"Although the macro-economy of Vietnam has improved for the past two years, the growth has slowed down due to restructuring in the state-owned enterprises and the banking sector. The inflation has fallen from over 23 percent (the annual inflation rate) in August 2011 to 7.3 percent in July 2013. The current account surplus, due to the strong export growth, has been pushed up. The stable exchange rate and foreign reserves has increased. The growth is estimated at 5.3 percent, the lowest level since 2009. The medium-term growth will not be high due to the unresolved problems in the banking sector and state-owned enterprises.” These statements are made in the most updated report on East Asia and Pacific Economic Update, published by the World Bank.
According to the report's evaluation, this year is the third year that macroeconomic conditions of Vietnam continue to improve and are relatively stable. The stabilisation measures undertaken in 2011 and 2012 have helped Vietnam reduce inflation, improve the fiscal system, balance payments and stabilise the exchange rate. The prompt export growth has helped Vietnam to reach a trade surplus in 2012, for the first time since 1992. The trade balance and the current account balance have helped the State Bank of Vietnam increase the reserves of foreign currencies from 1.6 months of imports at the end of 2011 to 2.8 months in the first quarter of 2013. The inflation rate has fallen for 24 consecutive months and stood at 7.3 percent in July 2013, mostly due to the stable food prices and other stabilization measures. The macroeconomic stability also helped Vietnam to recreate confidence among investors.
Besides, according to the report, the stock market of Vietnam also has increased by nearly 18 percent in 2012 and about 19 percent in the first 7 months of 2013 after two consecutive down years of 2010 and 2011. The difference between the government bond yields and the swap contracts risks of Vietnam is at its lowest level since the start of the global economic crisis.
But the sluggish growth rate of the world and the slow restructuring also slow Vietnam's growth. Vietnam's economy was in the period of prolonged slow growth since the start of the reformation from the 1980s to today. The GDP growth fell from 6.4 percent in 2010 to 6.2 percent in 2011 and 5.2 percent in 2012. As many as 29,000 businesses were closed, liquidated or suspended in the first half of 2013, which is 10.5 percent higher than the same period in 2012, while the number of new registrations was 39,000.
Recognizing the difficult economic situation at present, the Government has implemented a variety of measures to promote the growth. The State Bank of Vietnam has actively cut interest rates to deal with decreased growth and inflation. The policy interest rate was cut at 600 basis points during the period from March to December 2012 and continues to be cut at another 200 basis points in the period from March to April 2013. The Ministry of Finance is also applying some fiscal measures such as tax reduction and extension of tax to help struggling businesses.
Although the government tried its best efforts, the stagnation is extended to the first quarter of 2013 with the growth of 4.9 percent and 5 percent in the second quarter. Despite the lower interest rates, the total amount of credits pumped into the economy have been up by 5 percent since the beginning of the year until May 7, 2013, while total credits planned for the year was 12 percent. The credit activity is less active due to the redundant lending of banks. The main reasons come from the poor asset balance sheets, unhealthy financial situation of the state-owned enterprises, poor monitoring and reporting systems, and lack of transparency in the policy-making process. At the same time, the credit demand fell due to the gloomy business prospects. The efforts to stimulate the demands through the monetary policy and the promotion of tax extension have improved its best outcomes, but the fiscal deficits have created new debts. Under these circumstances, the monetary policies only prove their limited effects on promoting growth, but increase concerns about credit quality and macroeconomic instability. Therefore, according to the World Bank, Vietnam's authorities should strengthen macroeconomic stability and continue in-depth restructuring with a focus on restructuring state-owned enterprises and banks.
However, the spirit of pessimism about the growth of Vietnam is opposed to the export achievements in the past few years. The total exports (in nominal par value USD) have increased by 14 percent in the first 7 months of 2013, and 18 percent in 2012 and up 34 percent in 2011. While export income has decreased due to the declining price of world commodities, the traditionally labour-intensive sectors of Vietnam, such as clothing, footwear and furniture are still growing strong. High-tech and high-value goods such as mobile phones, accessories, computers, electronics, and car parts have become important exports and achieved the highest growth in 2013. The export performance relies heavily on the foreign direct investment sector, now accounting for two thirds of total export turnover of Vietnam.
According to the report, some successes of export growth, the maintenance of capital inflows, the remittances from outside and the less imports have helped Vietnam resolve balance of payments problems. In 2012, Vietnam reached the highest surplus balance of payments and current account balance. The trade balance (based on the definition of the balance of payments) is estimated at the surplus 6.5 percent of GDP in 2012. Similarly, the balance of payments has reversed from -11 percent of GDP in 2008 to +0.2 percent of GDP in 2011 and a record surplus of 5.9 percent of GDP in 2012. However, this achievement will not last forever, as the imports will increase as the economy recovers.
According to the report, Vietnam's economy is expected to grow at a moderate 5.3 percent in 2013. The trade balance and the current account balance will remain in surplus in 2013, although the surplus may be lower than in 2012. In 2013, it is expected that there are strong needs for controlling the fiscal system and the rate of inflation, which is a single figure, but high. The macro-economic achievement of Vietnam is still uncertain and facing a number of risks. First of all, the slow growth may require further monetary and fiscal easing, leading the increase of inflation and adverse effects on all accomplishments achieved recently. Second, if the restructuring process has been delayed, the confidence of investors will be eroded, negatively impacting growth.
Also, according to the report, the growth in the developing countries in East Asia has been declined because China has shifted its focus from exports to the domestic market. The major economies of the middle-income groups such as Indonesia, Malaysia and Thailand also saw a slight decline in growth due to declining investment, decreasing prices of the world commodities and unexpected exports.
Quynh Chi
Vietnamese
