GDP. More than one-third of SMEs do not have access to loans, mainly because they lack
adequate collateral. Indeed, more than 90% of loans to the business sector are collateralised, using property
(38.5%) and capital assets (26.5%). Indeed, the probability of obtaining a business loan in Viet Nam is about
25% lower for SMEs (Viet Nam Financial Times, 2019). For SMEs that do obtain loans, the median amount of
their most recent loan and the level of outstanding loans was only about one-tenth that of large companies.
Around 45% of SMEs applied for loans in 2015. Of those that did not, about two-thirds said they had no need,
reflecting strong cash flow or a lack of growth aspirations. A major concern is for the remaining one-third of
“discouraged borrowers”.
Viet Nam has a relatively small number of financing programmes that specifically target SMEs. The two key
programmes aimed at increasing lending to small companies -- the SME Development Fund (SMEDF), which
went into operation in 2016, and the Credit Guarantee Fund (CGF) -- have relatively low take-up. Lending by
the SMEDF is delivered primarily through partnering banks. It provides 80% of the loan amount at interest
rates capped below market rates, with the borrowing company required to contribute 20% of the project cost.
However, the low interest rates tend to discourage the participation of commercial banks by reducing their
profit margins on SMEDF-backed loans (OECD, 2021a).
The required contribution by the borrowers may deter small businesses that are cash-constrained from
applying. Low awareness of the SMEDF among SMEs and a lengthy approval process have also been cited as
reasons for the limited use of this Fund. In addition, the lending bank is allowed to request hard collateral for

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126 

up to 100% of the loan amount (OECD, 2021a). The 2019 SME Support Law restricted SMEDF loans to
“innovative start-ups” and “SMEs participating in business clusters and value chains”, further narrowing the
scope of such support. It also allowed the SMEDF to engage in direct lending. In this case, the maximum loan
size should not exceed 80% of the total investment capital of the financed project, up to a ceiling of VND 1 billion
(USD 39 167), while the interest rate should be no higher than 80% of the lowest interest rate available from
commercial banks. As of August 2023, the SMEDF had disbursed less than VND 600 billion (USD 23.5 million)
since its inception to fewer than 40 SMEs (AMRO ASIA, 2023).

Figure 4.25. Access to finance is a major concern for Vietnamese firms

% of firms
25
Viet Nam East Asia & Pacific

20

15

10

0
Informal sector Access to Workers' Tax rates Transportation Business Customs and Tax Electricity Political
practices finance education level licenses & trade rules administration instability
permits

Source: World Bank (2023), Enterprise Surveys Indicators Data, www.enterprisesurveys.org.

StatLink 2 https://stat.link/picd0w
The CGF has also experienced low demand. Viet Nam has offered credit guarantees through local governments
since 2001 and the central government since 2008. The total charter capital of guarantee funds was around
VND 1.5 trillion (USD 59 million) in 2019. However, the funds are only allowed to lend up to three times their
charter capital, compared to leverage ratios of five to seven times in some European countries. The usage of
guarantees has been low; only 2 000 SME loans were backed by the CGF between 2001 and 2017. In 2017, the
total value of guaranteed loans was equivalent to 0.12% of total outstanding SME loans and 0.03% of GDP,
compared to over 1% in Thailand, over 1.5% in Malaysia and 3% to 4% in Japan and Korea (OECD, 2021a).
Several factors limit the use of credit guarantees. First, SMEs must meet strict conditions to receive a
guarantee, especially in terms of assets. Second, commercial banks have been reluctant to accept
government-backed guarantees, especially at the local level. They are worried that the guarantees will not be
honoured by provincial governments, given that most do not have the minimum about of capital required by
the government. Third, the quality of the staff managing the local guarantee funds and the efficiency of the
guarantee approval process need to be improved (OECD, 2021a). Fourth, the CGF faces a high rate of non-
performing loans (NPLs): by the end of 2017, nearly 10% of loans guaranteed by the CGFs were non-performing
(Dang and Chuc, 2019).
Viet Nam has a bank-centred financial system, with bank credit to non-financial corporations amounting to
around 130% of GDP, compared to around 85% for ASEAN countries. Bank loans are better suited to more
established businesses with proven track records. However, they can be less effective for high-risk, high-
growth start-ups and early-stage firms, which tend to have limited collateral and uncertain revenues in the
short run and fewer relationships with state-owned banks and large commercial banks.
Meeting SMEs’ financing needs could be supported by mobilising alternative funding sources, as “the
traditional forms of financing are found increasingly to be inadequate” (OECD, 2024b). However, market-
based financing (defined here as the sum of the market capitalisation of non-financial listed companies and
the outstanding amount of non-financial corporate bonds) is around 25% of GDP, compared to around 85%
for ASEAN countries. Viet Nam’s venture capital market has grown significantly since its launch in 2004. It was
ranked 60th out of 125 countries in the 2023 Venture Capital and Private Equity (VC/PE) Country Attractiveness

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Index and was described as a “highly attractive market with increasing exposure” (IESE, 2023). However, the
legal framework for equity finance is still at the early stages of development in Viet Nam. Most venture capital
funds with operations in Viet Nam are legally registered abroad, mainly in Singapore, to escape the uncertainty
of Viet Nam’s national regulatory framework. To further develop the provision of equity finance for SMEs, the
government could introduce tax deductions for investment in seed and early-stage ventures, either directly
or through participation in VC funds, as well as favourable taxation on capital gains (OECD, 2021a).
Creating an appropriate regulatory framework for new forms of attracting equity is crucial to ensure its success
and protect all parties involved. Unlike conventional capital-raising methods for early-stage companies, which
primarily rely on investments from a small group of professional investors, equity crowdfunding targets a
broader range of investors. With numerous small shareholders participating, protecting investors by ensuring
transparency and preventing fraudulent activities is crucial. To address the concerns of numerous small
shareholders, companies seeking crowdfunding should be required to disclose relevant information to
investors and regulatory authorities.

4.7. Improving the allocation of resources

Raising productivity depends in part, on an efficient allocation of resources, including labour and capital. Since
1996, the productivity of capital – output per unit of capital services – has declined by 36% (Figure 4.26),
suggesting considerable scope for improving the allocation of capital. Viet Nam is not alone in this regard: G7
countries have also experienced a secular decline in capital productivity (Morkunaite, 2019). While the rapid
accumulation of capital in Viet Nam has likely played a role, the significant decline in capital productivity in
Viet Nam suggests distortions in resource allocation.
A number of factors determine the allocation of resources. First, the banking system plays a major role in
allocating capital across firms in Viet Nam’s bank-centred financial system. State-owned banks, which account
for 40% of assets, play an important role, raising concern about the extent to which market criteria are applied
in the allocation of credit. Other problems, such as credit ceilings, interest rate ceilings and floors, and the
problems in the government bond market, can also create distortions (see Chapter 1). Second, corruption,
discussed in the following section, can contribute to a misallocation of resources.

Figure 4.26. The significant fall in the productivity of capital indicates resource misallocation
Index, 1986 =100
6
Total factor productivity Labour productivity Capital productivity

0
1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Note: Labour productivity is measured as output per person employed.

Source: Asian Productivity Organisation (2024), APO-Productivity-Databook-2024_PUB.pdf.
StatLink 2 https://stat.link/gxc1k6

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128 

Table 4.1. Past recommendations on policies to boost productivity and actions taken
Recommendations Actions taken since April 2023
Enhancing product-market competition and boosting productivity
Continue to simplify business regulations, including through stronger use of digital The government launched a plan in 2025 to cut at least 30%
technologies in areas such as tax payments and insolvency procedures. of unnecessary regulations and administrative procedures,
with a goal to reduce business costs by at least 3%.
Clarify the functions of the state as owner of companies and regulator of the same No action taken.
companies in order to ensure effective separation.
Give the competition authority the power to take action against state-owned No action taken.
enterprises at central and local levels that abuse their market power, to advocate for
competition and to perform market studies.
Boosting the digital economy
Open telecommunications markets to foreign investors, especially by accelerating A 2024 New Telecoms Law Vietnam raised the foreign
the adoption and implementation of a new Law on Telecommunications to reduce ownership limit to 65% for telecom companies in non-
barriers to foreign entry and ease foreign ownership restrictions. facilities-based services in January 2024.
Enhance digital skills by providing more training opportunities for basic skills and In 2025, responsibility for vocational and technical education
allocating more resources to vocational and technical education and training systems and training was shifted from the Ministry of Labour to the
and on-the-job IT training of advanced skills. Ministry of Education and Training

4.7.1. Reducing the role of state-owned enterprises and improving their governance
The 2020 Enterprise Law defines SOEs as enterprises in which the government holds more than 50% of charter
capital or voting shares. These enterprises hold 28.8% of the country’s capital and account for about 20% of
GDP. The average capital per SOE is ten times greater than that of foreign-invested firms and 100 times greater
than domestic private firms. SOEs accounted for over half of the revenue of Viet Nam’s 500 largest enterprises
in 2017 and the total assets of fully-owned SOEs amount to about 80% of GDP. The larger size of SOEs gives
them easier access to finance compared to micro and small-sized firms (Dang et al., 2020). SOEs have
preferential access to government procurement contracts and enjoy other benefits, including direct subsidies,
concessionary financing, state-backed guarantees, and exemptions from antitrust enforcement and
bankruptcy rules, giving them considerable competitive advantages. The OECD’s Product Market Regulations
(PMR) index measures rules and regulations that affect competition in product markets, such as the existence
and quality of competition law and the role of the state in the economy, including SOEs. The PMR index finds
that the negative impact of public ownership in Viet Nam on competition is higher than in all OECD countries
and non-member countries in the index (Figure 4.27). Moreover, the level of government control of SOEs was
more restrictive than the worst-performing OECD country. In addition, the scope of SOEs was the second
highest among countries in the PMR index.
In addition to weakening competition, SOEs are often less efficient than foreign-owned firms and private
domestic companies, leading to less business dynamism, weak innovation and subdued productivity growth
(OECD, 2023b). Indeed, SOEs’ incremental capital-output ratio (ICOR) is higher, meaning that their investment
yields lower returns (OECD, 2021a). Other studies suggest that SOEs are less productive than domestic private
enterprises, controlling for their higher levels of investment and technology usage (OECD, 2018). Competition
should allow productive firms to expand and uncompetitive ones to shrink or disappear. However, SOEs
receive preferential treatment, including favourable access to credit and land. They dominate many sectors,
such as mining, public utilities, construction and finance, where labour productivity has declined. Preferential
treatment and subsidies for SOEs crowd out private investment and make it harder for privately-owned firms
to compete. An effective competition regime requires that firms respect the rules and that those rules are
applied equally to all firms – private or state-owned, foreign or domestic (OECD, 2018). Ending favourable
lending conditions to firms linked to the government should be part of ensuring a level playing field (OECD,
2023b).

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Figure 4.27. State-owned enterprises play a large role in Viet Nam

Distortions from state involvement on a scale of 0 to 6, from most to least competition-friendly regulations

Note: Information used to calculate the 2018 PMR indicators is based on laws and regulations in place on 1 January 2018 or a later year depending
on when the information was provided by the relevant country (1 January 2022 for Viet Nam).
Source: OECD, Product Market Regulation database and OECD-WBG, Product Market Regulation database.

StatLink 2 https://stat.link/3ofz2k
The reform of SOEs has long been a priority in Viet Nam. The number of SOEs fell from 12 000 to around 2 000
in 2020 (OECD, 2023b), mainly through equitisation, mergers, closures and sell-offs. Equitisation – a
broadening of ownership through the conversion of SOEs into joint stock companies – was particularly
important (OECD, 2018). However, reductions in government holdings of SOE equities have been slower than
planned in recent years. Between 2016-2020, only 39 out of 128 targeted SOEs were equitised, and the total
divestment value was 11% of the target (OECD, 2023b). Many equitised SOEs have retained significant state
ownership and have failed to attract foreign investors, who have been wary of the risks involved. Accelerating
privatisation should be a priority, helping to achieve profound changes in SOEs’ managerial and administrative
practices (OECD, 2018). The government aims to continue privatisation, while retaining their ownership in
“strategic sectors”, which are not clearly defined.
Along with an acceleration of privatisation, it is essential to increase transparency and improve the governance
of SOEs, while reducing the involvement of state ministries and provincial governments in their day-to-day
operations (OECD, 2023b). The government’s role as both a business owner and regulator of industries creates
conflicts of interest that can give SOEs an unfair advantage over private firms. To prevent conflicts of interest
and ensure fair treatment of SOEs, it is essential to establish independent regulatory authorities for key service
sectors such as telecommunications, postal services, and transportation. In addition, the competition
authority should be given more power to level the playing field for all market participants, including SOEs.
The OECD Guidelines on Corporate Governance of State-Owned Enterprises are useful benchmarks for
Vietnamese policymakers as they continue to develop and measure progress in improving their corporate
governance frameworks. The Guidelines aim to ensure that SOEs operate efficiently, transparently and in an
accountable manner (OECD, 2015). SOE boards of directors should play a strong, autonomous, and
professional role, while protected from political influence (OECD, 2023b), in line with the Guidelines. Several
international agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership and the EU-Viet Nam Free Trade Agreement, prohibit state aid to SOEs.

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4.8. Improving economic governance and fighting corruption

Raising productivity will also require improvements in institutions and economic governance. While Viet Nam
has made progress, strengthening institutions is a gradual process. As incomes rise, citizens and businesses
generally become more demanding with respect to the quality of economic governance, and cross-country
comparisons typically point to a positive correlation between incomes and the quality of institutions and
governance. Viet Nam’s strong improvements in living standards provides an opportunity for further progress
in this important domain, which will in turn feed into stronger productivity performance.
Integrity is a cornerstone of a system of sound economic governance. Public sector integrity is essential to
establish trust in government, which in turn helps promote citizens’ compliance with laws, including the
payment of taxes. Corrupt practices and weak governance can waste public resources, increase the perception
of political risk, worsen the investment climate and exacerbate income inequality by allowing relatively
prosperous public officials and businesspeople to divert taxpayer resources.
Viet Nam has made progress in the fight against corruption. Still, corruption has been a persistent problem in
Viet Nam for many years, with particular challenges arising from a weak rule of law, lack of transparency and
accountability, and a powerful politics-business nexus. The government’s influence in allocating land and
capital creates many opportunities for corruption (OECD, 2020). In 2016, the government launched a wide-
ranging National Anticorruption Strategy, often referred to as the “burning furnace”. Since then, the
government has submitted 18 laws to the National Assembly and issued 127 decrees and 171 resolutions,
including a national anti-corruption strategy until 2030. Viet Nam has required civil servants, military officers,
and other officials to declare their assets to ensure accountability. These declarations are subject to
verification. The anti-corruption campaign forced the resignations of several senior government figures in
early 2023. During the past decade, nearly 200 000 party members, including 36 Central Committee members
and 50 military and police generals, have been disciplined (Giang, 2023).
Table 4.2. Past recommendations on anti-corruption policies and actions taken
Recommendations Actions taken since April 2023
Continue to make strong commitments to enhancing anti-corruption In 2024, 825 new cases involving 1 646 individuals were prosecuted
efforts, allocating more government resources and increasing for corruption crimes, a 16.4% increase compared to 2023. Authorities
awareness among people and businesses, including public sector recovered VND 1.33 trillion (USD 7 874).
workers of local governments.
Consolidate more power in the Government Inspectorate and allocate In November 2023, the government issued a decree clearly stipulating
more resources to it so as to provide direct supervision and guidance to the functions, tasks and powers of the Government Inspectorate,
ministries and local governments, including technical support. stressing that it is a government ministry.
Enact a new law that ensures whistleblower protection for private sector No action taken.
workers.
Allocate more resources to anti-money laundering supervision by In March 2023, Viet Nam’s new Anti-Money Laundering Law went into
responsible government agencies and enhance coordination among effect, bringing significant changes to establish a more stringent Anti-
them, particularly through information sharing. Money Laundering framework.

Some studies suggest that corruption harms economic growth because it favours the public sector at the
expense of the private sector (Nguyen and van Dijk, 2012). The anti-corruption campaign has had a number
of positive economic effects and the fight against corruption should be maintained. First, it lowered the
informal costs of doing business by reducing bribery and gift-giving, thus improving the investment climate for
domestic and foreign firms (OECD, 2020). According to the 2021 Provincial Competitiveness Index survey
conducted by the Viet Nam Chamber of Commerce and Industry, the share of businesses paying bribes fell
from 70.0% in 2006 to 41.9% in 2021. However, the share of firms that reported paying more than 10% of
business revenue in bribes rose from 1.2% in 2020 to 1.7% in 2021, while the share paying 5-10% increased
from 2.1% to 5.0% (VCCI, 2021). Second, the anti-corruption campaign, in conjunction with administrative
reforms, has streamlined administrative processes for firms and individuals. By cutting red tape, the
government has improved the ease of doing business, attracting more investors and fostering economic
growth. Third, the anti-corruption campaign has weakened the politics-business nexus, especially in the area

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of real estate, thereby fostering a fairer business environment. At the local level, most corruption cases involve
the sale of under-priced state-owned land to businesses with links to the government (Giang, 2023).
The positive impact of the anti-corruption campaign is reflected in the improvement of Viet Nam’s ranking in
the Corruption Perception Index from 119th in 2015 to 83rd out of 180 countries in 2023. However, the scope
for improvement remains large, as Viet Nam ranks below other Asian countries, including Japan, Korea,
Malaysia, Singapore and China, with respect to perceived corruption (Figure 4.28, Panel A). The World Bank’s
control of corruption indicator, which measures perceptions of the extent to which public power is exercised
for private gain, as well as the "capture" of the state by elites and private interests, gives similar results (Panel
B). While Viet Nam has made considerable progress in this indicator since 2017, some of the gains were
reversed in 2023 (Panel C). Corruption is considered to be more severe in the public sector compared to the
executive and political spheres (Panel D).
The year 2024 was a busy year for the anti-corruption campaign. Nationwide, 825 new cases involving 1 646
individuals were prosecuted for corruption crimes, a 16.4% increase compared to 2023. Authorities recovered
VND 1.33 trillion (USD 52.1 million), exceeding the target set by the National Assembly. The campaign led to
the prosecution of high-ranking officials, including former ministers and provincial party secretaries
(Vietnamnet, 2024c).
The Ministry of Public Security has pledged to intensify its anti-corruption efforts in 2025, emphasising that
there will be “no exceptions” and “no safe zones.” While efforts to reduce corruption are crucial to Viet Nam’s
long-run development, in the short run, the campaign has slowed administrative procedures at the local
government level, as public officials have become more worried about being investigated. Consequently,
policy directions set by the national government are not always implemented at the local level. This has
contributed to the low disbursement rate of public investment in 2022, which reached only 68% of its planned
target. In some cases, it takes two years to obtain a permit for land use as civil servants take longer to carefully
check and verify all the information in investment plans to ensure legal compliance. These delays have been
particularly problematic in the real estate sector, which accounts for more than half of delayed projects. It
also reflects the lack of a clear framework for land pricing.
Balancing anti-corruption efforts with efficient decision-making is crucial. In addition, enhancing openness
would help reduce corruption. Greater emphasis on preventing and removing conditions that favour
corruption, rather than simply reacting to it, would be beneficial. Low wages and the immobility of civil
servants can encourage collusion between locally influential actors and officials. Further increasing civil
servants’ wages and mobility, using downsizing in public employment where possible to offset the cost, may
help reduce corruption. Another concern is that prosecutions for corruption are sporadic and politically driven
in some cases, as the judicial system lacks independence. Finally, increasing the resources of the Government
Inspectorate would help in their fight against corruption (OECD, 2020).
In addition to fighting corruption, the authorities are launching a major initiative to reorganise the state
administrative apparatus to improve efficiency and innovation. The principle of “party leadership, state
management” has created a parallel structure of Communist Party of Viet Nam (CPV) and government
institutions. For each state management agency there is a corresponding CPV institution, resulting in
overlapping functions and authority that can result in inefficiencies and weaken governance. In December
2024, CPV leadership identified institutions as "the bottleneck of bottlenecks” and called for institutional
reform to make the party-state “lean, compact, strong, efficient, effective, and impactful” to achieve
breakthrough economic development. As a first step, the number of ministries and ministerial-level agencies
will be reduced from 20 to 15 through mergers. At the local level, party and state agencies will also be merged.
Streamlining bureaucratic procedures may also decrease opportunities for corruption by reducing interactions
between officials and citizens (Nguyen, 2024).

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Figure 4.28. Corruption measures show improvements but also scope for further progress
A. Corruption Perceptions Index B. Control of corruption
Scale: 0 (worst) to 100 (best), 2023 Scale: -2.5 (worst) to 2.5 (best), 2023
100 2.5

80 1.5

60 0.5

40 -0.5

20 -1.5

0 -2.5

LAO

NZL
MMR

IDN
MEX

THA

IND

MYS

JPN
ZAF
CHN

KOR
CHL

CAN

SGP
BRA

AUS
KHM

PHL

VNM

ARG
LAO

NZL
MMR

MEX
IDN

THA

IND

MYS

OECD
JPN
ZAF
KHM

CHN

KOR
CHL

CAN
SGP
BRA

AUS
PHL

ARG

VNM

C. Evolution of "Control of Corruption" D. Corruption index

Scale: -2.5 (worst) to 2.5 (best), 2023 Scale: 0 (best) to 1 (worst), 2023
OECD ASEAN Viet Nam
OECD ASEAN Viet Nam
1.5 Political
1
0.75
1
0.5

0.5 0.25
0
0

Executive Public sector

-0.5

-1
1996 2000 2004 2008 2012 2016 2020
Note: Panel B shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator
by the Varieties of Democracy Project.
Source: Panel A: Transparency International; Panels B & C: World Bank, Worldwide Governance Indicators; Panel D: Varieties of Democracy Project,
V-Dem Dataset v12.
StatLink 2 https://stat.link/3lbmwd

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Table 4.3. Table of Recommendations (Key recommendations in bold)

Main findings Recommendations (Key recommendations in bold)
Promoting continued inflows of foreign direct investment (FDI)
The service sector, where FDI barriers are relatively high, is small at 45% of Promote the development of the service sector by reducing
GDP. Key telecommunication markets are dominated by state-owned trade barriers to services and reducing foreign ownership
enterprises while state-owned banks account for 40% of bank of assets. restrictions in services, including telecommunications.
Competition in transportation is limited by the 37 state-owned enterprises in Allowing more private, including foreign, investment to support
this sector and the prohibition on foreign majority ownership of firms. transportation infrastructure while ensuring an appropriate degree
of risk-sharing between the public and private sectors.
Improving education outcomes
Focusing more on STEM subjects is essential to improve the quality of the Improve learning outcomes in upper secondary education including
labour force and boost the financial rewards attached to upper secondary by focusing more on STEM subjects.
education.
Only 6% of students pursue technical and vocational education and training Introduce vocational tracks in secondary education with workplace-
(TVET). The lack of collaboration by TVET institutes with employers and based training and employer participation in curriculum design.
universities reduces the quality of vocational education. Create government training programmes for workers.
Tertiary education completion rates are 10% for universities and 3% for Boost government spending on tertiary education and
vocational schools. Government spending on tertiary education has fallen to increase coordination with the business sector to improve
around 0.3% of GDP. curricula and reduce labour market mismatch.
Tuition payments account for 55% of public universities’ revenues. Implement a comprehensive support system for economically
Scholarships and need-based loan programmes suffer from low coverage, low disadvantaged students at both the secondary school and tertiary
support levels, and unattractive repayment terms. level through scholarships, student aid and loans.
Strengthening the links between local firms and foreign-owned firms
Foreign direct investment (FDI) has weak linkages to domestic suppliers. The Publish online nationwide databases on domestic suppliers across
foreign value-added in Vietnamese exports was 48% in 2021 and foreign- all sectors, including quality assessments, and make this
owned firms account for about three-quarters of the country’s exports. information available to foreign investors before they establish
operations in Viet Nam.
Few Vietnamese firms have received international standard certifications. Increase spending on the Programme on the Development of
Outlays by the Programme on the Development of Supporting Industry for Supporting Industry. Harness it to collect information about the
2016-2025 amount to less than 0.1% of GDP. procurement standards set by foreign companies and share this
information with domestic firms.
R&D spending is only 0.4% of GDP, of which a quarter is in the public sector’s Introduce vouchers to allow SMEs to work with the Academy of
Academy of Science. Science and its affiliates to solve their practical problems.
Viet Nam’s intellectual property rights (IPR) law aligns with international Strengthen IPR enforcement by cutting the time and costs of
standards, but enforcement mechanisms need improvement. legal actions and raise public awareness of the importance of
IPR.
Promoting the scaling up of small firms
The SME Development Fund (SMEDF) was established in 2016 to partner Allow higher interest rates on SMEDF loans to promote the
with commercial banks to provide loans to SMEs. However, fewer than 40 participation of banks and lower the required contribution by
SMEs have received SMEDF loans, possibly due to high level of borrower borrowers.
contributions that are required.
The Credit Guarantee Fund (CGF) was created in 2001 to partner with Reduce the coverage rate for the CGF from 100% to 80% to
commercial banks to provide 100% loan guarantees to SMEs. Only around promote risk-sharing with partner banks and boost the premium fee
2 000 SMEs had benefited from these guarantees by 2017. for the credit guarantee to ensure the CGF’s stability.
Market-based financing is small in Viet Nam’s bank-centred financial system. Create an appropriate regulatory framework for new forms of
Viet Nam has created a special trading platform, equity crowdfunding and equity investment to ensure transparency and prevent
peer-to-peer financing to increase SMEs’ access to equity financing. fraudulent activities.
Improving the allocation of resources
State-owned enterprises (SOEs), which account for about 40% of GDP, hinder Reduce the role of the state in the economy by accelerating the
competition in many product markets. The scope of SOEs in Viet Nam is very privatisation of state-owned enterprises and leveling the
broad according to the OECD Product Market Index. playing field between private firms and SOEs.
Privatisation of SOEs has advanced more slowly than planned. Ministries and Improve the corporate governance of SOEs and establish
public agencies still have an strong influence on SOE management. independent regulatory authorities in key sectors.
The OECD Product Market Regulation index shows that price controls in Viet Phase out retail price controls to eliminate their distortionary impact
Nam have a relatively restrictive impact. on production and investment decisions and instead rely on
transfers to support low-income households.
Improving economic governance and fighting corruption
The anti-corruption campaign has achieved significant progress in public- Maintain strong efforts to fight corruption.
sector integrity..

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OECD Economic Surveys:
Viet Nam 2025
June 2025
Volume 2025/16

Viet Nam has made remarkable economic progress over the past decades. Extensive and continued reforms since
the late 1980s have been key to this economic success. But with significant challenges ahead, Viet Nam needs to advance
structural reforms that will further strengthen market forces, improve social protection for an ageing population
and make growth more sustainable. Macroeconomic policies could be enhanced by strengthening the operational
independence of the central bank, price‑based monetary policy and additional revenue mobilisation to address growing
spending needs. Social benefits, including old‑age pensions, could be strengthened and widespread labour informality
reduced. Making growth more inclusive requires well‑coordinated reforms to expand non‑contributory social assistance
benefits while maintaining strong incentives for formal job creation. Viet Nam is strongly affected by climate change
and has committed to net zero carbon emissions by 2050. Reducing emissions from electricity generation by phasing
out coal‑fired plants and accelerating the rollout of renewable energy sources will sustain more sustainable growth.
Foreign‑owned firms have been a driver of growth but have developed few supplier links to local firms. More
investment in tertiary education, stronger competition in services sectors and a more even playing field between private
and state‑owned companies could boost productivity growth.
SPECIAL FEAUTURE: HARNESSING TRADE AND INVESTMENT FLOWS TO BOOST PRODUCTIVITY

PRINT ISBN 978-92-64-69805-5

PDF ISBN 978-92-64-61326-3

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