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Foundations required for future growth

Released at: 18:36, 04/12/2015

Foundations required for future growth

Conference hears GDP projections and the importance of a platform for growth.

by Hoang Anh - Dang Huong

Rather than focusing on GDP growth, economists and researchers believe, the key issue for Vietnam’s economy over the five years from 2016 to 2020 is laying secure foundations.

Such ideas were presented at the “Forecasting the Socioeconomy to Identify Medium-term Plans in the Next Stages of Economic Integration” conference, jointly organized by the National Center for Socioeconomic Information and Forecasting (NCIF), the Ministry of Planning and Investment, and the Economic and Social Research Institute of Ireland on December 2 in Hanoi.

GDP growth

Three GDP projections for the 2016-2020 period were put forward by NCIF, of 6.2 per cent, 6.67 per cent, and 7.04 per cent. Mr. Dang Duc Anh, Chief Analysis at NCIF, said that the second possibility, of 6.67 per cent, is the more likely because of stable global economic growth, at an average of 4 per cent, public sector investment improving in both pace and efficiency, the investment climate being gradually perfected, consistent financial systems in place, fiscal and currency policy being implemented efficiently, and exports rising through trade agreements.

Economic expert Luu Bich Ho said that this growth rate is the most suitable given the current circumstances. GDP of 7.04 per cent would make it difficult for Vietnam to pursue ambitious targets in economic restructuring. Growth at 6.02 per cent, meanwhile, would put the economy at risk of rising unemployment and social security problems.

With GDP of 6.67 per cent inflation would remain at a low level of under 5 per cent. Gross capital formation would be approximately 31.02 per cent compared with 29.5 per cent for GDP of 6.2 per cent and 32.21 per cent for 7.04 per cent growth. The structure of agriculture, industry, and services in GDP would be 16.85 per cent, 41.32 per cent, and 44.83 per cent, respectively.

According to Mr. Ho, instead of trying to achieve the highest possible growth over the next five years the key issue is establishing a platform for the long term. This platform requires a shift in government thinking, institutions, organization, and economic governance. “This is the most decisive factor in implementation over the next five years,” he said. “I do not expect considerable momentum in the current period, but my fervent hope is that the prerequisites for the years to come are provided.”

According to Mr. Le Dinh An, former Director of NCIF, if we look at the structure of economic sectors over recent times and the three GDP projections, everything is in good order. “Our economic sectors, however, are entirely dependent upon capital and labor,” he said. “Despite a wide range of solutions proposed, implementation has been ineffective and concerned defining the growth model. The deeper concern is pursuing primary targets to promote the mechanisms of the State and economic discipline.”

With a number of free trade agreements (FTAs) signed recently, economists at the conference said that Vietnam must quickly overcome its inherent bottlenecks in the economy and take advantage of the opportunities presented by these agreements.

Yuan on the move

In regard to the Chinese Yuan being put in the basket of international currencies by the International Monetary Fund (IMF), Vietnam must carefully consider the move as its trade deficit with China is increasingly widening.

Economic expert Le Dang Doanh forecast that the trade deficit with China may reach $32 billion this year, up by $3 billion from the $29 billion recorded last year. This deficit should be of greater focus as the Yuan is going into the basket of international currencies.

According to Dr. Luu Bich Ho, with the new move by the IMF the Yuan will increase the likelihood of its convertibility in international payments. “Strong inflows of foreign investment from China into Vietnam are also increasing to reap the benefits from trade agreements,” he said. “Vietnam must be extremely vigilant with the internationalization of the Yuan because we are implementing exchange rate regimes while China will come to a floating exchange rate with the IMF adding it to global currencies.”

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