Vietnam's Growth Strengthens

The review of the Vietnamese economy reported that the growth rate was the nation’s fastest in the first half of the year for the past five years.

Against a backdrop of low inflation, the State Bank of Vietnam has gradually loosened monetary policy to spur growth, while periodically adjusting the exchange rate to maintain external competitiveness, the report said.

 

At the same time, Vietnam’s fiscal accounts emerge as a source of concern. The nation’s debt has risen rapidly in recent years, and debt servicing costs could pose an increasing burden on the budget.

 

Meanwhile, a drop in exports and increased imports have resulted in a current account deficit in the first quarter of 2015.

 

Progress on structural reforms has been less strong, especially regarding state owned enterprises (SOEs) and the banking sector.

Progress on SOE reform continues, but at gradual pace, with only 29 SOEs equitised in the first quarter of 2015 out of the annual target of 289. Implementing the legal and regulatory framework for SOE management and corporate governance issued last year and increasing percentage of ownership that can be acquired by the private sector should remain key priorities.

 

Banking sector reforms continued during the first half of 2015, with a number of acquisitions of smaller banks by major state-owned commercial banks, said Sandeep Mahajan, Lead Economist for the World Bank in Vietnam. “However, the lack of an appropriate legal framework and the VAMC’s own limited capital base and operational capacity remain constraining factors for resolving bad debts.”

The Taking Stock report features a special section on the labour market in Vietnam, which details a dramatic shift in the employment landscape over the past 25 years.

While jobs in Vietnam once were characterised entirely by family farming, collectives and SOEs, employment now has shifted toward manufacturing and services, household enterprises outside agriculture, and private domestic and foreign-owned firms. The report notes that labour regulations and institutions can be an important factor in private-sector wage growth.

 

Taking Stock provides suggestions for further transforming Vietnam’s labour market, including more proactive measures to strengthen the industrial relations system, balance labour market flexibility with sustain productivity growth, and manage social risks in a more market-oriented economy.