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WB upgrades Vietnam GDP growth forecast to 6.2%

HANOI - The World Bank (WB) has lifted its forecast of Vietnam’s gross domestic product (GDP) growth to 6.2% in 2015 and 6.3% next year, making the nation and the Philippines the most buoyant among the large ASEAN economies. In an East Asia and Pacific Economic Update report released on October 5,

HANOI - The World Bank (WB) has lifted its forecast of Vietnam’s gross domestic product (GDP) growth to 6.2% in 2015 and 6.3% next year, making the nation and the Philippines the most buoyant among the large ASEAN economies.
In an East Asia and Pacific Economic Update report released on October 5, the WB projects the impressive economic growth for Vietnam while China’s economy is forecast to expand by 7% this year before slowing to 6.7% next year.
Other regional countries are expected to obtain a GDP growth rate of 4.6% this year, similar to the pace in 2014.
Commenting on Vietnam’s economic growth, Sudhir Shetty, chief economist for the East Asia and Pacific region at the WB, said Vietnam as a crude oil exporting nation had countered the impact of the world oil price fall.
As Vietnam is also a fuel importer, the price decline in general still does more good than harm for the country, the expert said.

Sandeep Mahajan (R), lead economist at the World Bank in Vietnam, speaks at an event held in Hanoi

on October 5 to announce the East Asia and Pacific Economic Update report - PHOTO: TU HOANG

Though Vietnam’s economic activity continued to firm up this year, driven by strengthening domestic demand, the WB still noticed fiscal imbalances in the country.
Lingering fiscal imbalances are a concern against the backdrop of rising public debt. Budget outturns thus far in 2015 indicate persistent fiscal pressures, with an estimated deficit (including principal payment) of 5.6% of GDP in the first half of 2015, reflecting weak revenue outturn and increased current and capital spending, the bank said in the report.
Total public and publicly guaranteed debt increased further to an estimated 59.6% in 2014 (up from 54.5% in 2013). While public debt levels are still within the bounds of sustainability, debt servicing costs are beginning to cut into fiscal space and risk crowding out more productive spending.
Progress on structural reforms has been mixed, especially with regard to State-owned enterprise (SOE) and banking sector reforms. An acceleration of these reforms is deemed necessary - by both policy makers and private analysts - to carry growth closer to the 7% mark and meet Vietnam’s longer-term aspirations to become a modern, industrialized nation. SOE equitization (divestiture of state assets) has slowed this year.
Besides, the restructuring of the banking sector accelerated in the first half of 2015, but resolution of bad debts remained a concern.
A lack of financial sources, weak professional capacity, and the absence of an adequate enabling legal framework continue to hamper efforts of the Vietnam Asset Management Company (VAMC) to resolve the bad debt.
Outlook remains bright
Despite a number of problems, the medium-term outlook for Vietnam is positive on balance but subject to significant downside risks. Economic growth is higher this year, fueled by a further recovery of domestic demand, according to the WB.
Inflation would remain low due to subdued global conditions and low global energy and food prices. The fiscal deficit is expected to undergo adjustment through consolidation efforts of the Government to avoid a rise in public debt.
The trade balance is projected to turn into a deficit this year due to softer export growth and sustained strong import growth stoked by stronger domestic economic activity. However, robust incoming remittances will keep the current account in surplus, albeit at a much lower level than last year.
While the strengthening recovery combined with stable macroeconomic conditions is expected to help sustain positive poverty trends, slower agricultural growth may affect rural income growth and widen the rural-urban income gap.
Regarding challenges, the WB said on the domestic side, a credible medium-term fiscal consolidation plan together with comprehensive structural reforms to improve the finances of the SOEs and the state-owned banking sector would remain crucial to ward off pressures on public debt and boost private sector confidence.
Poverty is forecast to continue declining. Extreme poverty (US$1.9 a day according to 2011 PPP) is expected to drop from 2.8% in 2012 to 1% in 2017, while the percentage of the population living below US$3.1 a day would fall from 12.3% in 2012 to 6.7% in 2017.

Tu Hoang

 

 

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