Viet Nam Human Rights
WB: Vietnam’s economy shows fundamental strength
14/7/17
Amidst strengthening recovery in the global
economy since late 2016, Vietnam’s gross domestic product (GDP) expanded by 5.7
percent during the first half 2017, while inflation has so far moderated and
core inflation remains low, at less than 2 percent.
According to the World Bank bi-annual Taking
Stock report, the service sector (which accounts for about 42
percent of GDP ) accelerated in the first half of this year, driven by buoyant
retail trade growth, as a result of sustained growth of domestic consumption.
Industrial production remains robust despite a significant reduction of output
in the oil sector, and growth has gradually recovered in agriculture, though
the recovery is still fragile.
“Vietnam’s economy is strong, as a result of strong
momentum of Vietnam’s fundamental growth drivers - domestic demand and
export-oriented manufacturing. These are good conditions to address critical
structural bottlenecks to medium term growth while solidifying macroeconomic
stability and rebuilding policy buffers”, said Mr Sebastian Eckardt, Lead
Economist and Acting Country Director for the World Bank in Vietnam.
Monetary policy continues to balance growth and
stability objectives, with low real interest rates and rapid credit growth of
about 20 percent (year-on-year). The rising credit intensity of growth, and
sustained acceleration of credit may raise concerns over asset quality,
particularly given the past unsolved bad debts.
After a large surplus in 2016, Vietnam’s external
current account balance started to decline in early 2017, due to an expected
recovery in import growth. The nominal exchange rate has been relatively
stable, but the real exchange rate continues to appreciate.
The report, announced in Hanoi on July 13th, pointed
out that real exchange rate appreciation is driven by a large external surplus
of the FDI sector, but is a concern for Vietnam’s domestic private enterprises,
which continue to face significant competitiveness challenges.
Looking forward, Vietnam’s medium-term outlook remains
positive, with real GDP growth projected to accelerate slightly to 6.3 percent
in 2017, as a result of buoyant domestic demand, rebounding agricultural
production, and strong export-oriented manufacturing, aided by a recovery in
external demand. Inflationary pressures will remain moderate, reflecting stable
core inflation, lower food and energy prices and diminishing administrative
price hikes.
The current account is expected to remain in surplus,
albeit at a lower level as stronger import growth resumes. Over the medium
term, growth is projected to stabilize at around 6.4 percent in the 2018-2019
period, accompanied by broad macroeconomic stability.
Containing risks from rapid credit growth requires
continued improvements in supervision and prudential regulation. The longer
term challenge for the Vietnam is to sustain rapid growth and poverty
reduction. Considerable gains are possible from structural reforms that
alleviate constraints on productivity growth, including through SOEs reforms,
further improvements in the business environment and improved factor markets
for land and capital.
Specific policy options include VAT reforms, increases
in excise taxes for selected goods, a review and rationalization of tax
expenditures to broaden the Company Income Tax (CIT) base and introduction of a
recurrent property tax.
On the spending side, productive investment in
infrastructure and human capital should be protected while focusing on
efficiency gains with regard to both capital and recurrent spending./.
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All comments [ 10 ]
Vietnam has benefited from a program of internal restructuring, a transition from the agricultural base toward manufacturing and services, and a demographic dividend powered by a youthful population.
The country has also prospered since joining the World Trade Organization, in 2007, normalizing trade relations with the United States and ensuring that the economy is consistently ranked as one of Asia’s most attractive destinations for foreign investors.
Given the past decade’s rapid rate of migration from farm to factory, it seems unlikely that the pace can accelerate further to raise productivity enough to offset the slowing growth of the labor force.
Among the world’s most impressive emerging market success stories of the past three decades, Vietnam has been achieving high growth rates, encouraging a huge reduction in poverty and attracting billions of dollars of foreign investment.
If Vietnam is able to maintain its current momentum, it might potentially achieve high-income status within the coming few decades.
Vietnam’s political system places a strong emphasis on raising incomes and promoting macroeconomic stability, with once-high inflation kept in check and job creation a priority.
On the whole, Vietnam bucked the regional trend of the early 2010s, with its economy cooling less than many of its neighbours following the global downturn of 2008.
Vietnam’s competitive advantages have continued to draw export-oriented manufacturing investment.
Vietnam increasingly well for its institutional strength, thanks to accelerated reform, though the country still scores comparatively low.
Boosting the domestic private sector is really key to escaping the middle-income trap, looking at the countries that have successfully done so.
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