Vietnam’s economy: Outlook is favorable on balance, but risks remain tilted to the downside
Updated: 7/29/2015 3:09:46 PM GMT + 7
Economic experts of WB at the press conference(Photo: Vietnam+)
Economic experts of WB at the press conference(Photo: Vietnam+)

(MPI Portal) – On July 20th 2015, in Hanoi, World Bank announced an on Vietnam’s recent economic developments.

According to the report, GDP growth of Vietnam in the first half of 2015 is 6.28%, which is the highest growth of the first half within the last 5 years. Recovery of Vietnam’s economy is mainly led by industry and construction, but sluggish growth in agriculture and services. Growth is driven by domestic demand, pick up in both investment and consumption. Despite growing high value manufacturing exports, overall export growth slowed down due to low commodity and food prices. Imports are growing strongly, resulting in trade deficit and negative contribution by net exports. Inflation has come down largely due to the pass through low commodity prices. Besides, the State Bank of Vietnam has cut the rate accompanied by relaxation of macro-prudential policy in order to facilitate economic activities and credit. Generally, GDP of Vietnam will grow 6 to 6.2% and inflation will be low about 2.5% in 2015.

However, fiscal deficit over the past 5 years increased to 5% of GDP (as compared to 1.1% during 2003-2008. State budget has to spend about 8% for the rate of debts, there are large off-budget activities. While risk of acute debt distress remains low, counter-cyclical policy has eroded available fiscal buffers and rapid pace of debt accumulation is a cause for concern. Greater reliance on domestic debt has increased the average interest rate and significantly shortened the maturity profile of public debt.

Trade balance deteriorated substantially owing to commodity price declines, export of agricultural fishery products and crude oil have decreased, high value manufacturing exports are up. FDI disbursements remain strong, although FDI commitments are weakening slightly. Despite recent build up, foreign reserve coverage remains low, low external debt and robust roll-over rates.

There is a strong pipeline for SOE equitization, but implementation slowed down, equally ambitious targets for divestment from non-core assets, but progress has been relatively slow. As of the end-Quarter I, there were 29 SOEs equitized as compared to the goal of 289 SOEs set forth for the whole year 2015. Some progress on banking sector reforms during the first half of 2015, especially with regard to consolidation of the banking sector. Emerging trade agreements offer external anchor for further structural reforms./.

Nguyen Huong
MPI Portal
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