Vietnam’s high-growth economic targets make continued broad-based reform crucial.

The 14th Party Congress set significantly
higher targets for the 2026-2030 period than in previous terms:
average annual GDP growth of at least 10 per cent; annual workplace productivity
growth of about 8.5 per cent; and total social investment averaging about 40 per
cent of GDP over five years. Achieving these goals will require that Vietnam’s economy
shift to a new development model that relies more on science and technology, innovation,
and digital transformation while maintaining a market-based foundation.

As 2026 marks the first year of the new Congress term, with many ambitious
targets in place, it demands extensive institutional reforms. Which fundamental
macro-economic institutional bottlenecks must be removed to achieve these objectives
needs to be addressed.

Paving the way

Institutional reform is critical because it creates long-term stability, limits
policy approaches constrained by political terms, and reduces businesses’ dependence
on personal relationships. The principles of a law-governed State – greater transparency,
stronger accountability of State agencies, and public participation in lawmaking
(as stipulated in the Constitution) – must continue to be implemented.

Posting growth above 10 per cent will be a test of institutional reform, especially
if pursued at high speed. The rapid pace of institutional completion and amendments
to economic institutions aimed at removing bottlenecks – without comprehensive design
– has created new, uncoordinated problems. The speed and scale of legal revisions
in recent years are unprecedented in the country’s legislative history. Such sweeping
changes require time for regulators, businesses, and citizens to understand and
implement. The number of laws that must be quickly revised by subsequent laws and
National Assembly (NA) resolutions (under different procedures) has increased.

Among 234 projects launched or inaugurated amid much fanfare at the end of
2025, many particularly large projects were reviewed, approved, and implemented
at a much faster pace than before. However, if streamlined procedures apply only
to a few mega-projects by select investors, while most enterprises remain trapped
in a legal maze characterized by regulatory gaps, excessive procedures, and overlapping
rules, this cannot be considered genuine institutional reform. Meanwhile, resolved
cases have not been publicly disclosed as precedents for other projects.

The State apparatus was streamlined over the course of a year, but results
in reducing bureaucracy, simplifying administrative procedures, and accelerating
decision-making remain limited. Some issues that appear to be simple procedural
matters are, in practice, difficult to resolve.

One positive aspect of changes to the local government model is that all levels
now have People’s Committees and People’s Councils; in line with the Constitution.
However, removing the distinction between urban and rural administrations is questionable.
While merging agencies has disrupted previous inertia, it has also created new challenges,
most notably the effective placement and organization of personnel.

In education, waiving tuition and textbook costs for all levels of general
education nationwide is a significant step towards equal opportunity. However, abrupt
changes in textbooks illustrate how private sector investors can lose incentives
for long-term investment due to policy shifts without compensation or transition
time.

On August 22, 2025, the Politburo issued Resolution 71-NQ/TW requiring a single
nationwide textbook set. The Law on Education was urgently amended at the NA’s late-2025
session, authorizing the Minister of Education and Training to select one unified
textbook set for nationwide use. On December 26, the Ministry issued Decision No.
3588/QD-BGDDT choosing one of the three approved sets for nationwide use starting
in the 2026-2027 academic year, rather than compiling a new set. This decision did
not address the status of other approved sets, and the Law on State Compensation
Liability has not been applied in practice.

Meanwhile, the NA has approved the establishment of a specialized court at
Vietnam’s International Financial Center, allowing the appointment of foreign judges
– a highly unusual provision to ensure foreign investors’ confidence in Vietnam’s
judicial system.

In practice, institutional reform efforts are yet to reassure businesses about
long-term investment: policies remain inconsistent and insufficiently grounded in
reality, and policy changes are not announced early enough or accompanied by transition
periods, thereby creating additional difficulties for businesses.

Salary reform is among the least advanced areas. Adjustments in recent years
have mainly meant nominal increases to offset inflation. The Party Central Committee’s
Resolution No. 27-NQ/TW, dated May 21, 2018, called for a position-based salary
system, but in 2024 the implementation of five new salary scales and nine new allowances
for the public sector was officially postponed. Implementation will now depend on
issuing a job position framework following administrative restructuring and the
two-tier local government model. For the time being, only base salary increases
and revisions to leadership allowances for certain positions, effective from 2026,
are planned.

Delayed or no salary reform will hinder progress in other reform areas. When
public officials’ incomes are not commensurate with positions, the apparatus lacks
motivation to serve citizens and businesses effectively. Whether the current streamlining
of the apparatus will generate sufficient budget savings to enable position-based
pay remains an open question.

Promoting science and technology

The target for RD spending by 2030 is 2 per cent of GDP, with at least
3 per cent of total annual budget expenditure allocated to science and technology.
In the 2026 State budget estimate, spending on the Ministry of Science and Technology
and two academies accounts for only 0.4 per cent of total central budget expenditure;
spending on the Ministry of Education and Training and two national universities
accounts for 0.7 per cent; and spending on the Ministry of Health is 0.7 per cent
(including the policy of one free annual medical checkup for all citizens, including
children and adolescents).

Total spending on the science and technology, education and training, and health
ministries, along with the two academies and two national universities, therefore
accounts for 1.8 per cent of central budget expenditure, while the Ministry of National
Defense and the Ministry of Public Security account for 34 per cent.

By 2030, the goal is for more than 60 per cent of science and technology funding
to come from society. This requires that research institutions be closely linked
with businesses capable of adopting and applying technology. However, amendments
to the Law on Corporate Income Tax have not included provisions to encourage this
objective. As a result, national resources remain concentrated primarily on security
and defense rather than on education, healthcare, science and technology, and reform.

Legal and policy changes to promote science and technology development will
remain a major challenge in the years to come. Scientific advancement is difficult
without international cooperation, yet regulations governing international conferences
and outbound and inbound delegations have recently tightened, and visa procedures
for scientists have become more restrictive than policies for tourist visas.

Proposals to score and rank digital citizens are not appropriate given the
current, still-imperfect level of technology. A digital citizen rating system could
profoundly affect individuals’ lives, similar to a court judgment but applied across
society. Mechanisms are lacking to ensure the accuracy of collected data and to
allow citizens to correct errors, not to mention clear classification criteria.

Real estate and capital

The Constitution affirms that land is collectively owned by the people, with
the State acting as the representative owner and unified manager; it does not state
that all land is State-owned or that the State holds private ownership of all land
(separate from public assets). Land legislation should therefore align with constitutional
provisions. This relates to land recovery rules: when the State grants land use
rights certificates, their value must be recognized.

Trading off the construction of vast urban areas spanning tens of thousands
of hectares, featuring thousands of identical housing units, or urban modernization
against the denial of land use rights already recognized by the State would come
at a high cost to public trust given the principle that the State serves the people.

Hanoi’s 100-year master plan, which envisions relocating 860,000 residents
from the inner city area, raises concerns about repeating past mistakes of forced
resettlement. Disregarding land use rights would rapidly widen the wealth gap, and
severe inequality would hinder high growth. When individuals’ property rights over
their homes are not secured, the material foundation of patriotism itself is weakened.

Following local administrative mergers, surplus public assets should be quickly
put to use to avoid waste. Prioritizing their allocation to healthcare and education
could improve public services, but implementation requires clear principles, criteria,
conditions, and a transfer roadmap.

Development requires diversifying capital sources by strengthening the role
of financial markets and the stock market, for long-term capital mobilization, while
gradually reducing reliance on bank credit, which is typically short term. Capital
policies, however, must be consistent and avoid abrupt swings between extremes.
In 2022, credit for real estate was suddenly tightened, freezing the corporate bond
market, then loosened in 2025, supporting real estate but driving sharp price increases.
In 2026, there are again indications of tighter real estate credit.

Amid changes in the global economy, net foreign portfolio outflows from Vietnam
have increased in recent years, from VND18.2 trillion ($700 million) in 2020 to
VND122.8 trillion ($4.7 billion) in 2025, even as the stock market was upgraded
and the VN-Index surpassed 1,800 points.

To promote Vietnam’s corporate bond market, regulators need to help resolve
bottlenecks faced by issuers struggling to handle collateral, similar to measures
applied in the real estate sector. This would help improve the legal framework,
especially regarding collateral enforcement for debt repayment, which is currently
a major issue for the banking system.

Raising the budget deficit to 5 per cent of GDP in 2026-2030 to boost public
investment will require issuing a corresponding volume of government bonds. This
could push interest rates higher, even as both the State budget (via the State Treasury)
and businesses seek low rates. Allowing Vietnamese enterprises to borrow abroad
also requires caution, as default could lead to trade-offs involving land sovereignty
or international legal disputes.

The launch, inauguration, and technical opening of 234 projects at the end
of 2025 had a campaign-style character reminiscent of the planned-economy era. Though
more than 80 per cent of total investment in these projects (over VND3,400 trillion,
or $130.8 billion) came from non-State sources, funding was concentrated among a
few large private conglomerates, often in joint ventures. Meanwhile, small and medium-sized
enterprises, which account for more than 98 per cent of all businesses and generate
most employment in Vietnam, have not participated broadly, contrary to the spirit
of Politburo Resolution No. 68 on private sector development.

Lump-sum taxation, meanwhile, draws on lessons from the “Contract 10” agricultural
reforms, under which farmers benefited after fulfilling State obligations. With
improved tax administration through digitalization, shifting from lump-sum taxation
to self-declaration is considered necessary. However, current tax thresholds adversely
affect household businesses. Though the tax-exempt revenue threshold was raised
from VND100 million ($3,845) a year to VND500 million ($19,230), this remains inappropriate
because household income is not revenue but revenue minus business costs. To be
comparable to salaried individuals, who can access personal deductions of VND15.5
million ($595) a month plus VND6.2 million ($240) per dependent, the household tax
threshold would need to be much higher than the current VND500 million a year.

Calculations show that a monthly salary of VND15.5 million ($595) is equivalent
to business revenue of about VND155 million ($5,960) a month, or VND1.86 billion
($71,540) a year, assuming borrowing costs of 10 per cent as a proxy for business
expenses. Without further adjustments to ensure household businesses can maintain
a basic standard of living, they may be unable to continue operating or contributing
to the economy’s resilience against shocks such as pandemics, natural disasters,
geopolitical volatility, and unpredictable shifts in global trade policy.

FDI dominates trade

Vietnam’s trade surplus contributes to its economic growth. The record of $28.3
billion was set in 2023 but has been declining: to $24.9 billion in 2024 and $20
billion in 2025, down 20 per cent year-on-year. The surplus has come mainly from
exports to the US and the EU in recent years, while deficits have been concentrated
in trade with China and South Korea. In 2025, the surplus with the US stood at $133.9
billion, up 28.2 per cent, while the deficit with China reached $115 billion, up
39.6 per cent.

The share of foreign-invested enterprises (FIEs) in both exports and imports
is very high and continues to rise. In exports, the foreign share increased from
70.6 per cent in 2015 to 77.3 per cent in 2025, and in imports from 58.6 per cent
to 69.8 per cent. The gap between the domestic sector and the FDI sector remains
large and shows no sign of narrowing. While exports have surged, driven by strong
FDI growth, the domestic sector has declined sharply, and its contribution to export
growth has shrunk significantly. Private sector investment remains very low.

From July 31, 2025, the US imposed a 20 per cent tariff on all goods from Vietnam,
following a 46 per cent rate applied from April 9, 2025, and 40 per cent on transshipped
goods. The negative impact on the economy and inflation has been milder than initially
forecast because import tax costs have been shared along the supply chain between
producers, importers, retailers, and consumers. In 2026, tariff uncertainty may
persist, while US monetary policy tools, such as low interest rates and a weaker
dollar, could affect the global economy as much as tariffs.

In November 2025, the two sides issued a Joint Statement on a US-Vietnam Framework
for an Agreement on Reciprocal, Fair, and Balanced Trade. Because the US trade deficit
with Vietnam ranks third globally, most Vietnamese exports will still face tariffs
of up to 20 per cent even if Vietnam grants near-zero tariffs on almost all US exports,
with only a limited number of products receiving reciprocal zero tariffs from the
US. The Agreement may also expand to cover digital trade, services and investment,
intellectual property, labor, environment, customs, trade facilitation, and State-owned
enterprise trade.

Trade turnover with China reached $256 billion in 2025, up 26.5 per cent from
2024. Imports alone hit a record of some $186 billion, up 29 per cent from $144
billion in 2024. Persistent large deficits have turned Vietnam into a market for
consumption and assembly processing, making strategic economic autonomy difficult.
This is one reason industrialization goals have struggled, limiting industrial development
and affecting employment. Though the issue has been recognized, policy responses
have yet to deliver positive results. Non-tariff import controls have been tightened
at border gates and in domestic circulation (such as requirements for invoices proving
origin and e-invoicing), at times negatively affecting the domestic economy. Meanwhile,
Chinese enterprises are expanding investment in Vietnam, with some beginning to
offer technology transfer commitments.

Transforming the growth model to achieve breakthrough growth is closely tied
to institutional quality. To attain real strategic autonomy, institutional reform
must above all ensure strong protection of property rights and freedom of business.
Without a stable and predictable business environment, companies cannot make long-term
investments.

VET-Phan Thanh Ha