Middle East conflict is forecast to ‘have a major impact on the economy’

Reporting at the meeting of the National Assembly Standing Committee on April 1, Minister of Finance Nguyen Van Thang said that by 2026, the world situation will change rapidly and unpredictably, affecting Vietnam’s growth goals. In particular, according to the Minister, the Middle East conflict lasting more than a month has a strong impact on oil supply and prices, forecasting very complicated effects in the country in the coming time.

The Government’s additional assessment report also points out that the military conflict between Israel, the US and Iran since February 28 has escalated in complexity, causing damage to all parties and affecting many economies. For Vietnam, this change is expected to have a major impact on many aspects.

First of all, the sharp increase in world oil prices has caused domestic gasoline prices in recent administrations to increase quite high compared to before the conflict. This puts pressure on inflation, people’s living costs and businesses’ production and business.

Besides, the situation also poses potential risks to energy security and macroeconomic stability. The fields of production and business, export, tourism, FDI attraction, financial and monetary markets and economic growth may all be affected.

The Government has implemented many response solutions. For example, Resolutions 36 and 55 were issued with urgent solutions to ensure petroleum supply and energy security. The Prime Minister also established a Working Group to ensure energy security, and at the same time deployed diplomatic activities to seek more petroleum supplies from partners, ensuring supply in all situations.

Along with that, ministries and localities are required to synchronously deploy solutions to limit the impact of international energy prices on domestic gasoline prices and control inflation. Relevant agencies increase market management, inspect and strictly handle acts of smuggling, speculation and hoarding.

The Middle East conflict has lasted for more than a month, along with the blockage of the Strait of Hormuz, causing energy prices to increase, disrupting global supply chains and trade. At the end of last month, the Asian Development Bank (ADB) presented three scenarios about the impact of this conflict on growth and inflation in Asia-Pacific countries.

With these three scenarios, according to ADB, the group of developing countries in Southeast Asia will suffer the heaviest damage, losing about 0.6-2.3% of GDP. These countries include Vietnam, Indonesia, Malaysia, Philippines, Thailand, Myanmar, Timor-Leste, Brunei, Cambodia and Laos.

In that context, Vietnam still maintains its double-digit growth target in the coming period, to become a high-income country by 2045. According to Secretary General of the National Assembly Le Quang Manh, Vietnam needs to take advantage of golden opportunities such as golden population structure, enhanced national position, low public and government debt ratio, and good fiscal space.

Mr. Manh said that if Vietnam cannot overcome the middle-income trap by 2035, it will miss all favorable conditions and risk “permanently becoming a second-class country, unable to join the group of developed countries”.

To achieve the high growth target, Minister of Finance Nguyen Van Thang said that the Government will review and evaluate the impact of the Middle East conflict under many scenarios to identify industries and fields with room for growth and appropriate response solutions.

At the same time, the operator continues to improve institutions, shifting from “management” thinking to “development creation”, flexibly operating fiscal and monetary policies to support growth while still controlling inflation and stabilizing macroeconomics. The Government also promotes capital market development, disburses public investment to lead private investment, and develops new growth drivers such as science and technology, innovation and digital economy.

Commenting further on the solution, delegate Le Quang Manh said that the operator needs to develop a specific scenario and plan. He pointed out the fact that Vietnam’s ICOR index on capital use efficiency has not improved in the past 10 years. This shows that current growth is still mainly based on “injecting more capital”, increasing total social investment, not on increasing productivity. If Vietnam continues this way, according to Mr. Manh, it will be difficult to achieve the 10% growth target in the next 5 years, let alone 10 years.

In the immediate future, he believes that Vietnam needs to continue to maintain and increase total social investment capital (including private investment and FDI), remove suspended projects across the country to maintain growth momentum of 8-10%. In the long term, the executive needs to focus on increasing national productivity and ensuring uniformity in policy implementation.

Delegates noted the synchronization between the national master plan and very large public investment projects such as Long Thanh Airport or the North-South high-speed railway. He emphasized that if efficiency is not carefully calculated, these projects will not be able to contribute to overall growth performance in the next 10 years.