Economy managing to overcome obstacles bringing other economies down, according to ANZ report.
Vietnam’s economy is a rare light amid the gloom in most emerging markets, according to the Vietnam Economic Update November 2015 from ANZ.
GDP posted higher than expected 6.5 per cent year-to-date growth year-on-year. “This leads us to once again raise our GDP forecast to 6.8 per cent in 2015 and 6.9 per cent in 2016 (from 6.5 per cent and 6.5 per cent, respectively),” the report stated.
Most of Asia is experiencing difficulties because their economies are based on strong import-export activities. Vietnam, however, can protect its positive import-export results thanks to a stable VND, whereas currencies in Thailand, Malaysia, and Indonesia are becoming weaker.
Vietnam is also diversifying its export goods. Mobile phones, computers, and other goods with high-tech content are making greater contributions to export turnover. This diversification has strengthened the resilience of the economy.
Rare light in economy slowdown
The foreign, private, and domestic sectors are key in this diversification. As at September, newly-registered foreign direct investment (FDI) had reached $11.038 billion year-to-date, of which 53 per cent went to the manufacturing sector. “Though newly-pledged FDI is likely to ease in the medium term, the continued flow into the manufacturing sector is expected to boost domestic productivity in the long-run,” according to the report. Disbursed FDI reached $9.5 billion year-to-date, an increase of 13.5 per cent year-on-year.
Comparing Vietnam’s public debt to Thailand’s and Singapore’s, ANZ believes Vietnam’s figure is of no concern because it’s been growing in the other two countries over the last five years. The bank forecasts that Vietnam’s public debt will be stable, at 50 per cent of GDP, in the years to come.
Equitized State-owned enterprises (SOEs) are attracting foreign investors, especially as Vietnam is integrating into the global economy. If the process is conducted smoothly, Vietnam will reach international levels in skills, technology, and labor capacity. But if the process lacks thorough calculations, foreign enterprises will control SOEs, utilize the cheap labor and send the profits to their home countries.
Foreign investors still eye government bonds because Vietnam is a developing economy with stable growth, ANZ said. The capacity of bringing bad debts under control in Vietnam also provides confidence to foreign investors in the sector.
Foreign reserves in Vietnam are lower than 12 weeks worth of imports, which considered a safe level, ANZ pointed out. The country is keen on attracting foreign investment to reduce the risk posed by low foreign reserves. While this can protect Vietnam from economic shocks, the country cannot achieve everything at the same time, ANZ said.
The trade deficit is a consequence of this action. ANZ predicted that Vietnam will incur a large trade deficit in 2016-2017 period. If the exchange rate is not adjusted, some indicators will see a change, such as foreign reserves covering 12 weeks worth of imports.
ANZ suggested that over next 12 months two currency devaluations are needed, with the VND possibly losing 5 to 7 per cent of its current value. “Foreign reserves not covering 12 weeks worth of imports is too low,” ANZ said.