Is Vietnam ready to modernize its institutions?

After engendering one of the world’s most successful economic transformations of the past 25 years, Vietnamese institutions must be modernized according to the latest Socio-Economic Development Strategy (SEDS) adopted by the Party Congress in February 2021. They have become a major impediment to the nation’s aspiration to reach high-income by 2045. This is acknowledged at the highest levels: Prime Minister Pham Minh Chinh in April 2022 highlighted that only seven out of the 111 national, sectoral, regional, or provincial master plans had been approved since the adoption of the Law on Planning in late 2017. His call to revamp the country’s planning system is in line with the historical experience of Korea, which undertook major institutional reforms when it reached the same stage of economic development as Vietnam today.

The critical role of adapting institutions in development has been well documented by renowned scholars, including Douglass North, whose work on the role of institutions earned him the Nobel Prize in Economics in 2003. Yet even if the economic literature and Vietnamese policymakers agree, the concrete scope and breadth of the institutional reforms needed for a country like Vietnam to escape the middle-income trap is less clear.

In the World Bank Group’s Vietnam Systematic Country Diagnostic (SCD) Update, “How Will Vietnam Blossom? Reforming Institutions for Effective Implementation”, we propose a concrete approach for institutional reforms using a simple, but intuitive methodological framework. The starting point is that institutions should be designed in a way that ensures the most effective and efficient implementation of the country’s development priorities. They should also be adapted to accommodate for new and complex development challenges that emerge in the fast-changing domestic and international contexts. Unfortunately, Vietnam’s implementation record – defined as the difference between aspirations and implementation – has been uneven over the past decade.  While effective in implementing trade openness, digital transformation, and social inclusion, Vietnam has lagged implementing other priorities such as green growth, financial inclusion, and infrastructure upgrading. In addition, because the jump from mid- to upper-middle income is harder than the one from low- to low-middle income, overall implementation performance will have to increase threefold compared to what was achieved between 2010 and 2020 for Vietnam to achieve its development aspirations.

To assess Vietnam’s implementation performance, we broke it down into three determinants: vision, capacity, and motivation, each of which was composed of two sub-components. The variations in these scores for each of these six metrics give a clear picture of the uneven implementation of policies associated with development priorities (Figure 1). For example, trade openness scored uniformly better for vision, capacity, and motivation than did green growth or infrastructure upgrading.  

Figure 1: Driving the implementation performance

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