Vietnam’s macroeconomic stabilisation will top the agenda of the mid-term Consultative Group Meeting this week in central Ha Tinh province.
International development donors will spend most of the meeting’s first session discussing the Vietnamese government’s efforts to respond to severe economic difficulties.
According to the World Bank’s lead economist in Vietnam Deepak Mishra, the macroeconomic instability in Vietnam could be traced to global food and fuel price shocks and the contagion from sovereign debt problems in Europe.
Mishra added there were many domestic factors in place as well. These included rapid credit and liquidity growth, the delay in phasing out fiscal stimulus and the simultaneous effect of dong devaluation and fuel and energy price hikes.
A recent review of the country’s macroeconomic situation in the first five months of the year carried out by the General Statistics Office (GSO) underscored the business sector was suffering from sharply increased production input costs.
“There remain many implicit international and domestic factors that will [continue to] have negative impacts on domestic prices,” the GSO reported.
Official statistical data showed consumer price index (CPI) grew 15.09 per cent year-on-year in the first five months of 2011.
However, Mishra said while the severity of the current macroeconomic instability came close to that of mid-2008 when the global economic crisis hit its peak, it did not surpass it.
“While the 2008 episode was sharp but short, the current episode has been gradual but more persistent,” Mishra said.
And when it came to the progress of the government’s Resolution 11, Mishra noted that Vietnamese authorities should be vigilant against demand for premature withdrawal and go slow on structural reforms.
Victoria Kwakwa, country director of the World Bank in Vietnam, said: “So far implementation [of Resolution 11] has been good. We have seen some positive impacts. The challenge is to keep implementation strong and not to change the policy stance right away.”
Resolution 11 came into force on February 24 and includes a wide range of mutually reinforcing and consistent monetary and fiscal policy targets ans structural measures to deal with macroeconomic instability.
According to the World Bank, steadfast and effective implementation of Resolution 11 should be maintained until inflation is down to a stable and single-digit rate, the foreign exchange premium is completely eliminated, and international reserves are adequate to finance at least 2.5 months of prospective imports.
The World Bank has forecast a gradual improvement in the situation for Vietnam during the second half of 2011. It said inflation was likely to peak by June at around 22 per cent and gradually fall to around 15 per cent by December.
Economic growth is expected to be closer to the lower end of the government target of 6.5–6.9 per cent this year. The current account deficit will increase modestly but within sustainable limits, according to the World Bank.