Domestic investor optimism grows as structural reforms gain traction

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Monthly Insights

Vietnam’s economy and markets demonstrated resilience in the first two months of 2025, despite global challenges, supported by proactive legislative and policy measures stemming from February’s extraordinary National Assembly. The government has now approved significant structural reforms, reducing the number of ministries from 19 to 14. A landmark $8bn investment was agreed for the Lào Cai–Hà Nội–Hải Phòng high-speed railway, underscoring the major infrastructure development push. A new resolution lifted foreign ownership restrictions on satellite service providers, allowing full ownership under a pilot scheme until 2030. This move, which includes Elon Musk’s Starlink, is set to enhance digital connectivity and attract greater foreign telecom investment. As part of the ongoing reforms to improve efficiency, the Politburo is calling for a constitutional review, the sixth time in Vietnam’s history, proposing amendments that could eliminate district-level administrative units and restructure units at the provincial level. These changes will be followed by the review and approval of 27 laws and resolutions in the May and October 2025 National Assembly sessions.

Investment flows have had a moderate start to the year. While registered FDI surged 35.5% YoY to $6.9bn, realised FDI stood at just under $3bn, reflecting a more modest 5.4% YoY growth. Public investment disbursement reached $2.4bn in the first two months, equivalent to 6.9% of the government’s annual target, slightly below the 7.7% recorded in the same period last year. With the government targeting $36bn in public investment and $28bn in FDI disbursement for 2025, accelerating capital deployment will be needed once government restructuring and municipal mergers conclude at the end of March.

To support economic expansion, the government has introduced additional accommodative monetary policies. The Prime Minister has instructed the SBV to lower interest rates, prompting over 18 banks to reduce deposit rates in February. On average, 12-month deposit rates declined by 3bps, marking the first reduction since the rate hikes that began in September 2024. Many banks have also launched preferential loan programmes, offering fixed interest rate reductions of 1-2% for the first 6-12 months. The SBV is further supporting banking sector liquidity by halting bill issuances, extending reverse repo maturities from 7 days to 91 days, and implementing liquidity-support measures for banks involved in restructuring and acquiring “zero-dong” banks. A legacy of Vietnam’s 2011 financial crisis, zero-dong banks are insolvent institutions undergoing restructuring with both state and private sector banks. Supporting banks will receive 0% interest SBV loans, a mechanism designed to stabilise these entities while drawing on private sector expertise.

Beyond monetary stimulus, the government is prioritising private sector development as a key economic driver. The private sector now accounts for over 50% of GDP, contributes around 30% of state budget revenues, and employs 85% of the workforce, making it a cornerstone of Vietnam’s growth strategy. Recognising its strategic importance, the Politburo has emphasised the need for a clear long-term strategy to foster private sector expansion by addressing regulatory constraints, resolving institutional bottlenecks, and creating a more business-friendly investment environment. Unlocking the full potential of private enterprises will be critical to sustaining Vietnam’s economic momentum in the coming years.