The government’s economic restructuring efforts since 2011 have resulted in some positive results with the economy returning to stability and further slowdowns averted, but much still needs to be done to bolster the economy in the next five years.

State-owned enterprise restructuring remains high on the reform agenda in the next five years.

The restructuring of state-owned enterprises (SOEs) is far from complete, public debt is growing fast, the public investment management mechanism is outdated, and the financial capacity of the banking system remains limited, to name a few major issues that will continue to feature prominently in the years to come. The economic restructuring plan for the 2016-2020 period is anticipated to resolve all of that.

Urgent need for continued reform

According to Dr Nguyen Dinh Cung from the Central Institute of Economic Management (CIEM), the need for reform is still urgent because the past restructuring phase has left many things unfinished. Take SOEs for an example: the state still holds a stake larger than 50% in over 3,000 enterprises and is the sole owner in another nearly 800 enterprises. These figures are fairly high compared with advanced economies such as Australia, France, and the UK, where less than one hundred companies are owned by the government.

Accounting for less than 1% of total enterprises and owning assets worth 80% of GDP, state-owned enterprises only create 1.4 million jobs while foreign-invested companies are employing more than three million workers and the domestic private sector seven million. It is undeniable that SOE restructuring remains a priority and must be resolved.

Under the draft restructuring plan for the next five years announced by the Ministry of Planning and Investment for public feedback, the government will seek to reduce state ownership in the majority of SOEs and reduce the number of business areas where the state’s majority stake is needed, while at the same time striving to enhance the performance of the other SOEs.

Dr Cung said in order to meet these goals, the government needs to completely disinvest from areas where there is no need for a majority state stake or any state stake at all. In addition, a new mindset on SOE management should come into play in which modern management practices are adopted and the privileges for SOEs are phased out, forcing them to take part in fair competition with enterprises from other sectors.

Regarding public investment restructuring, experts say measures taken in the past have failed to address the core issue of management, leading to poor investment quality and ineffective over-diversified investment. According to the International Monetary Fund, Vietnam’s public investment score is significantly lower than the average of developing countries, especially in project appraisal, prioritisation and implementation.

Dr Nguyen Tu Anh from CIEM said public investment restructuring only stops at tightening discipline in investment without focusing on measures to streamline investment and avoid squandering. But in fact, even public investment discipline remains lax and the risk of macroeconomic instability is still present given the dizzying rate of public debt growth.

In order to solve these issues, the 2016-2020 plan has set out a number of goals including reforming the mechanisms for calling for investment, capital allocation and management to be in line with international practices to ensure public investment projects are effective. The draft plan underlines that reform in project formulation and assessment will be the key to enhancing the quality of public investment management.

Private sector’s greater role

Experts say achievements during the 2011-2015 period are only half the reform path. According to Dr Vo Tri Thanh, Vietnam succeeded in dealing with many ailing banks, limiting the spread of bank collapse and making the banking system healthier. But the restructuring is unfinished with bad debt not resolved thoroughly and the banking system’s financial capacity still insufficient.

As Vietnam becomes deeply integrated in the world economy and the financial market more open, negative external impacts on domestic banks surely will be greater if their financial capacity is not improved. That is why the draft plan seeks to complete the restructuring of credit institutions, significantly reduce system risks, increase the breadth and efficiency of the financial market with the specific goals of cutting the ratio of bad debt in a sustainable way and the number of weak banks, reducing lending rates to around 5% and ensuring that 70% of all commercial banks fully implement the Basel II accord on bank supervision by 2020.

What’s new in the plan is giving the private sector an important role in driving economic reform, in which the restructuring process must call for the participation of the people and different economic sectors, especially domestic and foreign private sectors to effectively tap into all resources for socio-economic development.

Economic restructuring policies and measures should be implemented at the project level with those initiated and carried out by the private enterprises. Moreover, some markets where the state holds a monopoly, such as power generation and transmission, should be opened to the private sector while regulations should be strengthened to curb monopolies and promote competition. The bidding process also needs to change so that projects can be awarded to suitable contractors, regardless of whether they are state-owned or private.

Furthermore, a favourable environment should be provided to facilitate start-up companies and foster corporate innovations. Re-allocation of resources to priority sectors and key economic zones can also increase the productivity of the economy. In these processes, the private sector will play an important role.