Overcoming the Income Trap: Pressure to Change Fiscal Mindset and the Speed of Institutional Reform
Vietnam is at a historic turning point. The period from 2026 to 2030 is not just the next five years in the economic cycle, but a decisive period in determining whether Vietnam can achieve its strategic goals of becoming a high-income developed country by 2045.
The old growth model, which relied primarily on cheap labor, natural resource exploitation, and widespread public investment, was successful over the past three decades, elevating the country from an underdeveloped nation to a lower-middle-income country. However, this model has now reached its limit. In terms of resources, labor productivity is showing signs of slowing growth, the demographic dividend is gradually fading, and natural resources are being depleted. In terms of quality, growth is mainly based on processing and assembly, making the economy vulnerable to global fluctuations, and Vietnam has yet to escape the "middle-income trap" because it has not created sufficient added value in the global supply chain.
After decades of relying on a traditional growth model, the Vietnamese economy is reaching a point where it must make a strong shift. At the recent Economic and Financial Forum 2025, experts pointed out that the combination of the digital economy and the green economy will be the strategic driving force for the next phase of development. However, the biggest challenge lies not in the vision, but in the speed and quality of implementation – a decisive factor in whether Vietnam can break free from the middle-income trap in the next decade.
According to economic experts, the core issue is the "speed of transformation." Although there is high consensus at the macro level on the vision and strategy for digital transformation, green economy, and innovation, the progress of implementation and resource allocation for these new models at the local and enterprise levels is too slow. This delay is evident in the fact that digital transformation in many sectors remains largely superficial, and the development of the green economy is still mainly limited to incentive policies, failing to create sufficiently strong mechanisms to attract private investment.
If Vietnam does not accelerate its digital transformation and greening efforts, new global standards such as the carbon border adjustment mechanism will become trade barriers.
According to economic experts, if the pace of transformation continues at its current level, Vietnam risks missing a second opportunity to capitalize on the industrial revolutions, especially as regional competitors are taking more aggressive steps. This delay will lead to the risk of a deficit in high-quality human capital and a widening technology gap.
This delay will lead to the risk of a deficit in high-quality human capital and a widening technology gap. Mr. Le Anh Tuan, General Director of Dragon Capital Vietnam Investment Fund Management Company (DCVFM), believes that the window of opportunity will only open for a short time, about the next 5 years. If Vietnam cannot accelerate the pace of digital transformation and greening during this period, pressure from new global standards such as the European Union's Carbon Border Adjustment Mechanism (CBAM) will become a fierce trade barrier instead of a driver of reform.
Businesses have expressed impatience and expectations for a more transparent and stable legal framework for the 2026-2030 period, with breakthrough policies on taxation, capital, and land to ensure long-term investment in new technologies. To address the issue of speed, the Ministry of Finance leadership emphasized the role of fiscal policy in guiding and activating a new growth model. This involves shifting from "scattered resource allocation" to "focused investment," prioritizing budget capital for areas that create breakthroughs in productivity such as digital infrastructure and innovation centers, while strictly controlling the effectiveness of public investment.
Digital economy and green economy: Strategic intersection, requiring an innovative legal framework.
To overcome the barriers to transformation speed and fully capitalize on global opportunities, economic experts point to two core strategic drivers for Vietnam's new growth model: digital transformation, the digital economy, and the green economy, the circular economy. The harmonious intersection and integration of these two pillars is key to creating double growth, increasing productivity through digitalization and sustainability through greening.
Digital transformation is defined not only as the application of technology but as a comprehensive shift in mindset and governance, requiring a priority on improving institutions to encourage and protect innovative activities. One of the top priorities is creating a legal framework for testing. This is a key factor in ensuring that new technologies, especially in Fintech, artificial intelligence (AI), and Blockchain, have a safe space to develop.
According to Ms. Nguyen Thi Bich Ngoc, a financial and legal expert, without a sandbox, innovative Vietnamese technology companies would be forced to relocate abroad, losing the opportunity to retain and develop core technologies domestically. In addition, the financialization of data has been proposed to transform data into assets and a new source of capital for the economy.
Businesses are willing to invest in green technology if there is stability in renewable electricity prices and sufficiently attractive tax incentives.
Vietnam needs to move faster, linking the digital economy with the green economy to create momentum for growth, open up room for development, and avoid the risk of falling behind in the region as the old growth model has reached its limits.
The old growth model has reached its ceiling. The key to escaping the middle-income trap lies in the intersection of the digital economy and the green economy, but the speed of implementation is the biggest challenge.
Alongside digitalization, the green economy is identified as an inevitable path of development, not only due to environmental protection requirements but also as a mandatory requirement from major export markets through regulations such as the EU's Carbon Border Adjustment Mechanism (CBAM). To successfully achieve the Net Zero goal, the new growth model needs to deeply integrate sustainable finance and green finance.
Regarding mechanisms for attracting capital, the government needs robust financial tools such as green bonds, green credit with preferential interest rates, and risk guarantee mechanisms to attract tens of billions of USD in private investment into renewable energy and emission reduction projects. The Ministry of Finance's vision is to use public resources as seed capital to activate the massive flow of private capital into green sectors. Alongside this, stricter environmental standards should be applied to new investment projects to gradually eliminate energy-intensive industries, turning this into a necessary quality filter for foreign direct investment (FDI).
From a business perspective, Mr. Tran Duy Phuong, representing the manufacturing business community, emphasized that businesses are ready to invest in green technology if there is stability in renewable electricity prices and sufficiently attractive tax incentives. Transparency in green investment funds and simplification of certification procedures are key factors.
International experts believe that the new growth model must be a harmonious blend of the digital economy and the green economy. This combination will help Vietnam create a leap forward in productivity through digitalization and achieve long-term sustainability through greening, ensuring competitiveness in the new era. The speed of implementation is the golden key for Vietnam to transform its strategic model on paper into a prosperous reality, achieving its goal of becoming a developed nation by the middle of the century and overcoming the impending "middle-income trap."
Source: https://vtv.vn/tang-truong-the-he-moi-tang-toc-de-vuot-nguong-phat-trien-100251205230622933.htm
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