How big is Vietnam’s informal economic sector?
Nguyen Bich Lam, Director General GSO at a conference to review the activities of the Ministry of Planning and Investment (MPI) on January 15 said MPI will submit a scheme on informal economic statistics to the Prime Minister for approval this year. The operation of the informal business sector contributed to the economy, but it was not yet accounted for in calculating GDP.
According to Thien Anh Tuan from Fulbright Economics Teaching Program (FETP), there are underground, informal and illegal sectors.
The state still cannot classify, record, monitor and the sectors and underground doesn’t always mean ‘illegal’.
Complicated and unclear regulations lead to development of the underground economy. As people find it difficult to observe regulations, they try to avoid them and become ‘unofficial’.
|Complicated and unclear regulations lead to development of the underground economy. As people find it difficult to observe regulations, they try to avoid them and become ‘unofficial’.|
The size of the informal sector depends on macroeconomic development. In principle, economic growth is contrary to informal sector development.
The latest research found that in 1991-2015, the size of the informal sector was 15.1 percent of GDP.
If the economy grows well, the informal sector shrinks. But if the economy slows, businesses tend to hide. Research shows that during economic recession, the size of the unofficial sector can grow up to over 25 percent.
High taxes and costs, in general, will encourage unofficial and undeclared transactions. This prompts workers to avoid taxes by joining the unofficial sector.
Deputy PM Vuong Dinh Hue has asked for a method to identify the unobserved economic sector in order to better implement socio-economic development plans in 2018.
Nguyen Bich Lam, general director of GSO, confirmed GSO has been assigned by the government to carry out research about the informal sector.
Lam admitted that it is difficult to calculate underground and illegal economic sectors. Regarding the figure about 30 percent of GDP created by the informal sector, Lam said the real figure is not so high and the calculation method should be revised.
Vietnam’s GDP grew 6.81 percent in 2017, a six-year high and surpassing the initial target of 6.7 percent, driven by a recovery in agricultural production and a pickup in both industrial output and services.