This is the remark by foreign experts at the launch of the annual sales report entitled "Review: Update on Vietnam's economic development" The report predicted that economic growth in Vietnam will reach 5.3 percent in 2013 and about 5.4 percent in 2014; the macro-economic environment of Vietnam is relatively stable.
The report assesses that in recent years, the Government of Vietnam has applied monetary policy and fiscal policy to stabilise macro-economy; therefore Vietnam’s macro-economy is relatively stable. The inflation rate is of moderate growth of 6.7 percent in June 2013, the exchange rate is relatively stable in the long term (average exchange rates of commercial banks increased by only 1.6 percent in the last 12 months). Foreign exchange reserves improved from 2.2 months of imports (first quarter of 2012) to about 2.8 months (first quarter of 2013). The level of national credit risk improved as the risk of credit default swaps (CDS) declined from 350 basis points in June 2012 to around 250 basis points in June 2013.
Notably, according to the report, exports grew at a high level thanks to foreign investment. Total export turnover of Vietnam in the first 6 months of 2013 increased by 16 percent compared to the same period last year, the foreign-invested sector accounted for 66 percent of exports and increased by about 25 percent over the same period last year. The structure of exports goods is diversified and the share of high technology exports also increased, in which mobile phones and components become export commodities with the largest values (US$9.9 billion) and excess traditional products of Vietnam such as crude oil, garment and shoes. Mobile phones, electronics, computers and components accounted for nearly one fifth of total export turnover of Vietnam.
Regarding FDI, according to the report, foreign direct investment fell from 11.8 percent of GDP (in 2008) to about 7.7 percent of GDP in the first 6 months of 2013, worryingly, competitiveness of other countries in the region is stronger than Vietnam’s, especially in attracting foreign investment (such as Thailand, Indonesia) and potential new competitors (Myanmar). However, according to ASEAN business outlook survey by the Singapore Business Association and AmCham, foreign investors still evaluate Vietnam as an attractive investment destination in the ASEAN region in the future.
The report presents the challenges facing Vietnam, which is facing the longest slowdown since it undertook economic reforms in the late 1980's. GDP growth increased by 5.25 percent in 2012 (at constant prices in 2010), the lowest level since 1998. From 2010 to 2013, Vietnam’s economy grew more slowly than Indonesia’s and the Philippines’ - the first time this occurred in the past two decades.
In particular, the investment rate decreased, the Purchasing Managers Index (PMI) decreased and retail sales slowed: the total investment fell to 29.6 percent of GDP in the 1st quarter of 2013 compared to 38.5 percent in 2010, only PMI remained below 50 for most of 2012 and 2013 (PMI below 50 indicates manufacturing decline) retail and services growth (the nominal value) has declined from 24 percent in 2011 to 16 percent in 2012 and was 11.9 percent in the first half of 2013.
In addition, imports of the domestic sector fell by 7 percent in 2012, indicating lower demand for machinery and intermediate goods, as well as personal consumption.
The report also reviews that the state budget situation is not favourable: slow economic growth and difficulties in production and business reduce planned budget revenues, combined with increased spending for business support and economic recovery. Total revenue decreased from 30 percent of GDP in the 2000s to its historical low of 22.8 percent of GDP in 2012. Capital expenditure (including off-budget items) is expected to decrease from 12.6 percent of GDP in 2010 to 7.8 percent in 2012. Foreign debt remains sustainable because the current account surplus is at a high level, but the national debt is growing.
According to the World Bank's lead economist for Vietnam, Mr Deepak Mishra, structural reforms in Vietnam are proceeding quite slowly. The process of restructuring the banking-financial sector is still fragile, though risks of the system have been improved. The continuation of macroeconomic stability and prudent monetary policy of the central bank of Vietnam will help prevent and reduce the region's vulnerability. The establishment of the Vietnam Asset Management Company (VAMC) is a concrete step of the Government in resolve bad debt; however, it requires a positive and long-term approach.
Regarding SOE reform, Mr Deepak Mishra assessed that the progress of reform and restructuring is still very slow, 2 years after the date of approval of the reform guideline and route by the Government. Currently, authorities are implementing the building and completion of legislation to establish a general framework for the management and operation of SOEs.
"The process of SOE reform can hardly succeed without effective inter-agency coordination mechanisms and transparency enhancement," said Mr Deepak Mishra.
Prior to these developments, the report reviews: Vietnam's economic growth is estimated at 5.3 percent in 2013 and around 5.4 percent in 2014, inflation is expected to reach 8.2 percent by the end of 2013.
However, the risk is that slowing economic growth may put pressure on to loosen monetary policy and fiscal policy, which will put pressure on inflation and erode the fragile achievement of macroeconomic stability. In addition, the slow implementation of the structural reform program will undermine the confidence of investors and continue to negatively impact growth prospects.
Quynh Anh
Vietnamese
