Vietnam is pursuing one of the most aggressive monetary expansion policies in modern history. Is the economy on the right path—or is something being sacrificed to maintain growth?
Growth Expectations Rooted in Cheap Money
In the first half of 2025, credit growth in Vietnam’s banking system saw a spectacular surge—from 6.5% at the end of April to 9.9% by the end of June (compared to the end of 2024), equivalent to over VND 1 quadrillion injected into the economy in just two months. This isn’t just an impressive figure—it clearly signals that Vietnam is pursuing one of the most expansionary monetary policies in modern history.
The objective is crystal clear: to sustain high economic growth, targeting 8% GDP growth in 2025, and possibly reaching double digits—over 10% annually—in the 2026–2030 period. According to the State Bank, every 2% credit growth supports 1% GDP growth. Thus, to hit double-digit growth, Vietnam would need credit expansion of 18–20%—a level comparable to the pre-2008 crisis era or the volatile 2009–2011 period.
However, behind these ambitious figures lies a critical question: Is the economy on the right track, or is it making trade-offs just to maintain its growth targets?
Where Is the Credit Flowing?
Current money-pumping is happening through various channels. On one hand, banks are rolling out preferential credit packages—VND 120 trillion for social housing and VND 40 trillion for production and business loans. Simultaneously, the government is strongly promoting public investment in mega projects like the North–South high-speed railway (USD 67 billion) and the Lào Cai–Hanoi–Haiphong railway link (USD 8.4 billion), along with VND 30 trillion in additional spending on administrative restructuring.
The key question: Is this money really being channeled into the real economy?
Current data suggest expectations are not being met. The Purchasing Managers’ Index (PMI) remains below 50 points, signaling continued contraction in manufacturing activity. Meanwhile, liquidity is flooding asset markets: the stock market’s trading volume keeps hitting new highs—escalating beyond USD 1 billion per session—and real estate prices have surged, especially in Hanoi, where housing prices have risen 20–35% since the beginning of 2025.
Notably, real estate lending has become the main pillar of overall credit. According to the State Bank, lending in this sector surged 19% in the first half of the year—a sharp increase compared to other sectors like manufacturing, export, and services.
In summary, most of the injected money is flowing into assets (stocks, real estate) rather than production or consumption under the hope of “spilling over into the real economy.”
Inflation and Exchange Rate Scenarios
When cheap money is continuously injected, macroeconomic consequences are unavoidable. In June, the National Assembly passed Resolution 192, adjusting the inflation target from 4.5% to 5%. This is a rare move in over a decade, signifying the government’s willingness to “sacrifice price stability” in exchange for growth.
History offers a similar scenario. From 2005–2011, Vietnam aggressively expanded credit by 30–50% annually. Inflation soared above 20% in some years, causing serious instability and undermining confidence in the domestic currency. That lesson still holds true today.
The exchange rate is also under pressure. In the first half of 2025 alone, the Vietnamese dong fell 2.8% against the USD, 16% against the euro, and 12% against the British pound. Compared with neighboring currencies—Lao kip, Thai baht, Cambodian riel—VND has depreciated between 3% and 8%. This increases import costs, commodity prices, and production input costs for domestic enterprises.
In this context, savers face a double loss: ultra-low deposit rates (below 4% per annum at many banks) paired with rising inflation eroding real returns. This drives capital away from banks into asset classes that better preserve value—like gold, real estate, and stocks. That, in turn, further fuels asset bubbles.
Fiscal vs. Monetary Policy—When Two Roles Carry Growth
A noteworthy point: unlike 2020–2021 when fiscal space was ample, Vietnam now faces a debt-to-GDP ceiling of around 35%, well below the 60% limit set by the National Assembly. Yet, according to the IMF, credit-to-GDP has reached over 130%—far higher than peer countries like India (50%) or the Philippines (48%). This means policy space is narrowing while demand for investment and spending remains high.
Monetary policy is increasingly bearing responsibilities that fiscal policy can no longer fulfill—supporting businesses, boosting consumption, and offsetting slower growth. Combined money pumping, public investment, and targeted credit schemes are necessary in the short run. But without tight control, this can become a macro trap: asset-driven, artificial growth while the real economy remains stagnant.
Looking to Asia: Growth from Efficiency and Macro Discipline
In past decades, Asian economies such as China, South Korea, and Singapore achieved “growth miracles” by combining three factors: effective and long-term public investment; real productivity gains in manufacturing; and macro discipline, especially controlling credit, exchange rates, and inflation.
Vietnam has currently succeeded largely only in the first area. But if the injected capital runs mainly into land and shares—rather than productivity—true growth miracles won’t materialize.
In the 1970s, South Korea paired financial leverage with deep private-sector reforms and technology-led export pushes. Singapore maintained prudent monetary policy and strict credit control, while attracting high-quality FDI to lead its growth.
Vietnam now stands at a similar crossroads. If growth depends solely on money pumping without building real production capacity, the economy risks falling into a vicious cycle: credit growth → asset inflation → false consumption → rising inflation → instability.
Time to “Rebalance” the Flow of Funds
Global conditions are no longer as favorable: interest rates remain elevated, geopolitical conflicts persist, and supply chains are disrupted. Domestically, manufacturing remains weak, domestic consumption hasn’t fully recovered, and the labor market still reverberates from the post-COVID years.
In this context, monetary policy alone cannot carry growth. We need a mindset of “rebalancing capital flows”:
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Limit credit to real estate and short-term speculative channels.
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Prioritize financing into production, green transformation, digital economy, and innovation.
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Increase supervision on banking to avoid “double leverage.”
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Combine flexible fiscal policy so monetary policy isn’t overburdened.
Above all, Vietnam must build market confidence through transparency and policy stability—not continual adjustments.
Conclusion: Growth Miracles Come from Real Efficiency, Not Just Cheap Money
Money pumping isn’t inherently bad—if the funds are used rightly. The issue isn’t how much is pumped, but where it’s directed.
History proves no economy has sustained growth purely via cheap money and asset bubbles. Potential miracles emerge only when each đồng of capital yields real productivity in production, consumption, and innovation.
Vietnam can still achieve the growth miracles of South Korea or Singapore—but only if monetary expansion is paired with institutional reforms, investment in the real economy, and unwavering macro discipline.
About Đinh Hồng Kỳ:
Chairman of Secoin Company; Chairman of the Ho Chi Minh City Construction and Building Materials Association (SACA); Chairman of the Ho Chi Minh City Green Business Association (HGBA); Vice Chairman of the Ho Chi Minh City Business Association (HUBA).
