Việt Nam: a poor country with rich country problems

Việt Nam plans to relieve its spiraling public debts by raising taxes, but the rapid graying of its workforce could throw a wrench into that plan.

Việt Nam’s elderly population is much higher than other low-income countries–so is its public debt, which dwarfs the debts of some developed countries.

Public debt is basically the people’s debt — one they must ultimately pay out of pocket when their government decides either to increase taxes or cut major spending.

If the government apparatus continues to grow, Việt Nam won’t be able to reduce its spending and will be forced to axe development projects.

Government investments will have to be taken over by private investors at high interest rates and low profits (due to rising taxes, for example).

These risks to bond holders will make government bonds increasingly expensive.

Private investors won’t want to expand and may even scale down their operations.

They are already laying-low and bracing for tax increases.

Việt Nam’s public debt is roughly US$83 billion–put another way, each of its 90.7 million citizens owes roughly $910, a sum equivalent to half of the country’s $1,890 per capita GDP.

Everyone is speculating about whether each citizen can afford to make or save that much money for the government, particularly as may of them enter the autumn of their lives.

Starting in 2007, Việt Nam’s population entered a “golden” age — a term defined by the United Nations Population Fund as a period in which the number of working-age people (16 to 59) is twice the population of non-working age people.

Việt Nam’s government didn’t seem to make good use of that gold.

With few of its industrialization goals met, the country is graying faster than most countries in the world.

A graying period is defined as one with at least 10 percent of its population over 60 or 7 percent over 65.

Việt Nam is already there, and soon those figures will hit 20 percent and 14 percent, respectively.

incomeA roadside bike repairman fixes an inner tube for a customer on a street in Hanoi

Lonely Việt Nam

Countries that report comparable incomes to Việt Nam generally have younger populations, according to figures maintained by the World Bank and the International Monetary Fund.

In Laos and the Philippines, only 4 percent of the population is over 65.

In Cambodia, Indonesia and India, it’s 5 percent.

Việt Nam’s public debt to GDP ratio (55 percent) is higher than all of those countries, except for India.

Brunei and Malaysia’s populations are younger.

Brunei’s income is 15 times Việt Nam’s and its debts only account for 2.5 percent of its GDP.

Malaysia’s income dwarfs Việt Nam’s fivefold.

Brazil’s population is close to Việt Nam’s in terms of age, but its income is three times higher.

Singapore has a high public debt ratio but enjoys high incomes — the same is the case with old Japan.

Many studies estimated that Việt Nam’s golden population would gray in around 25 to 30 years, or possibly even 15 years.

That’s startlingly fast considering the same process took 70 years in Sweden and 115 years in France.

Aging doesn’t just put pension and social welfare stress on the economy, which add to the public debt burden, but also creates a shortage of workers.

The government’s industrialization and modernization goals might suddenly seem far-fetched given Việt Nam’s aging problem.

A recent report by the International Labor Organization ranked Vietnamese laborers among the least effective in Asia-Pacific, with a productivity 15 times lower than in Singapore, 11 times lower than those in Japan, 10 times lower than South Korea, 5 times lower than Malaysia and 2.5 times lower than Thailand.

What’s worse, Việt Nam’s labor productivity growth has slowed from an annual average of 5.2 percent from 2002 to 2007 to 3.3 percent in 2008.

The country stands alone in terms of unfavorable per capita income, population age and public debts.

Taken together, these factors portend challenged.

Việt Nam is aging as it sinks further into debt.

If it wants to rescue itself, it’s going to have to renovate its economy through bolder and more radical efforts than what we’re seeing now.


* The author is a lecturer at the Fulbright Economics Teaching Program which is a cooperation between the Hồ Chí Minh City Economics University and the Harvard Kennedy School.

Source: The Saigon Times / Thanh Niên News

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