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Despite a small and rather cautious first step, this has key implications for the economy, particularly its reeling labour market and shrinking current account advantage.

HSBC Gives Some Predictions of the Vietnam’s Reopening of Tourism
Vietnam will open selected tourist spots from November – a likely boon for its labour market and current account balance
That said, success hinges on factors such as border rules, the ongoing pandemic, vaccination progress, and flight availability
Data: Despite a gradual recovery in domestic demand, export growth was muted, reflecting a significant shortage of labour
Border re-openings and a revival in tourism have been the dominating themes for ASEAN lately. While Vietnam’s opening plan is not as ambitious as that of regional peers, fully vaccinated tourists are welcoming the country’s decision to open five selected destinations without quarantines in November. Despite a small and rather cautious first step, this has key implications for the economy, particularly its reeling labour market and shrinking current account advantage.
Still a long way to go
But a successful recovery will depend on multiple factors. For one, a low nationwide vaccination rate and the lingering COVID-19 situation may foster risk-averse sentiment.
A dearth of Chinese tourists, historically accounting for one-third of total arrivals, also suggests that the near-term boost maybe muted. Lastly, on implementation, more efforts are needed to reinstate international flights. But, encouragingly, Vietnam has been making some good progress to prepare for tourists’ return.
A slow recovery
Since 1 October, Vietnam’s Ho Chi Minh City (HCMC) and surrounding areas are finally emerging from their most severe four months of lockdowns. However, supply chain restoration and clearance of order backlogs have been slow, due primarily to a significant shortage of labour, as workers have rushed back to their hometowns after the re-opening. October’s export and IP data provide a clear reflection of this critical challenge, and a delayed manufacturing recovery implies soft growth in 4Q.
The good old days
As the Delta wave gradually subsidies alongside increasing vaccination rates, policymakers in ASEAN are becoming more confident that they may be able to relax restrictions and re-open borders. Tourism has been a priority for many of them, as the sector has direct implications for growth and the local job markets.
This is most evident in countries such as Singapore, Thailand, and Vietnam, where sectors directly or indirectly related to tourism (e.g. aviation, travel, accommodation) have seen a huge toll from pandemic-induced border controls. HSBC takes this critical time of re-openings as a good opportunity to re-visit Vietnam’s tourism, outline new development policies/proposals, and help readers understand what they mean for Vietnam’s recovery.
Recall the good pre-pandemic days, when travel was as easy as hopping on a flight – without worrying about quarantines. Vietnam’s tourism has seen remarkable growth in recent years thanks to government’s liberalisation efforts facilitating visa issuance. Tourist arrivals jumped to historical highs of around 18m in 2019, generating revenue of as much as USD33bn, equivalent to 12.5% of GDP.
Around 80% of tourists come from Asia, with Chinese and Korean travellers together accounting for 56%. Indeed, Chinese tourists alone account for the lion’s share – typically as much as one-third – of total tourists, a ratio similar to that in Thailand and well beyond other regional peers of 15-20%. On the front lines in suffering from COVID-19, tourism has seen almost a total halt of activity.
Vietnam received only 3.8m tourists in 2020, and the year-to-date arrivals in 2021 accounted for less than 1% of 2019’s level. In the absence of international tourists, related services – particularly accommodation, transportation, and food services – could not recover meaningfully. 
Domestic tourism shared some of its burden in the periods of effective virus containment, only to be abruptly interrupted when the Delta wave arrived at end-2Q. Accommodation and food services output slumped by over 50% y-o-y in 3Q, reflecting the severe impact of prolonged lockdowns.
Unsurprisingly, the labour market is reeling. Approximately 10% of Vietnam’s workforce is concentrated in accommodation, transportation and entertainment services, all closely related to tourism. 
The data likely underestimates the real picture, as the informal sector makes up a large share of Vietnam’s labour, much of it in tourism-related services. With the collapse of tourism, around 60% of workers lost their jobs in 2020, and 90% have quit as of May 2021. While there is no detailed breakdown of the lockdown impact on tourism yet, preliminary data from the General Statistics Office of Vietnam suggests that more than 2m people in the services sector lost their jobs in 3Q, with nearly a 15% q-o-q reduction in their earnings.
In addition, Vietnam’s current account surplus is shrinking. Historically, Vietnam has been running a services deficit around USD3bn on average per annum, but the deficit halved to only USD1.5bn in 2019, thanks to record-high tourist inflows. 
However, with the collapse of tourism since 2020, larger services deficits have been a major drag on the country’s current account. While the impact was not yet evident in 2020, even with the services deficit reaching a record high of USD10bn – in fact, Vietnam registered a rather strong current account surplus of 5.5% of GDP in that year, though due mainly to export outperformance and import compression.
In 2021, as exports decelerate in 3Q and imports recover from low base effects, a smaller trade surplus is unlikely to offset deficits in services and secondary income. While HSBC expects to see a trade surplus in 2021, Vietnam will likely see a small current account deficit of 1.1% of GDP. This has direct implications for Vietnam’s currency, as the waning current account will put depreciation pressure on the VND. We expect the impact to materialise in 2022, with a weaker VND (see Asian FX Focus, 6 September).

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