GDP Growth Improvement

According to the report’s evaluation, the economy of Vietnam, after going through a hard time in mid-2014, has regained prosperity and at the end of the year growth exceeded expectations. The core of this improvement is the fundamental rise of macro-economic indicators, the steady increase of FDI in manufacturing and exporting of the FDI sector, and important reform in the business environment. Poverty rate continued to decline significantly, to the extent that extreme poverty could be considered eliminated. However, although growth has improved, the economy of Vietnam hasn’t yet been able to unlock all potential due to inefficiency in structural reforms and global uncertainty. Moreover, Vietnam still faced important questions such as how to curb rising public debt in order to demonstrate greater commitment of the government in the implementation of the ambitious reform program (particularly in the banking sector and state-owned enterprises), and how to guarantee a more favourable environment for the state-owned enterprises.

 

In particular, increasing public debt is becoming a concern for the government. Public debt went up, primarily stemming from the need to offset the deficit, largely mobilised from domestic sources. The total public debt and guaranteed debt was 61 percent of GDP estimated by the end of 2014, of which domestic debt rose from 23 percent of GDP in 2010 to 32 percent in 2014. The debt service reserve in the banking sector and state owned enterprises is also putting more pressure on the sustainability of public debt.

 

According to the report, Vietnam’s GDP in 2015 will be around 6 percent, 6.2 percent in 2016 and 6.5 percent for 2017. Strong growth in exports and stable remittances are key factors to help maintain the surplus trend of the current account balance, although the scale will more likely decline due to economic prosperity leading to increased imports. Fiscal deficit will drop below 4 percent of GDP in 2017, reflecting the need of conduct fiscal consolidation in medium term and also preparing a credible plan to strengthen financial position of state owned enterprises and commercial banks with state ownership to ensure the sustainability of public debt.

 

The poverty rate is expected to continue to fall. Extreme poverty (living below the international poverty line US$1.25/day- PPP) is expected to decline from 2.9 percent in 2012 to less than 1 percent in 2017, while the proportion of the population living below US$2/day will reduce from 12.1 percent in 2012 to 5.8 percent in 2017.

 

The report predicts that the risks to the medium-term outlook remain mostly negative. The weakening of the prices of rice and other agricultural products globally will make a negative impact on income and consumption of rural households, which in turn will widen the urban - rural gap. Falling oil prices could also increase pressure on revenues. Domestic private investment remains cautious due to low confidence in businesses.

 

In terms of foreign economic relations, global growth remains sluggish and there are many uncertainties. This creates risks for exports and FDI inflows into Vietnam. A favourable factor is trade agreements currently under negotiation may provide an opportunity for Vietnamese enterprises to expand business to richer and bigger markets outside. Reforms in the country, including the medium-term fiscal consolidation, the further improvement of business environment and the efforts to innovate the banking sector and state owned enterprises with more determination and more clearly will send important signals to investors both domestic and international, and lay the foundation for stronger growth in the future.

 

As for the whole East Asia and Pacific, this year’s economic growth of developing countries in the region will decline slightly, although the region is benefiting from lower oil prices and the stronger recovery in developed economies.

 

The developing economies of East Asia are forecast to grow 6.7 percent in 2015 and 2016, down slightly from the 6.9 percent rate in 2014. Economic growth in China is expected to slow to around 7 percent in the next two years compared with 7.4 percent in 2014. Expected growth in the remaining East Asian developing economies is to increase by half a percentage point to 5.1 percent this year, mainly due to big domestic demand in the economies in Southeast Asia - thanks to optimism of consumers and lower oil prices. Some smaller economies, especially those specializing in exporting raw materials such as Mongolia, will experience a lower growth.