Macro Flash Note - Public sector salary reform to boost GDP growth

- The National Assembly passed its 5th salary reform - scheduled to be implemented from July 1, 2024. Vietnam previously conducted salary reforms for the public sector four times, in 1960, 1985, 1993, and 2003 (Figure 1), which raised the statutory pay rates (currently at VND1,8mn/USD75 per month) and changed the salary ratio ranges (minimum – average – maximum) during these periods. The public sector's current salary policy, as highlighted by the Central Committee of the Party, exhibits multiple flaws: (1) complexity, (2) mismatch with job roles and leadership positions, (3) inadequate support for quality of life, and (4) shortcomings in nurturing talent, motivation, and efficiency among civil servants. Notably, current civil servants’ salaries do not fully reflect the true value of their labor while there are too many types of allowances and non-salary incomes that cause imbalances . In 2018, the Central Committee of the Party issued Resolution 27-NQ/TW on Salary reform for the public sector, but it was delayed three times due to Covid-19 and other reasons. On November 13, 2023, the National Assembly passed the fifth salary reform plan for the public sector, scheduled to be implemented from July 1, 2024.

- Reform of the salary structure. According to the fifth salary reform plan, seven current payrolls will be replaced by five new position-based payrolls (Figure 2). In these, the current salary calculation method (statutory pay rate x salary ratio + 25% allowances) will be replaced by a new salary calculation method including: (1) Base salary (accounting for around 70% of total salary budget); (2) Allowances (up to 30% of total salary budget); and (3) Bonuses (equivalent to 10% of the base salary budget). The base salary of each position will be determined based on a new salary ratio range (1.0– 2.68 – 12.0) (vs 1.0 – 2.34 – 10.0 currently). 

- The fifth salary reform will lift the average salary of the public sector by 32%. According to the Minister of Home Affairs, the monthly average salary of civil servants and officials could increase by 32% (to around VND10.0mn/USD410 vs the current average income of employed workers at VND7.0mn/USD290). From 2025 onwards, the average salary of public sector will continue increasing by 7.0% per year until the lowest salary level in the public sector is equal to or higher than the minimum wage in Region I of the private sector.

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