Structural overhaul can resolve long-standing issues

Since the economic reforms in the 1980s, Vietnam has rapidly modernised by transitioning from a centrally planned to a market-driven economy. While being relatively young compared to more established markets, the country has indeed outpaced many developing peers in terms of growth. A key driver behind this robust performance has been its export-driven model, which attracted significant foreign investment and stimulated domestic demand.

However, shifts in the global trade landscape – marked by rising protectionism, and evolving supply chain dynamics – have introduced a new wave of challenges. The export-driven model that has powered Vietnam’s rise is nearing a crossroads.

There enters General Secretary To Lam, whose leadership has been marked by a bold reformist agenda. Since taking office, he has championed what is being called the ‘Era of National Rise’, a sweeping vision anchored in four strategic resolutions aimed at legal reform, private sector empowerment, technological innovation, and global integration.

Vietnam is racing against its demographic time, and reform is the country’s urgent bid to seize that moment. In 1986, former General Secretary Nguyen Van Linh launched the doi moi reforms – a historic pivot that transformed Vietnam from a centrally planned economy into a socialist-oriented market economy. Today, the agenda carries echoes of that same reformist spirit, but with a different mandate.

While the 1980s reforms were born out of necessity, focused on survival and opening up, the changes today are underpinned by acceleration and elevation. At the heart of the vision to turn Vietnam into a high-income country by 2045 is the belief that the private sector must serve as the primary engine of national growth, empowered through streamlined administration and economic transformation.

We can look at General Secretary Lam’s administrative streamlining efforts. Since taking office, he has prioritised trimming the public payroll, cutting approximately 10 per cent of total civil servant positions to date. This has been achieved through a combination of downsizing government apparatus and merging provinces, as part of a broader effort to reduce bureaucratic overlap and improve efficiency.

This drive echoes the spirit of those reforms nearly 40 years ago, particularly the 1988–1992 period when Vietnam reduced public payrolls by around 11 per cent, yet saw a 36 per cent increase in public sector GDP – a powerful example of doing more with less.

Under today’s admin overhaul, the number of provincial-level units is being cut from 63 to 34. By forming more viable provinces, the government aims to overcome long-standing issues of fragmented governance, overlapping jurisdictions, and inefficient resource allocation.

In fact, according to Vietnam’s provincial GDP statistics, larger and more populous provinces like Ho Chi Minh City, Hanoi, Binh Duong, Haiphong, and Ba Ria-Vung Tau have consistently ranked among the top in terms of productivity, measured by GDP per capita.

Vietnam is now entering a new phase of transformation guided by four strategic resolutions: on private sector development, science and innovation, global integration, and on legal and institutional reform. Together, these four resolutions are tightly linked to Vietnam’s 2026–2030 growth targets, which aim for annual GDP growth of 8–10 per cent.

Achieving these targets will certainly require a decisive boost in private sector growth. By 2030, the private sector is targeted to contribute 55–58 per cent of GDP, employ around 85 per cent of the workforce, and lead in digital transformation and global value chain participation.

Yet, Vietnam must urgently address the persistent inefficiencies within its private sector, which employs over 80 per cent of the national workforce. While the private sector now contributes more than half of GDP, a substantial share – around 31 per cent – comes from informal household businesses.

These enterprises, often unregistered and operating outside formal legal and tax frameworks, are marked by low productivity, limited access to finance, and minimal technological adoption.

To meet its ambitious 2026–2030 growth targets and raise total factor productivity to 55 per cent, Vietnam must confront this challenge head-on. That means formalising the informal through simplified business registration, tax incentives, access to credit, and targeted support for micro and small enterprises.

However, unlocking Vietnam’s next wave of economic growth will require more than just increasing the number of businesses – it demands scaling them. Formal private enterprises are currently more than twice as productive as informal ones, and within the formal sector, large firms are nearly five times more profitable than small ones.

Yet, formal enterprises employ only 22 per cent of the private sector workforce. If Vietnam can expand the footprint of formal enterprises to absorb 48 per cent of the private sector workforce, the resulting productivity gains could boost nominal GDP by as much as 12 per cent.

Although the journey to high-income status is long and demanding, it holds immense promise. In this pursuit, patience is not only a virtue, but also a strategic asset.