Vietnam’s second DoiMoi : growth, bottlenecks,and a role for Australia

Vietnam has announced a new round of sweeping reforms to propel the nation to high-income status. But long-term boldness is meeting short-term inertia.

Vietnam is a country in motion, and in suspense. Over the past year, sweeping political and administrative reforms under the leadership of Communist Party General Secretary To Lam have set the stage for what many call a “second Doi Moi”.  

The goal is ambitious: to propel Vietnam to high-income status by 2045, modernise its governance, and offer a more efficient, rules-based, investment-friendly system. But the transformation has triggered an interregnum: a transitional phase marked by uncertainty, administrative paralysis, and cautious optimism. From Hanoi’s ministries to Mekong Delta provinces, a “wait-and-see” economy has emerged, where ambition meets bottleneck.

Vietnam’s first Doi Moi in 1986 unlocked decades of rapid growth, transforming the country from a war-ravaged planned economy into a global manufacturing hub. Today, the country remains one of Asia’s fastest-growing, and To Lam’s reform agenda – which includes the abolition of district-level governance, the merging of ministries, halving the number of provinces, and a radical consolidation of public administration – seeks to renew that momentum. His government has set out four major policy resolutions focused on digital transformation, legal reform, international integration, and private sector empowerment. Together, these aim to address Vietnam’s pressing development challenges: sluggish productivity, underdeveloped infrastructure, and low domestic value-add in global supply chains. The ambition is clear: the Communist Party has set a bold target of at least 10% annual growth over the next five years, a pace few emerging economies can match.

But paradoxically, these large-scale reforms have stalled progress. Provincial consolidation and revised mandates mean agencies are re-learning procedures and revising plans. Local governments are hesitant, delaying key decisions on investment, energy planning, and infrastructure rollout. Investors and development partners, uncertain about how new structures will function, are holding back.

The result is a two-speed Vietnam: medium-term optimism colliding with short-term inertia.

Nowhere is this more apparent than in renewable energy. Vietnam plans to increase renewable power’s share to 30–39% by 2030 (from 12% in 2022), and 75% of total capacity (from 65%). But the system is clogged: grid bottlenecks, Vietnam Electricity’s (EVN) retroactive changes to feed-in-tariffs, and opaque cost recovery practices have scared off foreign investors, placing over $13 billion in renewable investments at risk. While the green vision is bold, the execution remains fragile.

Multilateral development banks (MDBs) such as the World Bank and Asian Development Bank are finding themselves sidelined. Vietnam can borrow domestically at around 3.7%, cheaper than most loans offered by MDBs. The MDBs are increasingly used for policy work rather than large infrastructure financing, a mismatch that highlights Vietnam’s shifting development needs: less money, more knowledge.

Even so, development finance has a role to play. Official development assistance is still equivalent to 10% of the country’s development expenditure. In addition, Vietnam’s needs in public administration reform and social protection modernisation – areas typically not targeted by private investment – remain significant.

This complex moment represents an opportunity for Australia, particularly in the renewable energy sector.

First, Australia should back the energy grid, more so than energy generation. While Vietnam’s green transition has focused heavily on new generation capacity, an overlooked constraint lies in the grid – transmission, dispatch, and storage. The rapid growth of solar and wind capacity is placing stress on existing transmission lines and grid stability. Australia can direct its programs, including Aus4Growth and the Partnership for Infrastructure, toward resolving these bottlenecks by supporting updated planning frameworks, improved interconnection standards, and the integration of energy storage and smart grid technologies.

Equally important is the restoration of investor confidence in Vietnam’s electricity pricing regime. The financial distress of EVN, including payment delays and revenue shortfalls, has shaken investor trust. Australia can help rebuild confidence by providing technical assistance to the Ministry of Industry and Trade and the Electricity Authority of Vietnam to design credible, flexible, and cost-reflective tariffs. These should balance capacity and energy components, include transparent pass-through rules for fuel and exchange-rate costs, and protect vulnerable users. Even more ambitious, Australia could support Vietnam’s shift from fixed feed-in tariffs to competitive renewable energy auctions, drawing on lessons from India and Cambodia to design transparent, cost-efficient bidding frameworks that lower prices and attract private investment.

Third, Australia can also play a de-risking and de-bureaucratising role. Working alongside the MDBs, it could expand the use of financial guarantees – such as first-loss coverage and foreign exchange hedging, tools not yet deployed by Export Finance Australia – especially in provinces facing grid congestion. At the same time, Australia could back the creation of regulatory sandboxes for rooftop solar, EV charging, and battery storage, similar to those already used in Vietnam’s fintech and banking sectors. These pilots could fast-track policy experimentation and unblock stalled projects without waiting for full legal reform.

There are, of course, broader avenues for Australian engagement, from institutional capacity-building to education and digital governance. But supporting Vietnam’s energy transition should be among Canberra’s top priorities.

Vietnam can build a high-income, innovation-driven, sustainable future; or, it could succumb to a middle-income trap defined by gridlock, low value-add, and missed opportunities. The reforms of To Lam are bold, and the stakes are high. But boldness alone does not deliver results. What happens next depends on execution, clarity, and trust.

Vietnam may not need help carrying its bag anymore. But it still values reliable partners, and Australia can play that role, walking alongside Hanoi as it takes its most decisive steps yet.

By Alexandre Dayant – The Interpreter / Lowyinstitute.org – December 16, 2025