Domestic reforms propel Vietnam’s robust economic growth: WB

Cai Rang Floating Market in the Mekong Delta city of Can Tho. - VNA/VNS Photo

The report, titled “Navigating Uncertainty”, is the October 2018 edition of the World Bank East and Pacific Economies Update. Released on Thursday, it says that Vietnam’s medium-term outlook has improved further.

The country’s real gross domestic product (GDP) is now projected to expand by 6.8 per cent in 2018, up from 6.5 per cent in the WB’s previous projection in April. The economic growth is also projected to moderate to 6.6 per cent in 2019 and 6.5 per cent in 2020 due to the forecasted cyclical moderation of global demand.

Despite reduced slack in the economy, the WB expects inflation to remain around the 4 per cent government target, predicated on some tightening of the monetary stance amid counter price pressures emanating from domestic input price pressure and rising global commodity prices.

Sebastian Eckard, WB lead economist in Vietnam, said that the World Bank adjusted its projection over Vietnam’s economic growth this year after seeing its robust growth in the first half of 2018 with year-over-year increase of 7.1 per cent.

Moreover, the GDP growth was broad-based, led by strong manufacturing growth of 13 per cent, bolstered by strong external demand.

Agriculture output growth also accelerated to 3.9 per cent largely due to strong performance in the export-oriented fishery sub-sector.

Expansion of the service sector remained robust at 6.9 per cent underpinned by strong underlying retail sector growth supported by buoyant private consumption and record tourist arrivals.

“Robust economic performance is underpinned by a Government commitment to macroeconomic stability and private sector-led growth. Economic policies continue to focus on market-oriented reforms to reduce the economic role of the state, boost business conditions and open the economy for more private investment,” the report says.

The World Bank also applauds that Vietnam’s dynamic economy continues to translate into broad-based welfare gains and poverty reduction.

For example, more than 900,000 wage jobs were created last year and real wages further increased by 4.3 per cent, driven by strong labour demand in the manufacturing, construction and service sectors.

Estimates of poverty based on the international lower middle-income poverty line (US$3.2 purchasing power parity in 2011) are projected to have declined from around 8.2 per cent in 2016 to 6.4 per cent in 2018.

Despite improved short-term prospects, Vietnam still faces challenges including the risks of global financial volatility, rising protectionism and domestic vulnerabilities – remaining weakness of banking sector, elevated public debt and subdued productivity growth.

Among recommendations for Vietnam, WB emphasized Vietnam’s policymakers should take advantage of the favourable economic environment to push ahead with policies that increase macroeconomic resilience and lay the foundation for sustained growth in the future.

Monetary policy should tighten liquidity in the banking sector to align interbank rates with policy interest rates and to bring credit growth in line with fundamentals.

It’s also necessary to continue focusing on comprehensive and deep structural reforms including regulatory reforms to remove barriers to and reduce the cost of private sector activity, human capital and high-quality infrastructure investment, and further reforms to enhance the productivity of State-owned-enterprise sector.

According to the WB report, growth in East Asia and the Pacific is expected to be 6.3 per cent in 2018 – a positive outlook for the region despite a less favourable external environment thanks to trade tensions, higher US interest rates, a strong US dollar and financial market volatility in emerging economies.

China’s growth is expected to slow moderately to 6.5 per cent this year. Thailand and Vietnam expect robust growth, Indonesia stable growth, the Philippines slow growth and in Malaysia, growth is expected to ease. Other countries like Cambodia, Lao, Mongolia and Myanmar expect growth of over 6 per cent annually from 2018 to 2020.