Expectations on the horizon

Vietnam posted inspiring results in 2022 and the GDP target for this year is set at 6.5 per cent. What will be the major challenges to the economy, and the banking and financial sector in particular, in 2023?

Economist Nguyen Tri Hieu

Vietnam’s economic growth of 8.02 per cent for 2022 is impressive on the surface while the country was going through many difficulties and uncertainties during that year. However, the result is of quantitative nature. There are often two aspects in assessing the economic development: qualitative and quantitative. Quantitative aspect comprises a basket of indexes, from GDP growth indices and inflation rates to import-export and investment figures. However, those indexes do not present the whole picture of economic development.

In terms of qualitative growth, Vietnam’s economy has encountered a raft of problems in the past year. Albeit the inflation rate remains low, people have continuously been affected by spiking fuel and food prices.

The financial market has also witnessed high volatility. The FX market saw high fluctuations in October and November giving ground for black market. The market was partly relieved in December, but the exchange rate was still more than 3 per cent higher compared to early this year. The State Banks of Vietnam (SBV) had to adjust the trading band from 3-5 per cent to ensure market stability.

The stock market also saw sharp fluctuations with 30 per cent prices going down, while the real estate market became stagnant in some segments due to low liquidity. Elsewhere, the gold market was stable but did report a big price differential reaching $650-700 per ounce between domestic and overseas market, causing risks for investors and inducing gold smuggling and trade trafficking.

One of the top challenges in Vietnam currently is associated with the corporate bond market. Can you share lessons learned in corporate bond market management elsewhere and how to apply those in Vietnam?

The corporate bond market urgently needs a comprehensive overhaul. The current relevant regulatory system is somewhat patchy, meaning that many law amendments and revisions were to adjust and complete the changing market conditions and business environment but not to address entire needs for a reform.

The bond market stood still in the last few months of 2022. In the past five years, the bond market has been developing robustly, contributing about 16-17 per cent of GDP. A huge volume of corporate bonds have been channelled into the market. A big volume of such bonds has been distributed by banks and securities firms. Many economists had hoped that the bond market could now slowly replace the credit market with banks have played historically a pre-dominant role.

However, the hope was dimmed with many bond issuers were investigated for fraud and abuse of regulations. The market had lost the investor’s confidence towards the end of the year. As is now the bond market is frozen.

As Vietnam’s corporate bond market is so juvenile, credit ratings will protect investors.

By the way, debt payment extension called credit moratorium for two years should not be taken without further evaluation and consideration. The credit moratorium should only be allowed for bond issuers with clean operation records and no violation of the laws.

What should the government prioritise in development focus to both support businesses and ensure stable growth?

First and foremost, the government needs to focus on tackling certain impediments. For instance, to support the corporate bond market, the government might consider to implement a “national credit moratorium” for bonds issued in accordance with regulations. As we enter the New Year with a hope this year will bring more stability, rebuilding the public trust in the financial market is the key.

In the first half of 2023, the government should take action to prevent a possible collapse in the financial market and revive other associated markets; then in the second half the priority is laid on upholding firms through capital sources. Throughout the year SBV should implement flexible interest rate policy and FX policy, along with other measures.

For the whole year, fiscal policies need to be implemented strongly and radically. Public investment needs a strong boost in 2023. Last year, public investment eyed modest results, just reaching half of the projections. It is always not simple to forge ahead with public projects, as besides land acquisition, other works are involved such as bidding, contractor capacity, and efficient project management.

It is expected that in 2023 the government could fix these hurdles to push up public investment pace, as well as accelerate fiscal policies. The support package of VND350 trillion ($15.2 billion) and the interest-subsidy package of VND40 trillion ($1.73 billion) need to be forcefully implemented. Particularly, the interest-subsidy package needs a revision for qualification requirements that have been the major hurdles for companies to receive the loans from this package.

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