IMF Executive Board Concludes 2012 Article IV Consultation with Vietnam

Public Information Notice (PIN) No. 12/71
July 6, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2012 Article IV Consultation with Vietnam is also available.

On May 25, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Vietnam.1


As tighter macroeconomic policies were having an effect and the credibility of the State Bank of Vietnam (SBV) was strengthening significantly, the economy began to stabilize. GDP growth for 2011 decelerated to below 6 percent and declined to 4 percent year-on-year (y/y) in the first quarter of 2012. Credit growth slowed to 14.3 percent y/y in 2011, and inflation, after peaking at 23 percent in August 2011, declined to 10.5 percent in April. The current account moved to a small surplus of 0.2 percent of GDP in 2011 from a deficit of over 4 percent in 2010. Confidence in the Vietnam dong has improved, bringing the informal interbank exchange rate back within the official trading band. Investors, both domestic and foreign, are shifting into dong assets, allowing the SBV to increase international reserves significantly in the first three months of 2012, though they remain low.

The authorities adopted a stabilization package in February 2011 in response to increasing pressures on prices and the exchange rate in late 2010. As a result, they tightened macroeconomic policies significantly during 2011. Policy interest rates were raised, a credit growth ceiling was imposed, and investment by the government and state-owned enterprises was contained. These policies had desired effect, but with the sharper-than-expected slowdown of the economy and the rapid fall in inflation in early 2012, the SBV reduced policy interest rates three times over three months since March. The government also began to encourage more bank credit to strategic sectors (agriculture, SMEs, etc). The authorities maintained, however, that macroeconomic stability was of paramount importance. On the other hand, the authorities have taken action to address vulnerabilities at a number of small weak banks. The nine banks classified as weak were placed under the special inspection, and required to present restructuring and recapitalization plans for approval by the SBV. The authorities have also adopted a comprehensive medium-term strategy to strengthen the financial sector as a whole.

Despite the sharp slowdown in the first quarter, the economy is projected to stabilize further in 2012 given that the recent reduction of policy interest rates and a modest fiscal expansion are expected to cushion adverse effects from slowing domestic and external demand. As a result, GDP is projected to grow at 6 percent and inflation to decline to about 10¾ percent for 2012 (8¼ percent y/y at year-end). International reserves would increase further from the level reached in March, even as the current account deficit would rise somewhat. Risks to this scenario are tilted to the downside. In addition to a slowdown in export markets, there is a risk that pressures on prices and the exchange rate could resurface, if the authorities’ commitment to stabilizing the economy and safeguarding the financial sector is perceived as waning.

Executive Board Assessment

Executive Directors commended the tightening of macroeconomic policies in 2011, which contributed to declining inflation, stabilizing the exchange rate, and a rebuilding of international reserves. While welcoming the authorities’ commitment to macroeconomic stability, Directors noted that vulnerabilities and risks remain. A key challenge will be to balance support for the slowing economy against the risk of eroding hard won confidence, while rebuilding policy buffers. Directors emphasized the need to resist loosening policies prematurely and to accelerate structural reforms.

Directors stressed that a cautious monetary policy stance is needed to build on recent gains in stability. While recognizing that slowing economic activity and falling inflation provide a basis for policy easing, Directors recommended that monetary policy give priority to reducing inflation and rebuilding reserves further. In this context, Directors emphasized the importance of giving careful consideration to further cuts in policy rates. In the medium term, the authorities should move toward market-based policy instruments and a more flexible exchange rate regime.

Directors agreed that fiscal policy needs to continue to support macroeconomic stability, especially in light of the recent sizable civil service salary adjustment. Noting that some progress has been made in rationalizing public investment, they recommended focusing further on containing current non-wage spending and improving the quality of public spending. They encouraged the implementation of the planned medium-term tax reforms to broaden the tax base and prepare for a decline in oil revenue.

Directors welcomed steps taken to date to contain problems in weak banks, but urged the authorities to speed up implementation of their bank restructuring plan. Banks should recognize nonperforming loans, enhance the size and quality of their capital, and improve corporate governance. The authorities need to strengthen the supervisory and regulatory framework, including on bank resolution, and improve transparency in the banking sector. Directors looked forward to the forthcoming Financial Sector Assessment Program (FSAP) for providing reform momentum. They also stressed the importance of strengthening legislation against money laundering and terrorism financing.

Directors called for intensification of efforts to reform state-owned enterprises and improve the business environment, both key actions to enhance growth potential and reduce budgetary and financial sector risks. They welcomed the plans for equitization and privatization of a large number of state-owned enterprises, but emphasized that improving accountability and financial discipline holds the key for successful reform.

Directors encouraged the authorities to increase the frequency, quality, and transparency of economic statistics.

Vietnam: Selected Economic Indicators, 2008–13




  Est. Projections
2008 2009 2010 2011 2012 2013








Real GDP (percent change)

6.3 5.3 6.8 5.9 6.0 6.3

Saving and investment (in percent of GDP)






Gross national saving

27.8 31.6 34.9 29.3 33.5 33.1


20.8 26.8 30.0 24.4 30.0 29.3


7.0 4.7 4.9 5.0 3.5 3.7

Gross investment

39.7 38.1 39.0 29.9 34.3 33.8


30.5 24.6 27.9 21.4 26.8 26.6


9.2 13.6 11.2 8.5 7.5 7.2

Prices (percent change)







CPI (period average)

23.1 6.7 9.2 18.7 10.8 7.4

CPI (end of period)

19.9 6.5 11.7 18.1 8.2 6.0

Core inflation (end of period)

16.3 6.1 8.8 12.7 ... ...

General government finances (in percent of GDP) 1/







Revenue and grants

28.9 27.3 27.8 27.8 27.9 27.7

Of which: Oil revenue

6.0 3.7 3.5 4.4 3.9 3.6


29.4 34.5 33.1 30.3 31.3 30.3


20.3 21.0 21.9 22.0 23.9 23.1

Net acquisition of nonfinancial assets

9.1 13.4 11.2 8.4 7.5 7.2

Net lending (+)/borrowing(-) 2/

-0.5 -7.2 -5.2 -2.6 -3.4 -2.6

Public and publicly guaranteed debt (end of period)

42.9 51.2 54.2 48.3 48.2 46.6

Money and credit (percent change, end of period)







Broad money (M2)

20.3 29.0 33.3 12.1 21.6 18.1

Credit to the economy

25.4 39.6 32.4 14.3 16.8 14.4

Interest rates (in percent, end of period)






Nominal three-month deposit rate (households)

8.1 10.7 11.6 14.9

Nominal short-term lending rate (less than one year)

11.5 12.7 14.0 16.4 ... ...

Balance of payments (in percent of GDP, unless otherwise indicated)






Current account balance (including official transfers)

-11.9 -6.6 -4.1 0.2 -0.8 -0.7

Exports f.o.b.

69.4 61.3 69.7 79.0 81.7 84.2

Imports f.o.b.

83.6 70.2 74.7 79.3 83.5 86.2

Capital and financial account

14.0 12.2 4.4 5.2 4.1 3.5

Gross international reserves (in billions of U.S. dollars, end of period) 3/

23.0 14.1 12.4 13.5 19.0 25.7

In months of prospective GNFS imports

3.8 1.9 1.4 1.3 1.6 1.9

Total external debt (end of period) 4/

32.4 41.6 43.8 40.9 41.0 40.4

Nominal exchange rate (dong/U.S. dollar, end of period)

17,483 18,479 19,498 21,034 ... ...

Nominal effective exchange rate (end of period)

92.0 80.8 81.0 67.5 ... ...

Real effective exchange rate (end of period)

125.7 115.8 117.0 121.3 ... ...

Memorandum items:







GDP (in trillions of dong at current market prices)

1,485 1,658 1,981 2,535 2,927 3,336

GDP (in billions of U.S. dollars)

90.3 93.2 103.6 122.7 135.8 148.8

Per capita GDP (in U.S. dollars)

1,048 1,068 1,174 1,374 1,502 1,627
Sources: Vietnamese authorities; and IMF staff estimates and projections.
1/ Follows the format of the Government Finance Statistics Manual for 2001.
2/ Excludes net lending of the Vietnam Development Bank.
3/ Excludes government deposits.
4/ Uses interbank exchange rate.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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