AS IT IS 2016-02-06 Old Age, Debt Threaten Vietnam Economy

AS IT IS 2016-02-06 Old Age, Debt Threaten Vietnam Economy

Vietnam’s population is growing old at the fastest rate of any nation in recorded history.

In about 15 years, Vietnam’s share of people aged 1 65 years or older will rise from 7 to 14 percent of the population. This information comes from the World Bank. By comparison, the aging process will take longer, about 25 years, in two nearby countries: China and Myanmar.

World Bank Vietnam director Victoria Kwakwa says the aging of Vietnam’s population will strain the workforce 2. She said, “What you’re going to see is a slowing down, beginning to slow down and ultimately shrinking of the labor 3 force, which will make significant demands on labor productivity.”

She spoke 4 at a Canadian Chamber 5 of Commerce event last week in Ho Chi Minh City.

Low-cost labor has powered businesses in Vietnam. It is the only country in East Asia where economic growth was higher in 2015 than 2014, said Kwakwa.

Graying workforce

But the aging workforce threatens that growth and adds to a list of issues that Vietnam faces.

High debt, low government reserves, and dependence 6 on foreign investment are some of the risks to the economy. Other risks include the increase in U.S. interest rates, the drop in prices for commodities, and questions about how the Trans Pacific Partnership 7 (TPP) trade deal will affect Vietnam. The TPP cuts 18,000 tariffs 9 among the 12 participating countries.

For many years, Vietnam has been a country of savers. But now it is experiencing growing levels of household debt.

Ralf Matthaes is managing director of Infocus Mekong Research, a market research firm. He said he was very surprised when his business found that 30 percent of Vietnamese consumers took out a loan in 2015.

“Vietnam is becoming a debt culture, which is a little bit like China and some other places,” he said. “So this is, I think, the one thing that I would worry about in the future.”

Public debt is on the rise, too. The Vietnamese government set a debt limit of 65 percent of Gross Domestic Product. The World Bank estimates borrowing reached 62.5 percent of GDP last year, up from 59.6 percent in 2014.

Outlook for Vietnam-China relations   

Many countries are worried about how China’s economic problems could hurt them. Vietnam could be spared much of the impact. Its exports to China are only about half of what Vietnam exports to Europe or the United States, according to the General Statistics Office.

Fred Burke is managing partner at the law office Baker 10 & McKenzie. He suggested Vietnam consider how it can profit from China.

“Chinese companies with good experience as residential 11 real estate developers coming in and building projects here, you know, that’s the kind of investment Vietnam actually needs, because they’ve got appropriate technology,” he said. “The price point is right. There’s a lot actually China and Vietnam can do together.”

This advice may not be followed. Vietnamese relations with China have worsened recently over territorial 12 disputes in the South China Sea. But that has not stopped Vietnam from buying more products from China than from any other trading partner.

Words in This Story

strain – n. to cause problems or trouble for (something)

reserve– n.  a supply of something that is stored so that it can be used at a later time

tariff 8 – n. a tax on goods coming into or leaving a country

consumer – n. a person who buys goods and services

Gross Domestic Product (GDP) – noun phrase the total value of the goods and services produced by the people of a nation during a year not including the value of income earned in foreign countries 

impact – n. a powerful or major influence or effect

residential – adj. containing mostly homes instead of stores or businesses

real estate – n.  property consisting of buildings and land