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Recently, Vietnam's economic situation has attracted a lot of attention.
The battle to defend the currency seems to have been lost, with foreign exchange reserves bottoming out and huge debts capping, and Vietnam may be at risk of economic collapse.
Once seen as the next economic miracle, the Southeast Asian country is now in economic trouble.
What is the reason for this situation? What is the way forward for Vietnam?
The ups and downs of Vietnam's economy: from hopeful to difficult
Vietnam's economic miracle has captured the world's attention.
Since the reform and opening up, Vietnam has achieved remarkable economic growth through the introduction of foreign investment, the development of manufacturing and an export-oriented economy.
Data shows that from 2010 to 2019, Vietnam's GDP grew at an average annual rate of more than 6%.
However, the global pandemic hit Vietnam hard in 2020, with supply chains disrupted, exports declining, and economic growth slowing down.
As the global economy gradually recovers, Vietnam's economy is also struggling to rebound.
However, the combination of internal and external factors has made Vietnam's economic recovery a bumpy road.
In particular, currency depreciation and a sharp reduction in foreign exchange reserves have become huge challenges for Vietnam's economy.
Bottoming out foreign exchange reserves: a prelude to a currency crisis
Foreign exchange reserves are an important guarantee for a country's balance of payments.
However, Vietnam's foreign exchange reserves are rapidly bottoming out.
Vietnam's foreign exchange reserves have fallen to about US$50 billion by mid-2023, well below the internationally recognized safety line, according to the central bank.
The decrease in foreign exchange reserves was mainly due to Vietnam's large import of raw materials and equipment, while its ability to earn foreign exchange through exports was insufficient.
In addition, in order to stabilize the Vietnamese dong exchange rate, the central bank of Vietnam had to sell a large amount of foreign exchange, which further exacerbated the depletion of foreign exchange reserves.
The defeat in the currency defense war has put the Vietnamese dong under great pressure to depreciate.
Huge debt crushes: the heavy burden of economic recovery
In addition to the bottoming out of foreign exchange reserves, Vietnam is also facing the pressure of huge debts.
In recent years, the Vietnamese government has tried to transform the economy through large-scale infrastructure investment and industrial upgrading.
However, a large amount of debt has accumulated in the process. According to the International Monetary Fund (IMF), Vietnam's total government debt reached 63% of GDP by the end of 2022, of which external debt accounted for more than 40%.
Debt pressures have left the Vietnamese government strained in fiscal policy.
In order to repay debts and pay interest, the government has had to cut public spending, affecting investment in infrastructure and social welfare.
In addition, the debt problem has limited the government's policy space for economic stimulus and industrial support, making the economic recovery more challenging.
The current state of the economy in Vietnam's major cities: Hope and challenge
In Vietnam, the development of major cities has its own merits. Take Ho Chi Minh City, for example, the economic center of Vietnam, which is home to a large number of foreign-owned companies and export manufacturing.
However, in recent years, Ho Chi Minh City has also faced problems such as aging infrastructure, traffic congestion, and environmental pollution, which have affected the sustainability of economic development.
As the political center of Vietnam, Hanoi has relatively complete educational and scientific and technological resources.
In recent years, Hanoi has made some progress in high-tech industries and service industries, and has become an important engine for Vietnam's economic transformation.
However, Hanoi is also facing problems such as high housing prices, rising living costs and widening gap between rich and poor, and needs to further optimize its economic structure and improve the quality of development.
As an important tourist city in Vietnam, Da Nang has experienced rapid tourism development in recent years, driving local economic growth.
However, the impact of the epidemic on the tourism industry has severely affected Da Nang's economy.
Reviving tourism and improving service quality are key to Da Nang's future development.
Changes in the international environment: external challenges to the Vietnamese economy
Changes in the global economic environment have also had a profound impact on Vietnam's economy.
The trade war between China and the United States and geopolitical tensions have changed Vietnam's position in the global supply chain.
Although the transfer of some industries from China to Vietnam has brought new development opportunities, Vietnam's infrastructure and labor quality are still difficult to fully undertake these industrial transfers.
In addition, global inflationary pressures and the Federal Reserve's interest rate hike policy have exposed Vietnam to capital outflows and financial market volatility.
Capital outflows will not only exacerbate the depreciation pressure of the VND, but may also affect the stability of the financial market and increase the risk of non-performing loans in the banking system.
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Text: Wind
Audit|Ancient Oasis