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IMF notes Vietnam's solid growth

Released at: 21:47, 28/06/2016

IMF notes Vietnam's solid growth

Photo: Duc Anh

Executive Board reports on regular consultation with Vietnam.

by Linh San

Vietnam’s 2016 growth will be moderate, at around 6 per cent, reflecting the adverse agriculture shock, lower external demand and spillovers of tighter global financial conditions, according to the latest assessment from the International Monetary Fund (IMF).

The forecast comes after the IMF’s Executive Board concluded the 2016 Article IV consultation with Vietnam.

For 2016, the economy’s headline inflation is projected to rise modestly. Reserves are expected to increase to around 2 months of imports, and public debt to reach around 62 per cent of GDP, according to IMF analysts.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic development and policies. On returning to headquarters its staff prepare a report, which forms the basis for discussions by the Executive Board.

IMF reported that Vietnam’s economy has experienced solid growth with low inflation, reflecting policy attention to maintaining macro-economic stability. Economic performance was robust through most of 2015, driven by rapid export growth, foreign direct investment (FDI), and strong domestic demand.

Manufacturing and exports moderated near year-end - reflecting slowing external demand - and agriculture production fell sharply in the beginning of 2016, owing to a severe drought and arable land salinity. Inflation declined below 1 per cent in 2015 before ticking upwards in early 2016 due to higher food and administered prices. The current account narrowed sharply from rising imports, and gross international reserves declined in the second half of 2015 before recovering in early 2016.

Fiscal policy has been loose in recent years. The deficit was 5.9 per cent of GDP last year. Revenues rose strongly, reflecting tax and non-tax collection, while expenditure was higher than planned, owing to carry-forward spending by local governments, and higher capital, social and interest spending. Public debt has risen sharply.

Vietnam: Selected Economic Indicators
Population: 91.7 million
Quota (current): SDR 1,153.10 millions/ 100 percent of quota
Main products and exports: electronics, garment, crude oil, rice, coffee, and rubber
Key export markets: United States, Euro Area, Japan, Developing Asia
Per capita GDP 2015 (US$): 2,088
Poverty rate (as of 2014): 13.5
  2012 2013 2014 2015 2016
      Est. Est. Proj.
Real GDP growth (%) 5.2 5.4 6.0 6.7 6.1
Unemployment (%) 2.7 2.8 2.1 2.4 2.4
Inflation (%, end of period) 6.8 6.0 1.8 0.6 3.5
General government finances          
Revenue and grants (% GDP) 22.6 23.1 21.9 23.7 22.9
Expenditure (% GDP) 29.4 30.5 28.0 29.6 29.5
Net lending (+)/borrowing(-) (% GDP) -6.8 -7.4 -6.1 -5.9 -6.5
Public debt (% GDP) 47.9 51.8 55.1 58.3 62.1
Money and credit          
Broad money (% change) 18.5 18.8 17.7 16.2 19.7
Credit to the private sector (% change) 8.7 12.7 13.8 18.8 17.4
Nominal short-term lending rate (% less than one year) 12.4 9.7 8.5 ... ...
Balance of payments          
Current account (% GDP) 6.0 4.5 5.1 0.5 0.3
FDI (% GDP) 4.6 4.1 4.3 5.6 6.5
Reserves (months imports) 2.2 2.0 2.4 1.9 2.0
External debt (% GDP) 37.4 37.3 38.3 43.1 45.2
Exchange rate          
REER (% change) 4.1 6.8 6.2 3.4 ...
Source: Vietnamese authorities and IMF staff estimates.  

Monetary policy was accommodative over most of last year amid falling inflation, and credit growth was robust. Liquidity conditions were tightened around year-end as global financial volatility increased, and the exchange rate regime was made more flexible. A number of important reform steps have been taken, but non-performing loan (NPL) resolution, bank recapitalization, and State-owned enterprise reform have been sluggish.

While the near-term outlook is broadly positive, IMF analysts noted that there are downside risks, including from high and rising public debt, slow NPL resolution, prolonged drought, tighter or more volatile global financial conditions, and weak growth in key advanced and emerging economies. Upside opportunities exist, including rapid implementation of recently signed trade agreements, which would usher in productivity gains, fuel exports, and incentivize reforms.

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