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Vietnam and the Middle Income Trap: Unpacked
There’s been a lot of talk lately about the risk Vietnam faces with respect to growth stagnating, and the country becoming stuck in the middle-income trap. Most of this talk, however, has focused on the level of GDP growth that needs to be reached and maintained rather than the specific policy and structural reforms needed. With this in mind, this article looks at what the middle-income trap is, how countries get themselves stuck in it and how they get out, and where Vietnam fits in a slightly more policy-focused discussion. Read More »
Banking and finance News
PM pressures banks to keep deposit interest rates low
The Prime Minister of Vietnam, Pham Minh Chinh, has asked the State Bank of Vietnam to investigate banks that have increased their deposit interest rates. This appears to be under the understanding that an increase in savings interest rates will lead to an increase in lending rates.
This is interesting in that if banks are raising their deposit interest rates it likely reflects increasing borrowing demand which is what the government has been looking for in its pursuit of a credit growth target of 16 percent for the year, and GDP growth of 8 percent. Moreover, if interest rates on savings do not reflect real market value, savers may invest their funds elsewhere, in stocks or gold, for example. If that happens, then banks may find that they don’t have the funds to lend to reach the aforementioned growth targets.
See also: Vietnam’s 8 Percent GDP Growth Target: Unpacked
State Bank continues open market operations
The State Bank of Vietnam has continued to carry out open market operations. Specifically, there were US$2.1 billion worth of reverse repos outstanding as of the close of business February 20 and US$313.2 million in treasury bills outstanding.
Of note, it appears the State Bank has changed tack and is now allowing the dong to fall rather than use foreign currency to prop it up. This has seen a big drop in the value of the dong. Since the start of the year, the local currency has lost 1.45 percent against the greenback. This is notably an increase from just 1.24 percent this time last week.
See also: The Vietnamese Dong’s Wild Ride: Unpacked
Economy news
Increase in Vietnam business closures raises concerns re: economy’s health
A 20.2 percent year-on-year jump in businesses temporarily suspending operations in Vietnam “…may point to deeper, underlying issues within the business environment,” according to an op-ed by Dr. Nguyen Si Dung, former Vice Chairman of the National Assembly Office, and published by The Investor.
Dung goes on to say that these business closures raise “serious concerns about the health of the economy”. He suggests the business closures are the result of rising costs including electricity, interest, and logistics. He also says that purchasing power in Vietnam is weak and that businesses are having difficulty accessing credit.
That this is being raised as an issue is a promising development in that the official narrative with respect to Vietnam’s economy has mostly been that it is powering along and everything’s under control. It has, however, for a long time appeared that this may not actually be the case. In this context, a former leader acknowledging there might be a problem is a good first step toward addressing the challenges Vietnam’s economy is facing.
See also: Vietnam’s Economy in 2024: A Brief Recap
Gambling news
New dog racing track approved for south-central Vietnam
Deputy Prime Minister Nguyen Hoa Binh has signed off on a dog racing track project in Vietnam’s Lam Dong province. A licence to operate a bookmaking service, however, has not been approved with developers advised to apply when the track is complete, VietnamNet is reporting.
Of note, gambling is most illegal in Vietnam, however, up to 2023 there was a dog racing track operating in Vietnam’s Ba Ria – Vung Tau province. It was, however, shut down when the owners failed to renew the license. It’s not exactly clear why this was, however, this article from VNExpress seems to suggest that it was no longer economically viable. Incidentally, the owners of the Vung Tay track are also behind the new race track in Lam Dong.
Ba Ria – Vung Tau, which is just a few clicks from Ho Chi Minh City, is a popular tourist destination and a key manufacturing hub. By comparison, Lam Dong is mostly mountainous and isolated and not particularly well connected infrastructure-wise. With this in mind, it’s not really clear why Lam Dong has been chosen to host a new racetrack.
See also: Gambling in Vietnam: Industry Overview
Labour news
Calls for 7 percent minimum wage hike in Vietnam in 2025
Ha Minh Vi, the Permanent Vice Chairman of the Trade Union of Industrial Zones in Bac Giang province, has told reporters that he would like to see the minimum wage in Vietnam increase by 7 percent this year. This comes amid reports the Ministry of Labor, Invalids and Social Affairs is preparing to conduct a wages survey to use as a basis for discussing the next minimum wage adjustment.
Of note, minimum wage increases in Vietnam are generally approved one year and then implemented the next. The latest minimum wage hike was in July of 2024 in line with approval granted in 2023. In this context, it seems unlikely that the minimum wage will rise this year.
That said, inflation was up 3.63 percent in 2024, taking a significant bite out of said last wage increase. If it were to come in the same this year, that would eat up what is left of last year’s minimum wage increase and more. This may be an impetus for an increase sooner rather than later.
See also: Minimum Wage in Vietnam
Stock market news
New stock exchange system to go online in May
VIR is reporting that the KRX stock exchange system that is set to revolutionise Vietnam’s stock market will go online in May.
Notably, the system was supposed to go online back in 2015 but has been repeatedly delayed with the local media, at this time of year, almost every year since proclaiming that this will be the year. Most recently, it was reported it would be ready to go in May of 2024.
That said, at this point, it’s hard to believe that there are still technical issues and what looks to more likely be the case is that there is a lack of political will. Unfortunately, this comes at an economic cost with the new system reportedly able to add a number of new trading products for traders, expanding investment opportunities which could potentially stymie some of that extreme foreign capital outflow the stock market has seen over the last couple of years. Last count, between January 1, 2024 and COB yesterday, a total of US$4.13 billion had been withdrawn from the market by foreign investors.
See also: The Vietnam Stock Exchange
Foreign traders net-sell US$68.1 million of HoSE stocks
Over the last five trading sessions to the close of business on February 27, foreign investors net-sold US$68.1 million worth of HCMC Stock Exchange stocks. This brings the total net-sold since the start of the year to US$591.2 million or US$4.13 billion since January 1, 2024.
See also: Vietnam’s Foreign Investor Stock Sell-Off: Unpacked
Foreign trader activity, last five trading days
| Buy | Sell | Change | ||||
| Date | VND | US$ | VND | US$ | VND | US$ |
| 7/2 | 1,314 | $51.46 | 1,509 | $59.10 | -195 | -$7.64 |
| 10/2 | 1,867 | $73.12 | 2,133 | $83.53 | -266 | -$10.42 |
| 11/2 | 1,841 | $72.10 | 2,181 | $85.41 | -340 | -$13.32 |
| 12/2 | 1,716 | $67.20 | 2,014 | $78.87 | -298 | -$11.67 |
| 13/2 | 1,386 | $54.28 | 2,026 | $79.34 | -640 | -$25.06 |
| Total | 8,124 | $318.15 | 9,863 | $386.25 | -1,739 | -$68.10 |
VND = billions; US$ = millions; source: Vietnam Stock Market Tracker
The week ahead
There are a handful of events coming up this week. For more information, see the: Doing Business in Vietnam: Events Directory 2025.