World Bank backs Vietnam’s ’robust’ economic progress

Vietnam’s economy is forecast to continue improving, with gross domestic product (GDP) expected to expand by 6.8 per cent this year, said the World Bank (WB) in its latest economic update for Vietnam.- VNA/VNS Photo Tran Viet

According to the WB’s Taking Stock report released on Thursday, Vietnam’s economic growth has been robust in recent times, accompanied by broad macro-economic stability.

Sebastian Eckardt, lead economist of the WB in Vietnam, said current favourable economic conditions such as high growth and low inflation offer Vietnam a special chance to boost reform.

Prudent macro-economic policies should be in parallel with profound and comprehensive structural reforms, including reform of regulations to remove barriers and reduce operational costs for the private sector, investment in high-quality human resources and infrastructure, and increased productivity at State-owned enterprises, he said.

According to the report, Vietnam’s trade balance has continued to improve owing to a strong trade performance and foreign direct investment inflows, contributing to the overall current account surplus, estimated at 6.8 per cent of GDP in Q1 2018. The exchange rate has remained relatively stable while reserves have continued to rise, reaching US$63 billion in the first four months of this year, equal to around 3.6 months of imports.

Against the backdrop of low inflation, monetary policy remains accommodative. Vietnam’s consumer price index has been ticking up slightly at 2.8 per cent (year on year), driven by electricity and health service price hikes. Rapid credit growth and abundant liquidity could worsen volatility in Vietnam’s financial markets, especially against the anticipated tightening of global monetary conditions. Public debt has stabilised since 2017, with an overall fiscal deficit of 4.5 per cent of GDP, and the public-debt-to-GDP ratio declined to 61.4 per cent in 2017 from 63.6 per cent in 2016, said the WB.

Vietnam’s medium-term outlook has improved further since the last Taking Stock in December 2017. Real GDP is projected to expand by 6.8 per cent this year (up from 6.5 per cent in the previous forecast) before moderating to 6.6 per cent in 2019 and 6.5 per cent in 2020, due to an expected slowdown in global demand.

Inflation is expected to remain around the 4 per cent this year as the Government targets. The current account balance is projected to remain in a surplus, but could start narrowing next year, reflecting widening deficits on the income and services accounts. Fiscal deficits and public debt are expected to remain under control.

The report said despite improved short-term prospects, risks remain significant. Domestically, slower progress in restructuring State-owned enterprises and the banking sector could adversely impact the macro-financial situation, undermine growth prospects and create large public-sector liabilities. External risks include escalating trade protectionism, heightened geopolitical tensions and faster-than-expected monetary tightening could lead to disorderly financial market movements.

According to the WB, Vietnam has made great progress in reducing tariffs but there remains significant potential to reduce trade costs through rationalisation of non-tariff measures or specialised controls, and more efficient border management and logistics.