world bank – APRIL 28, 202
The poverty and equity agenda is no longer only about raising minimum living standards and tackling chronic poverty; it is also about creating new and sustainable economic pathways for a more aspirational population.
Launch event materials
There was significant progress in poverty reduction from 2010-2020, but Last Mile challenges in tackling poverty remain.
- Over the last decade, poverty declined impressively. The World Bank’s LMIC poverty rate ($3.20/day 2011PPP) dropped from 16.8 to 5 percent, and over 10 million people were lifted out of poverty. The sudden emergence of COVID-19 at the end of the decade halted wage growth, and improvements in job quality. Progress in poverty reduction was set back but did not reverse in 2020.
- Chronically higher poverty rates among certain groups is the Last Mile challenge – but some positive trends emerged. Poverty rates among some chronically poorer groups was reduced by at least half between 2010 and 2020, including ethnic minorities and households in the Midlands and Northern Mountains regions. Ethnic minority workers are shifting more quickly out of agriculture. In 2020, about 23 percent of ethnic minorities were working in manufacturing, nearly the same rate as the Kinh majority at the start of the decade.
- Beyond the poor, a more diverse share of the population is economically vulnerable. The population that is no longer poor, but also not economically secure or middle class, is about 13.6 million. While the risk of falling into extreme poverty is now low, achieving economic security at higher levels is still a relevant topic. Nearly 40 percent of the middle class in 2016 slid to a lower economic group by 2018.
New strategies are needed for households to reach upper-middle and high-income country living standards on the Next Mile.
- Equitable human capital formation is needed for inclusive poverty reduction and breaking intergenerational poverty patterns. Education completion varies with household characteristics, especially ethnicity and economic status. COVID-19 also caused large learning losses, which were more hard felt by children without access to digital technologies. This may further widen gaps in human capital formation.
- Graduating to high-income status requires higher labor productivity. The labor market is still characterized by low wages, high informality, and a slow expansion of high-skilled occupations. Both higher education and the business environment can be further improved so that the youth cohort are not underutilized, helping Vietnam realize its full growth potential.
- Economic policies to sustain growth must be complemented by strategies to protect households from falling back into poverty. Households are exposed to a range of shocks that can be costly, and for the poor can be poverty traps. COVID-19 demonstrated that the social protection system faces some challenges in reaching affected individuals and workers who are typically out of the line of sight of government such as informal workers.
- Fiscal policy can support the development of a prosperous and inclusive middle-class society. In a cross-country fiscal incidence comparison, Vietnam’s fiscal policy is about average among LMIC economies in helping contribute to inequality reduction. The right mix of fiscal policy can help finance the investments needed for the country and its workers to become more productive and higher earners, such as modernization of agriculture, improved skills and higher-quality education, a more robust digital backbone, and accompanying services.
The report concludes with policy suggestions following the Last Mile to Next Mile framework
Last Mile Chronic Challenges: The concentration of poverty among geographically disadvantaged regions calls for strengthening of area-based anti-poverty intervention, modernization of the agricultural sector, and improving education for disadvantaged students.
- Analysis suggests that past NTPs helped improve access to services and achieved some positive impacts on improving welfare, but gaps were also identified.
- Boosting agricultural productivity is key to maintaining livelihoods for those remaining in the rural economic system in the face of significant structural change.
- Access to new knowledge and innovations, including application of appropriate digital technologies, would support productivity growth by substituting for labor intensity.
- Moreover, the social protection system can play a larger role (discussed as part of the Next Mile agenda).
- To improve the participation of ethnic minorities in the labor market, laws protecting the rights of ethnic minorities can be further strengthened.
Reaching Next Mile aspirations: The millions who have escaped poverty over the last decade now need to continue climbing up to higher economic classes.
- Continuing improvements in higher education access and quality will be needed.
- Improving the relevance and quality of tertiary education curriculum and staffing can help reduce skill gaps and alleviate difficulties in recruiting for certain skills.
- More effective social assistance should be provided to poorer households, with increased coverage and benefit levels to achieve greater poverty and inequality reduction. This will require greater overall spending while consolidating the currently fragmented mix of programs to achieve greater efficiency.
- To finance the public investments needed to eliminate poverty and grow the economically secure and middle classes, Vietnam can broaden its tax revenue base (personal income tax, property tax), and explore the use of new taxes which both raise revenue and address negative externalities.