By Emma Nguyen (University of Melbourne)
As one of the fastest developing nations in Southeast Asia, recently there has been noticeable changes in Vietnam’s growth and development strategies. The General Secretary To Lam and Prime Minister Pham Minh Chinh expressed their determination to transform Vietnam into a “high-income country by 2045”. 2025 marks another milestone as the country undergoes government reforms and shifts their budget concentration to infrastructure development to target higher economic growth. The question is how has this transition impacted Vietnam’s short and long-term economic prospects?
The Growth of Transportation Infrastructure
A rise in Government Funds
Vietnam’s recent emphasis on the development of transportation infrastructure demonstrates the country’s determination to stimulate economic growth this financial year. Since the first quarter of 2025, the Vietnamese government has released several announcements regarding budget allocation to different industries. By March, the transportation sector had been allocated around USD 3.15 billion to finance the construction of vital projects, where the inauguration of Ho Chi Minh City’s very first Metro Line is one of the most notable outcomes. In response to the growing demand for convenient transportation, The Ministry of Construction (MoC) has recently requested an extension of USD 223 million of budget allocation, which can potentially raise the total government expenditure on transportation infrastructure to approximately USD 3.85 billion. In comparison to the USD 2.45 billion allocated to transportation in 2016 – the sector’s lowest budget in recent years, the current request highlights Vietnam’s strong desire to alleviate traffic congestion and represents a significant stepping stone toward achieving sustainable development.
Ongoing Projects
After Hanoi introduced the nation’s first ever metro line in 2022, Saigon continued the success by launching their Ben Thanh – Suoi Tien Line towards the end of 2024. The Metro Line received positive public reactions due to its convenience and modern architecture; this again emphasises the nation’s goal of gradually establishing comprehensive public transport systems in its major cities. Currently, the MoC is proceeding with the second metro line project in both Hanoi and HCMC, accelerating the development of urban mobility.
The Metro System is also an attempt to attract FDI as it portrays Vietnam as an emerging market with potential. FDI has been a crucial financial resource in boosting infrastructure projects in Vietnam, and is anticipated to increase following the Metro Lines inauguration. In 2024, Vietnam reported a total of US$38.23 billion registered FDI inflow, where US$25.35 billion was disbursed, and is “the highest level recorded.”
FDI may continue to increase as the country is reaching the final stages in constructing the Long Thanh International Airport in HCMC. A report by the Ministry of Planning and Investment has recorded a 2% increase of FDI inflow in January 2025 compared to January 2024. A second international airport in Saigon, the central business city of Vietnam may facilitate the 8% targeted GDP growth, as it improves access to international trade and encourages tourism. Both the Airport and Metro Line System may contribute substantially to Vietnam’s long-term economic growth, enhancing efficiency and productivity by shortening commute times. Transportation infrastructure developments are key to boosting service sector consumption and raising consumer spending.
Government Structure Reforms
Targeting an Optimised Administrative Structure
Since the beginning of the calendar year 2025, Vietnam began undergoing rigorous government reforms as part of its plan to enhance bureaucratic efficiency. The restructuring plan aims to curtail provincial units and ministries by merging closely related sectors, removing about 20% of existing state departments for a more efficient government structure. This constitutes a revolutionary change since the Doi Moi reforms of 1986, given the complexity involved in decreasing approximately 100,000 civil servants. The reform simultaneously pressures the Vietnamese government to address these workforce reductions alongside the broader restructuring plan.
It is important for Vietnam to adopt a more condensed government structure to achieve its macroeconomic objectives of stable economic growth starting from 2025. Vietnam’s government restructuring incentivises more efficient budget utilisation by establishing leaner administrative bodies, which in turn enhance the effectiveness of public administration. The reform effort exemplifies the state’s commitment to maximising national potential through the minimisation of resource waste and the streamlining of government processes.
Ongoing Progress
In February 2025, the Politburo and Secretariat of Vietnam issued Conclusion No.127, which mandated the cessation of activities at both the commune and district levels of local government, initiating a significant reorganisation of Vietnam’s administrative apparatus. By March 2025, the government had officially eliminated the district-level tier, which is about 696 districts, marking a transition from the previous four-tier administrative system to a streamlined three-tier policy structure comprising the central (ministry), provincial, and commune levels. Consequently, fewer minor state bodies may allow for more effective bureaucratic procedures, with an optimised legal framework to progress towards long-term growth.
Sacrificing Short-term for Long-term Prospects?
Government reforms pose short-term challenges
While the restructuring initiative represents a transformative step that could facilitate Vietnam’s pursuit of its economic growth objectives, it is anticipated to exert significant short-term pressures on the labour market due to the substantial reduction in public sector employment. About 100,000 civil servants face a risk of losing their jobs, corresponding with the 20% reduction in government bodies. In addition to the immediate impact on workers through layoffs and early retirement, the economy also faces the risk of losing a consequential portion of its experienced labour force. This raises concerns that skilled workers, if not adequately re-engaged or retrained, may gradually experience a decline in their expertise and professional competencies. Over the long-term, this could potentially lead to an escalation in structural unemployment, undermining Vietnam’s prospects for sustained economic growth and development.
Similarly, given that the Vietnamese government has been operating with its current structure since 1986, conducting a remarkable transformation may cause operational disruptions. Businesses may struggle in securing legal documents or licensing approvals, as there is a transitional period required for the newly established administrative units to become fully functional. Since responsibilities previously managed at the district level are reassigned to commune or provincial authorities according to the restructuring plan, processing times are likely to be further prolonged due to a reduction in the number of civil servants, even as the demand for administrative services remains unchanged.
Transportation Infrastructure – Short-term Impact
Contrary to concerns about public sector downsizing, Vietnam’s increased investment in transportation infrastructure has generated positive outcomes for employment rates nationwide. Unemployment rate declines approximately 0.04% from 2.24% in 2024 to 2.20% in the first quarter of 2025. Between 2010 and 2020, enhancements in mobility infrastructures were associated with notable reductions in unemployment across all 63 provinces, highlighting the substantial job creation resulting from large-scale construction initiatives. Notably, domestic construction firms have experienced a surge in labour demand, potentially driven by government directives to accelerate the completion of major transportation projects such as the Long Thanh International Airport. This prevalence underscores the critical role of infrastructure development in fostering employment opportunities and supporting Vietnam to achieve its long-term economic objective of a stable, high-income economy by 2045.
What is the conclusion?
The government’s reform agenda is likely to result in short-term disruptions to the labour market and administrative processes. However, over time, these measures are expected to enhance transparency, strengthen legal frameworks and with the increase in transportation infrastructure investment, may foster sustained economic growth and advance Vietnam’s progression toward escaping the ‘developing’ phase.
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