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Old Age, Debt Threaten Vietnam Economy

FILE - An investor looks at a stock market screen at a securities company in Hanoi, Vietnam, July 20, 2015. Ho Chi Minh City is the fastest-aging nation in recorded history.

Which is the fastest-aging nation in recorded history? Those who guess Japan or Finland might be shocked to know the answer is Vietnam.

It will take a little more than 15 years for the share of Vietnamese aged 65-plus to go from 7 to 14 percent of the population, according to the World Bank. By contrast, in nearby China and Myanmar, the timeline is closer to 25 years.

Speaking in Ho Chi Minh City, World Bank Vietnam director Victoria Kwakwa said this will put a strain on the workforce.

“What you’re going to see is a slowing down, beginning to slow down and ultimately shrinking of the labor force, which will make significant demands on labor productivity,” she said last week at a Canadian Chamber of Commerce in Vietnam forum, where foreigners gave their take on the economy.

Cheap labor has powered businesses in Vietnam, which Kwakwa said was the only country in the region where economic growth was higher in 2015 than 2014.

Graying workforce

But the graying workforce threatens that growth and adds to a list of challenges policymakers face as Vietnam develops. High debt, low government reserves, and reliance on foreign investment are just a few of the risks to the economy. Other vulnerabilities are beyond Vietnam’s shores, such as a bump in U.S. interest rates, the rout in global commodities prices, and uncertainty about the Trans Pacific Partnership trade deal containing Vietnam.

A country of savers for decades, Vietnam is now witnessing a fairly new phenomenon of household debt. Infocus Mekong Research’s managing director Ralf Matthaes said it “blew me away” when his market research firm found that 30 percent of 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.”

FILE - Men work at a construction site of a hotel in Hanoi, Vietnam, Jan. 7, 2016.
FILE - Men work at a construction site of a hotel in Hanoi, Vietnam, Jan. 7, 2016.

Public debt is on the rise, too. Vietnam set a debt ceiling of 65 percent of gross domestic product, and the World Bank estimates borrowing reached 62.5 percent of GDP last year, up from 59.6 percent in 2014.

The state is borrowing as revenues fall short of spending by 6.9 percent of GDP, compared with a fiscal deficit of 6.2 percent in 2014, the World Bank said.

Vietnam-China relations

Looking abroad, many countries are wondering how a hard landing in China could hurt them. Vietnam might be spared much of the impact, as exports to its northern neighbor are close to half of what Vietnam exports to Europe or the United States, according to the General Statistics Office.

Instead, Baker & McKenzie managing partner Fred Burke suggested Vietnam consider how it can benefit from China.

“Chinese companies with good experience as residential 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. The price point is right,” he said. “There’s a lot actually China and Vietnam can do together.”

The advice may fall on some deaf ears; Vietnamese relations with the giant next door have been strained recently over territorial disputes in the South China Sea. Then again, that hasn’t stopped them from buying more products from China than from any other trading partner.