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WB: Economy growing robustly but risks intensifying

Released at: 11:16, 12/12/2018

WB: Economy growing robustly but risks intensifying

Photo: WB

Latest Taking Stock report released on December 11.

by Linh San

Vietnam’s GDP is forecast to remain at 6.8 per cent this year, higher than the projected figure of 6.3 per cent for emerging markets in East Asia and the Pacific, according to the World Bank’s bi-annual economic report on Vietnam, Taking Stock, released on December 11.

Economic growth has proven resilient despite weakening external conditions, driven mainly by strong domestic demand and a dynamic export-oriented manufacturing sector.

Over the medium term, in line with global trends, Vietnam will see a slower pace, of 6.6 and 6.5 per cent, in 2019 and 2020, respectively. Inflation will remain muted at 4 per cent as a result of tightening monetary policies.

“Despite a challenging global context, Vietnam continues to achieve robust growth accompanied by moderate inflation and a relatively stable exchange rate,” said Mr. Ousmane Dione, World Bank Country Director for Vietnam. “Policy makers should take advantage of the still favorable growth dynamics to advance structural reforms to enhance private sector-driven investment and growth, along with improving efficiency in public sector investment.”

The report highlighted that risks to the economic outlook have intensified and are tilted to the downside. Given its high trade openness and limited fiscal and monetary policy buffers, Vietnam remains susceptible to external volatilities. Escalating global trade tensions could cause a falloff in export demand while tightening global liquidity could reduce capital inflows and foreign investment. Domestically, a slowdown in reforming State-owned enterprises and the banking sector could undermine growth prospects and create public sector liabilities.

“Slower global growth, ongoing trade tensions, and heightened financial volatility cloud the global outlook,” said Mr. Sebastian Eckardt, World Bank Lead Economist for Vietnam. “As an open economy, Vietnam needs to maintain a responsive monetary policy, exchange rate flexibility, and low fiscal deficits to enhance its resilience against potential shocks.”

In light of the recently ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), a special section of the Taking Stock report focuses on streamlining non-tariff measures to help boost Vietnam’s export competitiveness. This timely analytical work is a product of the Second Australia-World Bank Group Strategic Partnership in Vietnam.

The report observed that while tariffs are rapidly declining, the number of non-tariff measures (NTM) is increasing. Vietnam’s average preferential tariffs have fallen from 13.1 per cent in 2003 to 6.3 per cent in 2015. In contrast, the number of NTMs has increased by more than 20-fold during the same period. International experience shows that poorly designed and implemented NTM could restrict trade, distort prices, and erode national competitiveness.

According to the report, the NTM system in Vietnam remains complicated, opaque, and costly, resulting in high compliance costs. One study estimates that the equivalent tariff rate for sanitary and phytosanitary measures Vietnam is imposing on imported goods is 16.6 per cent compared to the average of 8.3 per cent in ASEAN countries.

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