Indicators 2022 2021 Absolute %

Change

GDP (Billion VND) 5,550,616 5,133,589 417,027 8.12%

Investment captial (Billion 2,110,743 1,995,905 114,838 5.75%

VND)

Capital to GDP ratio (Tv) 38.03% 38.88% -0.85% -2.19%

GDP growth rate (Tgdp) 8.12% 2.55% 5.57% 218.43%

ICOR 4.6835 15.2471 -10.5636 -69.28%

∆ICOR(Tv) =-0.85% x 1/2.55% = -0.3333

∆ICOR(Tgdp) = 38.03% x (1/8.12% - 1/2.55%) = -10.2302

Total degree of impact (-0.3333) + (-10.2302) = -10.5635

Overview: In 2022, Vietnam’s Incremental Capital Output Ratio (ICOR) stood at

4.6835, marking a significant decrease of 10.5636 or 69.28% compared to 2021. This
implies that in 2021, an additional 1 dong of GDP required an increase of 10.5636
dongs in the capital, whereas in 2022, only 4.6835 dongs of additional capital were
needed. The reduction in ICOR signifies an enhancement in capital efficiency,
indicating that the economy achieved greater output with comparatively less capital
investment.

A contributing factor to the shift in the COVID-19 pandemic prevention strategy

involves a transition towards opening up to support economic and social recovery.
This contributes to a GDP growth rate that is 2-3 times higher than the rate observed in
the preceding two years.

Detail analysis:

ICOR is influenced by two factors: the Capital to GDP ratio (Tv) and the GDP growth
rate (Tgdp).

- Capital to GDP ratio (Tv):

In 2022, the Capital to GDP ratio (Tv) was 38.03%, reflecting a decrease of 0.85%
compared to 2021. Assuming other factors remain constant, this reduction in Tv
contributed to a corresponding decrease of 0.3333 in ICOR. The decline in Tv can be
attributed to the accelerated increase in GDP outpacing the growth of capital.

The phenomenon of increased capital lagging behind Gross Domestic Product (GDP)
growth is influenced by technological advancements, efficient resource allocation,
human capital development, innovation, infrastructure upgrades, and favorable
government policies. Technological progress and improved production processes boost
productivity, allowing higher output with less capital. Effective resource allocation and
management practices enhance GDP without a proportional increase in capital.
Investments in education improve workforce capabilities, contributing to GDP growth
without a corresponding rise in capital. Innovations and R&D activities drive
economic growth without significant capital escalation. Infrastructure upgrades,
particularly in transportation and communication, facilitate business activities and
boost GDP without a proportional capital increase. Government policies supporting
entrepreneurship and innovation positively impact GDP without substantial capital
increments. In summary, these factors illustrate the nuanced dynamics of capital and
GDP relationship in economic development.

However, the actual implementation of public investment capital lags behind the
planned schedule. Some ministries and sectors report subpar levels of executed public
investment. The rollout of support packages, notably the 2% interest subsidy from the
budget, is progressing sluggishly, resulting in a situation where there is "unused
money." Consequently, the overall societal development investment rate is lower
compared to several previous years. The economic absorption of capital, including by
businesses, remains challenging due to issues such as bad debts, outstanding debts,
chain debts, and cross-ownership. Another obstacle arises from employment
difficulties, leading to numerous businesses either leaving or temporarily exiting the
market. Meanwhile, a prevalent trend of frugality, and even a sustained period of
restrained consumption for over 2 years of the pandemic, continues to be widespread.

- GDP growth rate (Tgdp)

In 2022, the GDP growth rate reached 8.12%, signifying a rise of 5.75% from the 2021
figure. If other factors remain constant, this augmentation in Tgdp contributed to a
corresponding decrease of 10.2302 in ICOR.
In the backdrop of considerable and unpredictable global economic shifts, many
countries and regions have faced notable instability and challenges in their growth
trajectories. However, Vietnam’s economic performance has garnered positive
assessments, evidenced by surpassing growth projections in the first 6 months, 9
months, and the entirety of 2022. This success to some extent underscores the efficacy
of economic management strategies and support mechanisms, bolstering the resilience
of the Vietnamese economy. Despite achieving success in controlling inflation and
maintaining exchange rate stability, monetary policies encountered pressure in 2022
due to reductions in environmental taxes on petroleum products. Notably, resolute tax
cuts by the National Assembly and the government effectively mitigated inflationary
pressures and expectations. Regarding Foreign Direct Investment (FDI), Vietnam
attracted a record-high FDI of $22.4 billion in 2022, marking a 13.7% increase from
2021 and a 10% rise from 2019. The judicious use of Free Trade Agreements,
particularly the European Union-Vietnam Free Trade Agreement (EVFTA), played a
significant role in stimulating growth in both exports and imports. Although the total
import value in 2022 is estimated to reach $360.65 billion, reflecting an 8.4% increase,
the substantial surge of 8.56% in import prices, coupled with a slight decrease in
import volume, is partly attributed to the low base comparison of 2021.

However, the significant increase in GDP is, in part, a result of a low comparison base
(GDP growth rate in 2021 was only 2.55%), rather than indicating actual overheated
growth.

The alterations in these two factors positively influence ICOR, leading to an overall
decrease. This signifies increased efficiency in the utilization of capital.

Conclusion:

The reduction in ICOR is attributed to the combined effects of various factors, with the
most significant impact stemming from the GDP growth rate.

Proposal for Enhancing Capital Efficiency: (Write some solutions)

- It is imperative to swiftly implement support packages, with a specific focus on the

interest subsidy package. Delays in execution, especially in the backdrop of rising
inflation that could lead to increased pressure on loan interest rates, would undermine
the significance of the interest subsidy. On the flip side, a relaxation of fiscal and
monetary policies is warranted, encompassing several key measures.

- In terms of fiscal policy, considerations may involve the reduction of certain tax
rates, such as a 1% increment in value-added tax. Moreover, there could be a review of
or a reduction in special consumption taxes on petroleum products and a decrease in
tax rates for higher income brackets.

- As for monetary policy, it is advisable to augment the pace of credit growth

throughout the year, targeting approximately 16%. Banks should contemplate avoiding
increases in loan interest rates and even consider reducing them. Furthermore, there
should be flexibility in terms of reductions, extensions, or deferments of certain loans,
particularly for highly efficient enterprises and critical sectors/industries.

- Conduct a comprehensive analysis of sectors with high growth potential and

prioritize strategic allocation of investment capital in these areas. This approach aims
to maximize the impact of capital on GDP growth.

- Encourage investments in research and development (R&D) and technology

adoption. This will enhance productivity, efficiency, and competitiveness, leading to
sustainable economic growth.

- Allocate resources to education and skills development programs to enhance the

workforce’s capabilities. A skilled and knowledgeable workforce contributes to
increased productivity, driving GDP growth without a proportional increase in capital.

- Direct investment towards critical infrastructure projects that facilitate business

activities. Improved infrastructure can lead to increased productivity and economic
output, making capital usage more efficient.

- Promote investments in green and sustainable projects. This not only aligns with
environmental goals but also positions the economy for long-term growth by tapping
into emerging markets and industries.

- Work towards creating a business-friendly environment by streamlining regulatory

processes. A conducive regulatory framework attracts more investments, fostering
economic growth with the existing capital.

- Facilitate PPPs to leverage private sector expertise and resources for large-scale
projects. This collaboration can enhance the efficiency of capital utilization and
accelerate GDP growth.

- Introduce incentives and rewards for businesses that demonstrate innovation and
efficiency in their use of capital. This encourages a culture of optimization and
resource efficiency.
- Implement a robust monitoring and evaluation system to assess the impact of capital
allocation on GDP growth regularly. This will enable timely adjustments and
refinements to the investment strategy.

- Strengthen the capabilities of financial institutions to assess and support innovative

and high-impact projects. This ensures that investment capital is directed towards
ventures with the potential for significant GDP growth.