Fiscal policies, higher education and social protection improvements key to development aspirations
HANOI, April 28, 2022—Poverty in Vietnam declined substantially between 2010 and 2020 amid strong economic growth, education gains, and shifts away from agriculture, although inequality increased marginally in the latter half of the ten-year period, a World Bank report finds. The COVID-19 pandemic set poverty reduction progress back, and inequality is expected to further increase as well. At the same time, Vietnam needs to ensure that there are sustainable economic mobility pathways to fulfill the country’s upper-middle and high-income aspirations over the next two decades.
A new World Bank Poverty and Equity report, From the Last Mile to the Next Mile, assesses Vietnam’s progress in poverty reduction over the decade to 2020 and examines what is needed to sustain the upward economic mobility and economic security of the millions who have left poverty.
“Vietnam’s poverty and equity agenda is no longer only about raising minimum living standards and tackling chronic poverty – the Last Mile – which it has done well so far,” said Carolyn Turk, World Bank Country Director for Vietnam. “The Next Mile is about creating new and sustainable economic pathways for a more aspirational population. This is a challenging and uncharted road in a shifting global economic and climatic landscape.”
Between 2010 and 2020, the poverty rate at the World Bank’s $3.20 per day line for lower-middle income countries declined from 16.8 percent to 5 percent, meaning ten million people were lifted out of poverty. However, in the latter half of the decade, consumption growth among richer households outpaced poorer ones, widening the gap between rich and poor. Poverty reduction has also lagged in Vietnam’s northwest and central highlands.
More recently, COVID-19 has interrupted job creation and income increases, likely setting back poverty reduction progress and further increasing inequality as women, those working in the informal sector, and the poorest households experienced the slowest recovery in incomes between mid-2020 and March 2021.
For Vietnam to achieve its goal of becoming a high-income nation by 2045, equitable human capital formation and higher worker productivity are key. To attain the 6.7 percent average annual economic growth rate needed to reach high income status by 2045, growth in productivity per worker will need to increase from 5.3 percent recorded over 2012-2018 — the highest rate over the last three decades—to 6.6 percent.
Vietnam will face challenges in transitioning to higher-skilled jobs without continuing reforms in education, skills development, and a transformation of the labor market, which is characterized by slow growth of high-skilled occupations, high informality, and an aging workforce. Improving the quality of higher education will be an important step.
Vietnam’s rapid economic growth has lifted many people out of poverty, but a large group of the population remains economically vulnerable. Around one in five Vietnamese usually live below the economic security line of $5.50-a-day, and one in ten are vulnerable to occasionally slipping beneath it due to a shock. Vietnam’s social assistance coverage lags that of many East Asia and Pacific neighbors and could be modernized to provide greater protection.
Fiscal policy can play a critical role in accelerating Vietnam’s progress toward high-income status in an inclusive way. Broadening the revenue base, exploring new taxes that could simultaneously limit undesirable activities and raise revenue, and eliminating inefficient subsidies could all help finance the public investments needed to eliminate poverty and grow an economically secure middle class.
The report, From the Last Mile to the Next Mile, is supported by the Australian Government through the Australia – World Bank Group Strategic Partnership (Phase II).