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Dinh Vu

Economic Sector

Last updated: Friday, October 19, 2018


Challenges of High Growth

Posted: Wednesday, December 27, 2017

Better equitisation to offset budget deficit and enhance corporate performance will be a good motivation for growth.

Mr Sebastian Eckardt, World Bank Lead Economist for Vietnam, said, to boost Vietnam's economy in 2018, Vietnam needs to step up the development of successful sectors such as electricity, credit, tax and export. However, if economic development is boosted by credit growth exposed to high risks of bad debts, financial pressures need to be addressed and adjusted to match Vietnamese economic developments.

Growth target of 2017 achieved
Vietnam’s economic growth in 2017 was revised up by 0.5 per cent from the previous forecast (6.2 per cent). At the Workshop on Vietnam's Economic Prospects for 2018, Dr Nguyen Duc Kien, Vice Chairman of the Economic Committee of the National Assembly, said, many signals indicate that Vietnam will achieve an economic growth target of 6.7 per cent as set at the beginning of 2017.

The third-quarter GDP growth of 7.46 per cent was a major breakthrough, much higher than that in the first quarter of 5.15 per cent and the second quarter of 6.28 per cent. This growth was first and foremost driven by exports and domestic consumption. The second factor was an increase in social investment contributed by private investment and foreign direct investment (FDI) in the face of limited and slowly disbursed state budget. Total social investment in the first nine months rose 12.1 per cent and reached 33.9 per cent of the gross domestic product (GDP), highest in many years.

High growth was also driven by credit easing. Credit to the economy rose by 11.02 per cent over December 2016 (when it climbed 10.46 per cent). Interest rates were relatively stable, with lending rates slowing down, helping enterprises reduce costs and improve business performances.

The economy positively expanded in the third quarter but it was not really stable, posing obstacles to economic growth not only in 2017 but also in 2018 and beyond.

In the Taking Stock Report released on December 11, the World Bank (WB) forecast that Vietnam's economic growth would expand 6.7 per cent in 2017. In the medium term, the growth is forecast to be stable at 6.5 per cent, with inflation expected to stay low.

Further growth in 2018
According to many experts, Vietnam's economy will enter the year 2018 with many challenges. Some advantages include optimistic global growth, growing exports and boosted economic growth. Signed and effective free trade agreements (FTAs) will also support growth if Vietnam takes advantage of opportunities. Macroeconomic stability will continue and the business environment will be further improved by the government. Domestic consumption is projected to further increase to facilitate production.

According to Mr Kien, in 2018, exports will be further driven by high-tech, innovative and well-processed products while restricted and prohibited exports will be reviewed and controlled. Vietnam will try to diversify markets, study on the application of trade remedies for the domestic market, and connect distributors with farmers. In addition, the country will apply solutions to clear business difficulties, amend some laws like investment law, bidding law and construction law to support national economic development.

Challenges in 2018 directly come from the high growth in 2017 in the wake of resource depletion, declining extraction, non-innovative manufacturing and agriculture prone to high risks. Increasing labour productivity, investing performance and competitiveness of the economy and the business community have yet to make breakthroughs. In addition, cheap labour is rapidly losing advantage at the back of impacts of the Fourth Industrial Revolution.

Besides opportunities, FTAs also pose big challenges. Protectionism and inward production trends of some developed countries will affect exports and investment inflows into Vietnam, particularly reduced import tariffs on ASEAN items.

In this context, many international experts and institutions forecast that Vietnam's economy in 2018 will continue its rather high growth but unlikely exceed the 2017 performance, expected at 6.5 - 6.7 per cent. According to the WB, Vietnam’s GDP growth will slightly slow in 2018. Mr Sebastian Eckardt said, in 2018 and the medium term, the challenge for Vietnam is how to change to get more practical from FDI flows, which is forecast to be a growth driver for Vietnam in the next five years. It depends on how Vietnam will take advantage of these opportunities as well as approach fund flow management, he said. Vietnamese enterprises are weak at connecting with value chains and authorities must create a favourable environment for them to grow well. Another issue is how to have better privatisation of State-owned enterprises (SOEs). It is necessary to step up privatisation to offset budget deficit and improve business performance. This will be a driving force for Vietnam and businesses to achieve high growth.

Le Minh

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