Vietnam Is Now an Upper-Middle-Income Country. The Hard Part Starts Here
The World Bank moved Vietnam into its upper-middle-income group on July 1, with GNI per capita at $4,970, a climb 40 years in the making. But growth trails Hanoi's 10% target, trade has flipped to deficit, and the middle-income trap that caught Malaysia, Thailand, and Indonesia looms ahead.
[Vietnam Is Now an Upper-Middle-Income Country. The Hard Part Starts Here]
On July 1, the World Bank's annual income classification update took effect, and Vietnam moved up from the lower-middle-income group to upper-middle-income: gross national income per capita for 2025, calculated with the bank's Atlas method, which smooths out short-term exchange-rate swings, reached $4,970, clearing the $4,636 threshold. Five economies moved up this round, and none moved down.
There is no mystery to the upgrade: growth was simply fast enough. Vietnam's export-driven economy expanded GNI by an average of 10% a year from 2021 to 2025, which the bank called one of the strongest sustained runs in the region, and foreign capital keeps arriving, with registered FDI hitting $34.65 billion in the first half of this year, up 61%, the fastest pace in decades. When the Đổi Mới reforms launched in 1986, Vietnam was one of the world's poorest countries, with per capita income under $100. It reached lower-middle-income status in 2009, and this next step took another 17 years. (A claim circulating in Vietnamese financial media says the country once ranked second-to-last globally in GDP per capita; we could not trace an original ranking table, so this article sticks to the World Bank's own wording.)
The upgrade carries two costs. The first is that concessional money fades: the World Bank's classification determines how much concessional financing and development assistance a country can access, and moving up means international institutions consider you increasingly able to fund yourself. China is also an upper-middle-income country, and multiple outlets report the World Bank plans to phase out lending to China by 2031.
The second is the middle-income trap. Within Southeast Asia, Malaysia has sat in the upper-middle-income group for 37 years, Thailand for 15, Indonesia for 6, and none has graduated. All three saw long-term growth rates generally fall below 5% after joining. The cause is common to all: the cheap-labor advantage runs out before domestic innovation can support high-value industries, and growth stalls. Khuong Minh Vu, a professor at Singapore's Lee Kuan Yew School of Public Policy, told Fortune the upgrade is "a highly encouraging milestone" but also "the beginning of a far more demanding phase of development."
Vietnam is nowhere near stalling: first-half growth of 8.18% would be an excellent result almost anywhere, even if it sits below the government's own full-year target of at least 10%. Two shifts are worth watching, though. The trade balance flipped to a $16.65 billion deficit, against a surplus in the same period last year, and first-half CPI rose 4.38%, one step short of the 4.5% ceiling for the year.
On what to do about it, experts inside and outside the country largely agree. Khuong says Vietnam must shift from growth stacked on labor and capital to growth driven by productivity, innovation, and value creation. Vietnamese economist Lê Duy Bình put it more bluntly to VietnamNet: the most important lesson is not to get complacent, and the next phase cannot keep leaning mainly on cheap labor and natural resources; the new engines must be built on science and technology, innovation, and total factor productivity. In the same report, Nguyễn Hữu Huân, an associate professor at the University of Economics Ho Chi Minh City, added another piece: a high-income economy needs domestic firms with the technology, governance, and financial muscle to go deep into global value chains. Vietnam's own deadline is high-income developed status by 2045.
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