5 factors laying foundation for Viet Nam’s economic outlook: IMF
Author: Yên Updated: 22/07/2019 Views: 2

The International and Monetary Fund (IMF) has named five factors expecting to lay the foundation for Vietnam’s economic outlook.

Despite rising trade tensions and volatility in emerging economies throughout 2018, Vietnam’s economy saw broad-based growth and low inflation.

However, in order to maintain growth and raise its quality, the country is suggested to modernize economic institutions, especially in terms of fiscal and monetary management, and continue with market-oriented and outward-looking reforms. Specifically, continued tightening of credit policies, developing capital markets, and building a modern market infrastructure with adequate tools for financial system supervisors and regulators would help to enhance the financial sector’s ability to support sustainable growth.

In recent years, Vietnam has managed to halt the increase in public debt and create some fiscal space. The more favorable fiscal position provides the authorities with the means to step in should downside risks materialize. 

Conversely, if growth surprises on the upside, existing debt could be paid down at a faster pace. Recapitalization of Vietnam’s state-owned commercial banks should also be a priority, and the country’s ongoing efforts to tackle corruption provide an opportunity to strengthen the rule of law.
All of these were summarized in five factors as below:

1. Extensive market reforms and and strict commitment to macroeconomic stability play as solid foundation for strong growth,  reaching a 10-year high of 7.1% in 2018.

2. In recent years, Vietnam successfully reversed the rapid rise in public and publicly guaranteed debt, which declined to 55.6% of GDP at end-2018, down 4 points of GDP from its 2016 peak. The government strictly limited the issuance of government guarantees, which helped to stabilize the deficit of the state budget to about 4.6% of GDP in 2017–18, down from 5.5% in 2014–2016.

When the surplus of Vietnam Social Security - the pay-go pension system - and other extrabudgetary funds are included, the general government deficit averages 2.7% of GDP in 2017–18. The budget deficit is projected to decline to 4.2% in 2020 (2.6%, when extrabudgetary funds are included.

3. The government’s commitment to creating a favorable condition for private-sector has helped improve the business outcomes. However, structural problems in the land and credit markets and the still-large state-owned-enterprise sector remain obstacles to the private sector.

4. In recent years, Vietnamese Government has taken firm steps to strengthen governance and fight corruption. However, further work needs to be done to improve transparency and data availability.The linking (by end-2019) of databases on taxation, anti-money laundering, customs, and land transactions should facilitate asset verification.

5. Vietnam’s population will be aging rapidly in coming decades, making deeper reforms in the pension system now a priority. In Vietnam, the old age dependency ratio is expected to double in the next 25 years, and replacement rates are around 70 percent, significantly above the average of countries in the Organization for Economic Cooperation and Development (OECD).

At the same time, retirement ages are low, with 55 years for women and 60 years for men, far below figures of the OECD and other Asian countries. This requires a change in policy to ensure long-term sustainability.

Read more at http://www.hanoitimes.vn


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