WB Country Director: Viet Nam is extremely successful in reducing poverty over decade

WB Country Director for Viet Nam Carolyn Turk made that above statement while delivering her remarks at the high- level workshop on "Key social policies in Viet Nam" held last week.

According to Carolyn Turk, this dramatic improvement was driven to a large extent by economic growth which was helped by the so-called demographic dividend as well as an increased share of formal employment as workers moved out of low productivity agriculture.

But informality remains high, and the demographic window is closing. In order to realize Viet Nam's aspiration to become an upper middle income country by 2030 and a high income country by 2045, the economy will have to achieve much higher productivity, efficiently and social inclusion as well as strong resilience against shocks including those related to climate change.

The WB Country Director supposed that in this context, the social protection system must address three challenges.

Firstly, despite Viet Nam's impressive growth performance, the share of workers in the informal sector remains stubbornly high. Overall, around 76 percent of all workers, and 55-60 percent of non-agricultural workers, remain in the informal sector.

Informality tests the social protection system in at least three ways. The most obvious is that many workers do not have insurance against risks like unemployment and disability.

Three fourths of the workforce in Viet Nam is not protected from these shocks. Informality also means lower tax revenues and less sustainable financing for social insurance.

Finally, informality is associated with lower productivity due to lack of capital, access to financing, skills and is typically beyond the reach of active labor market programs. 

Secondly, Viet Nam is at a demographic tipping point, with the country experiencing one of the most rapid rates of population aging globally.

The elderly share of the population (age 65 and over) is estimated to rise from 7 percent to 15 percent by 2035. The pool of abundant young workers that has supported Viet Nam's rapid economic growth in the last decades is being depleted.

In 2015, Viet Nam had around 10 working-aged individuals (aged 15-64) for every elderly person aged 65 and over. By 2035, that ratio will have fallen to around 4.6 workers per elderly person.

This presents major challenges for the social protection system if most of them are not covered by either the social insurance scheme or social pension. In addition, with an older workforce higher labor productivity is crucial in order to sustain the pace of economic growth. 

Thirdly, climate change is already affecting Viet Nam and its effects will intensify in the coming decades, increasing exposure to shocks for households and the economy.

Around 60 percent of Viet Nam's land area and 70 percent of its population are exposed to multiple natural hazards. To date, however, the social protection system is still not sufficiently adaptable to prepare for and respond to disasters beyond traditional relief interventions.

For more coherent, relevant, effective and efficient social protection system

Carolyn Turk emphasized that recognizing the above challenges, the Government of Viet Nam has made important policy choices in recent years.

Earlier this year, the retirement age started to gradually rise. Social insurance reforms that improve financially sustainability and increase coverage expansion are reflected in Resolution 28.

To address the coverage gap, the government is giving high priority to revising the social insurance law. There are also emerging proposals to expand the coverage of non-contributory or social pensions to achieve the government's ambitious 2030 targets.

The WB is working to support the Ministry of Labor, Invalids and Social Affairs and the Viet Nam Social Security in these efforts, she noted.

In addition to expanding coverage, it will be important to provide sufficient resources to make social assistance benefits more impactful.

At the same time, if Viet Nam is to finance these programs, it will need to continue to grow despite the demographic outlook. This means boosting labor productivity.

Vietnamese workers need to not only enhance their performance in existing occupations but also be able to move into better quality, higher value-added jobs.

This entails not only better education and training but also better labor market information and employment support to help workers, including those in the informal sector, to prepare for and secure better employment.

In just the last year or two, important steps have been taken to remedy these limitations. The impressive rollout of the new national ID and its application to clean major databases is a crucial building block for data governance.

In addition, creating a government portal, national data exchange platform, the new digital ID law and standards for interoperability are in progress. There is even an effort now to map vulnerable households to flood prone regions using geospatial information. 

The World Bank stands ready to support Viet Nam to bring in global experience, expertise, knowledge on this agenda, underscored Carolyn Turk.