Vietnam Remains Attractive Destination for Investors

In my opinion, Vietnam's GDP growth in 2012 was the lowest in 13 years. This forced Vietnamese economic authorities to adopt “harsh” economic measures like tightening monetary policy and restructuring the economy. However, the inherent bottleneck of an emerging economy as Vietnam is the weak health of the banking system. Specifically, bad debt problem tended to spread to interbank financial - monetary market since late 2011 when some banks could not take back their loans, leading rising bad debt ratios, particularly weak banks. Last year, the State Bank of Vietnam (SBV) reacted by restricting new interbank loans to commercial banks with interbank loans exceeding the due date by more than 10 days, in addition to other measures.

 

Another important indicator was also announced in October 2012. Commercial banks reported estimated bad debt ratio at 4.8 per cent of total loans. But, following a more drastic survey by the SBV, the bad debt ratio was 8.8 per cent by the mid of that year. The SBV estimated the ratio to fall to 6 per cent as of February 2013. However, according to independent analysts, the SBV figure was not accurate. It should have been a double-digit value given international accounting standards. The high bad debt ratio resulted from overheating lending in previous years coupled with the economic downturn, freezing real estate market and weak performances and excessive borrowing of State-owned enterprises (SOEs). These difficulties stagnated the Government of Vietnam’s solutions and efforts to lift up the economy.

Regarding SOE restructuring strategy, the Government of Vietnam also needs strategic approaches and flexible options. It should avoid “absolute safety-seeking” thinking in reforming this complex system at one time. It is very difficult to implement, especially in the context of the current global economic downturn. Even, if you look at the issue more strictly, the SOE equitisation process has been slowing down in recent years.

 

Despite a lot of existing macroeconomic concerns, Vietnam remains a very attractive investment destination thanks to its advantages in the rapid expansion of people at working age and low labour costs. But I think these advantages will be gradually competed by other economies in the region such as Indonesia and particularly Myanmar - a fast-moving economy that is catching waves from investors worldwide.

 

ADB’s economists forecast Vietnam's GDP growth at 5.2 per cent in 2013. This growth will climb to 5.4 per cent in 2014 if Vietnam makes drastic changes to the banking system. Major industrial economies will regain growth momentums in 2014. Inflation is projected to decline slightly to 7.5 per cent this year before increasing to 8.2 per cent in 2014.

 

Vietnam’s GDP growth reached 4.9 per cent in the first quarter of 2013, which was slightly higher than the same period of 2012. In addition, the Purchasing Managers Index (PMI) tended to increase slightly on increased orders. On the other hand, the industrial production growth slowed to 4.9 per cent and real retail sales grew just 4.5 per cent, slightly lower than a year ago.

 

A bright spot of the economy is the trade surplus expected to reach a record US$12.5 billion in 2013 and the current account balance will continue to increase this year before easing in 2014 as imports accelerates in parallel with GDP growth.

 

In my opinion, instead of talking about international donors’ grants to Vietnam, we should talk about how Vietnam will effectively cope with challenges in the capacity of a middle-income country. Accordingly, the Government of Vietnam should be aware that infrastructure is very important to create a foundation for economic growth and trade - investment improvement. Therefore, ADB attaches much importance to infrastructure development. In a country, underdeveloped, backward infrastructure system not only inhibits economic development but also restricts people's access to services and opportunities for better livelihoods as well as hurdle investment and business opportunities. The Government of Vietnam should further empower the private sector by opening up the market and creating a fair competition environment with the State sector which is receiving so many benefits but generating very poor economic efficiency.

 

Therefore, in the capacity of a middle-income country, Vietnam has to change its strategies in attracting official development assistance (ODA). ADB is currently supporting Vietnam through the New Country Partnership Strategy with three pillars, namely inclusive growth, economic efficiency improvement and environmental sustainability. ADB will also commit to making every effort with the Government of Vietnam in economic restructuring where the focus is placed on the restructuring of State-owned enterprises and financial - banking sector.

 

ADB will provide a very wide range of financial resources and a variety of support methods such as loans, equity investments, technical assistance, and other knowledge products and policy advice. Specifically, ADB plans to give Vietnam US$943 million each year in 2013 -2014 period and US$760 million in 2015 from its ordinary capital resources. The country will also receive US$385 million each year in 2013 -2014 period and US$395 million in 2015 from the bank’s Asian Development Fund (ADF).