Vietnam is undergoing a major transformation that is reshaping the landscape for foreign businesses. On June 12, 2025, the Vietnamese National Assembly approved a plan to merge provinces and cities from 63 to 34 and remove the district level of local governments. The consolidation of local government units will also cut approximately 80,000 civil service jobs. The scale of administrative reform is even greater if considered in conjunction with the decision in February this year to cut the number of national ministries and agencies from 30 to 22 and shed another 23,000 public sector positions.
The recent reforms are driven by To Lam, the general secretary of the Communist Party of Vietnam and the most powerful figure in the country. By reducing the size of bureaucracy, To Lam intends to expand the economy, develop a more resilient domestic consumer market, and support local businesses. Vietnam’s reform agenda is designed to strengthen local businesses, particularly by reducing the long-standing dominance of state-owned enterprises and rebalancing economic incentives towards the private sector. By cutting bureaucracy, consolidating provinces, and streamlining ministries, the government aims to make it easier for domestic firms to navigate regulatory systems, access permits, and participate in government procurement. Policies encouraging innovation, high-tech investment, and integration into global value chains are also helping capable local companies move up the value ladder. The pressure to achieve these goals has never been greater as Vietnam has been the target of some of the Trump administration's highest “liberation day” tariffs.
In the short term, the sweeping reforms are likely to cause some economic pain. The logistical process of merging dozens of provincial and municipal governments and removing the district level of government will surely take time. This process may lead to delays for foreign and domestic businesses seeking the necessary permits and approvals from relevant authorities. Some investors may lose valuable relationships with government officials at the provincial or district level which they relied upon to move projects forward in the past. International law firms representing clients with interests in Vietnam have also expressed confusion as to how their pending cases, particularly at the district-level people's courts, will be impacted by the unfolding bureaucratic changes.
But many observers of Vietnamese politics are optimistic that To Lam's consolidation will improve the investment climate for foreign investors. By reducing layers of bureaucracy, the opportunities for corruption and rent-seeking by government officials may be reduced. A more centralized and professionalized bureaucracy also promises greater consistency in policy enforcement and faster, more transparent approval processes—especially for large, strategically aligned projects. By reducing overlapping jurisdictions and local gatekeeping, the reforms could streamline investment procedures and cut down on informal costs and delays that have historically challenged foreign investors. The focus on building a stronger domestic private sector may also create a more predictable business environment and generate local partners with greater capacity. If implemented effectively, these changes could position Vietnam as a more efficient, reliable destination for high-quality foreign investment.
Interior Minister Pham Thi Thanh Tra said it amounted to the "biggest ever revolution since the country was founded" in 1945, state media reported on Wednesday. "79,339 officials will have to be streamlined, quitting their jobs or submitting for early retirement following the merge," Tra told the National Assembly. One provincial official told AFP he was "shocked and sad" as he will have to leave his position after more than 30 years of public service.
