Institutional reforms: big push for breakthroughs

In its latest report “Vietnam 2045 – Breaking Through Institutions for a High-Income Future,” the WB emphasises the central role of institutional reforms in ensuring sustainable growth. The bank said that to maintain rapid growth and achieve its ambitious development goal, Vietnam must deepen the sweeping institutional reforms that are underway, strengthen the legal and regulatory environment, and improve both the scale and quality of public investment.

International experience shows that countries that have escaped the middle-income trap and reached high-income status have done so by continuously improving the quality of their institutions.

Mariam J. Sherman, World Bank Director for Vietnam, Cambodia, and Laos said “Vietnam’s ambition to become a high-income country by 2045 has brought renewed focus on institutions as enablers of sustained growth”. She added that recent efforts show commitment, but achieving this goal will require even bolder reforms - an ‘institutional big push’ - to unlock the private sector’s potential to drive growth and create quality jobs for its people.

In addition, administrative reforms, greater accountability, more autonomy, and better coordination across localities are the key to improving the business environment and strengthening subnational governance. The WB also highlights the need for Vietnam to build an efficient and accountable civil service - one that is right-sized, better paid, and backed by stronger institutions for due process, transparency, and external oversight.

The second report, "Vietnam 2045 - Growing Greener: Pathways to a Resilient and Sustainable Future," highlights how investments in adaptation can help limit the impact of climate shocks on Vietnamese farms, businesses, and factories.

A 2024 WB survey found that about three-quarters (75%) of manufacturers in apparel and electronics - two of Vietnam’s leading export sectors – garments and electronics, which are operating in areas facing significant heat stress, putting more than 1.3 million workers at risk.

In the absence of adaptive actions, climate impacts could reduce Vietnam’s Gross Domestic Product (GDP) by as much as 12.5% by 2050 compared with baseline projections, potentially undermining the country’s ambition to reach high-income status by 2045, the report said.

It estimates that such investments could significantly mitigate the damage, reducing the projected climate-induced GDP loss from 12.5% to 6.7% by 2050.

The WB recommends Vietnam to integrate climate risk management across all economic sectors and develop policies that encourage businesses and people to actively adapt.

The report also identifies opportunities for Vietnam to reduce the carbon intensity of its economy and move toward the Government’s goal of achieving net-zero emissions by 2050, which not only help protect the environment but also strengthen the country’s position in global supply chains.

Staying optimistic amid uncertainties

At the micro level, the HSBC Global Trade Pulse 2025 survey released recently reveals that Vietnamese companies are facing steeper cost increases than the global average due to tariffs and trade uncertainties.

The survey found that 80% of Vietnamese firms reported rising costs stemming from changes in tariffs and trade uncertainties. Short-term cost pressures are expected to persist, with 82% of Vietnamese enterprises anticipating further increases, and over the long term, 75% still anticipate elevated cost levels.

Rising costs are impacting not only profit margins but also directly affecting revenues. Businesses anticipate an average revenue decline of 18% due to supply chain delays.

In response to these uncertainties, Vietnamese businesses are actively adjusting their operational strategies. According to the survey, 42% have reshored production to Vietnam, 41% are shifting focus to the domestic market, and another 41% are enhancing data analytics efforts. Additionally, 54% acknowledge the need for external support in crisis response planning and strengthening business resilience.

Despite challenges, 81% remain optimistic about future international growth, while 76% say trade volatility has spurred them to seek new business opportunities, enhance innovation, upgrade, and restructure their operating models.

According to Surajit Rakshit, Country Head of Global Trade Solutions at HSBC Vietnam, the current landscape of tariffs and trade uncertainties presents significant challenges for global businesses, but they are showing great resilience and adaptability in the way they operate.

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