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GBS - After the IV Article consultation in Vietnam ended on July 6, the International Monetary Fund (IMF) lowered Vietnam’s GDP growth rate to 6.3 percent in 2017 compared to the previously projected 6.5 percent in May. The economic growth forecast in 2018 still remains at 6.3 percent.
The scale of Vietnam’s economy is expected to reach $215.4 billion at the end of 2017 and $232.7 billion in 2018, equal to the GDP per capita at $2,301 and $2,460 respectively.

Inflation is forecasted to be around five percent as the fees managed by the State such as education, health are adjusted following roadmap. Specifically, the average CPI will increase 4.9 percent in 2017 and 4.8 percent in 2018.

*What are the risks for Vietnam?

Although Vietnam’s short-term prospects are positive, IMF pointed out some risks for Vietnam in the near future.

Among external risks, IMF said that the concern about rising risks in emerging markets or the appreciation of the US dollar may lead to the capital withdrawal and put pressure on exchange rate. In addition, the increased protectionism and the U.S’s withdrawal from the TPP agreement may affect the FDI inflow and reduce the reform momentum of State-owned Enterprises (SOEs).

Besides, the global slowdowns and the deceleration of the China’s economy may drag down exports. Low oil price may lessen the state budget revenue, but also have positive effect on trade balance.

Regarding domestic risks, IMF said risks in the banking sector stemmed from the slow process of financing and bad debt settlement, and high credit growth rate. High public debt limits the government’s room in addressing the weaknesses of the banking sector and SOEs, meeting the economy’s major investment demand.

That monetary policy still heavily depends on exchange rate stability, rising inflation may put pressure on exchange rate and cause investors to withdraw capital. The delay in the reform of state-owned business sector will limit the development of the private sector and negatively influence on investment psychology.

On the contrary, IMF also affirmed that the successful implementation of the reform agenda for the banking sector and state-owned business, the consolidation of the fiscal and the modernisation of the monetary legal framework may increase the growth potential and resilience to external shocks.

In addition, exports of consumer goods to China increased rapidly and will benefit from China’s economic rebalance. The early implementation of the free trade agreement (FTA) with EU and other agreements will have positive impacts on exports and FDI inflows.

*What does IMF recommend?

IMF experts acknowledged Vietnam’s efforts in the economic growth acceleration while curbing inflation and undertaking reforms in order to facilitate the private sector, improving public finance and addressing outstanding problems in the financial system.

Experts said the current fiscal tightening is appropriate and support the plan to reduce the fiscal deficit to 3.5 percent GDP by 2020 and keep the public debt ceiling at 65 percent GDP.

IMF experts said Vietnam should remain monetary policy and pay attention to signs of rising core inflation. The agency also recommended Vietnam to improve its monetary policy regulation by allowing more flexible exchange rate and gradually moving to use inflation as target.

IMF also recommended Vietnam to accelerate the banking sector reform, strengthen the capacity of the Vietnam Asset Management Company (VAMC) and continue reforming to accelerate the debt recovery and enhance market disciplines.

- intellasia.net

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