Index trend
Previous Quarterly Editions
Expropriation Risk: 56 56 56 52 ▼Political Violence Risk:48 39 39 39 ►Terrorism Risk:11 11 11 11 ►Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ►Sovereign Default Risk:47 37 37 37 ►
Overall Risk Temperature: 46 (Medium -1) TREND ►
Special topic: Political polarization
In the first half of 2024, Vietnam went through a period of relative political instability (by the standards of the country’s strict one-party system), as then-Secretary-General of the Communist Party Nguyen Phu Trong began to falter and the struggle to replace him intensified. This process was accelerated — and complicated — by the ’Burning Furnace’ anti-corruption purge organized and conducted by then-Public Security Minister To Lam. By year’s end, however, Lam was installed as the party’s secretary-general to fill out the remainder of Trong’s term after Trong passed away. Lam has staffed his cabinet with several former officials from the Public Security Ministry, signaling his intention to keep a tight lid on public dissent.
Strictly speaking, in a one-party state, political polarization is only possible within the party, and any significant divisions are not usually on public display. That said, for several years the Politburo has struggled to balance ideology and pragmatism, with Trong inclined toward a doctrinaire approach. All signs point to Lam emphasizing pragmatism over ideology. With that, he hopes to renew the party’s legitimacy within the Vietnamese population — particularly the younger generation — with economic development that will enable manufacturing capability to climb the value chain and achieve high-income status for the country by 2045. That is best acquired through foreign investment that will transfer technology and skills. To curb corruption, Lam will likely continue the ‘Burning Furnace’ campaign in some form.
To that end, Lam has launched a ‘National Rise’ campaign, to set Vietnam on its most ambitious bureaucratic restructuring since the 1980s. He plans to merge ministries, streamline agencies and reorganize party institutions. The timetable is challenging, with most changes planned to be in place before the 2026 National Party Congress, when Lam expects to be confirmed as the permanent party secretary-general. A reform campaign this ambitious is inherently disruptive, and Lam will need to maintain stability within the political system and among the Vietnamese population, particularly since it will alter the shape and size of the workforce. On top of that, the reforms will have to proceed in an uncertain security and economic international environment.
TREND ▼
Risk of expropriation is significant and rising.
While Vietnam seeks to increase foreign direct investment, Hanoi anticipates disruptions in the U.S. trade and investment environment to limit new U.S. investment in the short term.
This expected shortfall will open the door to greater Chinese investment, such as a planned rail link to run from the China-Vietnam border to Hanoi and onward to the port of Haiphong. In February this year, the National Assembly approved the $8.3 billion project, with a funding package that will include loans from China. It is not clear how visible a Chinese presence there will be with the actual construction, but lack of attention to such sensitivities could inflame nationalism in the Vietnamese public — a particular risk vis-à-vis relations with China.
On the other hand, the Vietnamese government is less likely to meet resistance to internet controls from U.S. social media platforms than anticipated, given their abandonment of fact-checkers and similar mechanisms. So far, none has objected to new demands that foreign internet providers in Vietnam verify the identities of social media users and provide that information to the government upon request.
TREND ►
Risk of political violence is medium-low and stable.
Although violence arising from anti-China sentiment is a perennial risk in Vietnam, overall the possibility of political violence will remain low and even drop slightly as Lam settles into his role as secretary-general. However, public discontent will likely rise if disruption from bureaucratic reform and greater economic uncertainty in the international community combine to raise critical consumer prices.
The risk of terrorism is very low and stable.
Vietnam’s geographical position on mainland Southeast Asia does not lend itself to easy passage for terrorist groups, in comparison with the Philippines or Indonesia, and Vietnam’s tiny Muslim community has been assimilated into the mainstream population for centuries. In recent years Hanoi has worked with the Financial Action Task Force, the global money laundering and terrorist financing watchdog, to address deficiencies in their measures to combat these threats.
Exchange transfer and trade sanctions risk is significant and rising.
One motivation for To Lam’s ‘Nation Rise’ campaign for reform is to slim down Vietnam’s bureaucracy to prepare for worsening trade relations with the U.S. and the possibility of decreased investment as well. Vietnam has the largest trade surplus with the U.S. of any Southeast Asian country, with less leverage to negotiate an exemption from tariff increases. On the contrary, Trump has expressed a strong dislike of Vietnam’s trade position and remarked in his first term that it was “much worse than China’s.”
Hanoi will attempt to compensate by increasing trade with the European Union and Japan, but the near-term likelihood is that trade with China will deepen. As the U.S.-China tariff wars ratchet up, competing supply chains will make it more difficult for Vietnam to balance trade between the two economic powers. Vietnam could also see some secondary U.S. sanctions imposed if its economic relations with China expand in sensitive areas of technology. However, if Trump normalizes Washington’s relations with Moscow, there is a strong possibility that U.S. sanctions on Vietnam for its economic partnerships with Russia will ease or disappear altogether.
Sovereign default risk is medium-low but rising.
Vietnam’s debt-to-GDP ratio in 2024 was 33.5%, according to the International Monetary Fund. The country has maintained its Standard and Poor’s rating of BB+. Despite losses measured in the billions from Typhoon Yagi, the country’s economic growth rate for 2024 exceeded expectations at 7.09%, due primarily to a rise in exports. The U.S. was again Vietnam’s largest export market, but that is not likely to continue if the Trump administration imposes tariff increases. Debt could also rise with ambitious infrastructure projects, such as the China-Vietnam rail link in northern Vietnam.
