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AMRO: Growth at 6.5% in 2017 & 2018

Released at: 10:01, 07/10/2017

AMRO: Growth at 6.5% in 2017 & 2018

AMRO Chief Economist Dr. Hoe Ee Khor with Deputy Governor of State Bank of Vietnam Ms. Nguyen Thi Hong during the consultation visit. Photo from amro-asia.org

ASEAN+3 Macroeconomic Research Office conducts annual consultation visit to Vietnam from September 28 to October 4.

by Linh San

Vietnam’s economy has rebounded strongly and is expected to grow at 6.5 per cent this year, with inflation being contained at below the targeted 4 per cent, according to the preliminary assessment from the ASEAN+3 Macroeconomic Research Office (AMRO) following its annual consultation visit to the country from September 28 to October 4.

The mission was led by Dr. Seung Hyun Hong, AMRO Lead Specialist, who was accompanied by Dr. Hoe Ee Khor, AMRO Chief Economist, and Mr. Yasuto Watanabe, Deputy Director of CMIM, Strategy, and Coordination. Discussions focused on recent developments and short-term prospects, risks and vulnerabilities, as well as structural reforms in the economy. AMRO also discussed technical assistance activities, including secondment and consultancy programs, with Vietnamese authorities.

“Vietnam’s economic growth has picked up strongly in 2017, supported by strong manufacturing exports, strengthened domestic demand, as well as recovery in agricultural outputs,” said Dr. Hong.As growth momentum is expected to remain strong, authorities should strengthen the policy focus on financial soundness, continue fiscal consolidation efforts, and accelerate structural reforms.”

Economic activity has rebounded from a slow start in the first quarter, with GDP growth estimated at 6.4 per cent in the first nine months, up from 6 per cent a year ago. While headline inflation has risen, mainly driven by increases in State-administered prices, underlying inflationary pressures remain subdued. The short-term growth outlook remains positive, with economic growth projected to pick up to around 6.5 per cent in 2017 and 2018.

Vietnam’s external position has continued to improve, benefiting from strong export performance and increased foreign investment. Greater flexibility in exchange rate management has also improved the economy’s resilience against adverse external shocks, while allowing the State Bank of Vietnam (SBV) to rebuild its reserves. Downside risks, however, stem from policy uncertainties in several advanced economies, which could lead to greater volatility in financial markets and capital outflows.

The fiscal deficit moderated in 2016 and is expected to narrow significantly in 2017, in line with the government’s fiscal consolidation target. The mission team supports the consolidation plans laid out in the Five-Year National Fiscal Plan and Medium-Term Public Investment Plan for 2016-2020, and encourages authorities to continue their efforts to enhance revenue while giving priority to rebalancing towards capital expenditure and improving public sector efficiency.

Credit growth has been buoyant and highly supportive of economic activity. In light of strong growth momentum in recent quarters, the policy focus on financial soundness should be strengthened. Faster credit growth could undermine the progress made in improving the still-fragile banking system by creating new non-performing loans (NPLs) and weakening banks’ capital buffers.

Authorities’ recent initiatives to reform the banking sector, including a pilot NPL resolution scheme, are a welcome move. Further efforts to accelerate NPL resolution and bank recapitalization are strongly encouraged.

Continued structural reforms will help the economy address medium- to long-term challenges. In the State-owned enterprise sector, reform momentum has strengthened with a recent pick-up in the pace of divesting State assets.

Going forward, enhanced financial transparency and strengthened implementation are needed to expedite the process. Challenges could arise from climate change and a rapidly aging population. Well-designed policy measures with concerted implementation efforts are therefore essential.

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