Press Release No. 13/143

Press Release No. 13/143
April 26, 2013

An IMF mission led by Mr. Alfred Schipke visited Hanoi and Ho Chi Minh City during April 8–25 to conduct the 2013 Article IV Consultation discussion with the Vietnamese authorities. The mission met with senior officials from the State Bank of Vietnam (SBV), the Ministry of Finance, the Ministry of Planning and Investment, private sector representatives, and development partners. The findings of the mission, which are outlined below, will be reflected in the 2013 Article IV staff report. This report, together with the joint IMF-World Bank Financial Sector Assessment Program (FSAP) report, is currently scheduled to be discussed by the IMF Executive Board in late June.

Discussions focused on recent economic developments and the outlook, near-term macroeconomic policy challenges, and reforms in the financial and state-owned enterprise (SOE) sectors, including issues arising from the FSAP. In this context, the SBV and the IMF co-organized a one-day conference on April 18 titled “Vietnam: Retaining Stability, Enhancing the Competitive Edge, and Reaping the Growth Potential.”

On the macroeconomic front, there are signs that activity could be bottoming out, led by strong exports. Headline inflation has declined from double digits to about 7 percent (y/y) in March 2013. Calm has returned to financial markets with the SBV’s efforts to provide liquidity and the merger of several small weak banks. The current account surplus surged to over US$9 billion in 2012, in part due to weak activity and low imports. With this, gross international reserves rose at end-February 2013 to more than 2½ months of prospective imports of goods and nonfactor services. The macroeconomic and financial market stabilization gains of 2012 improved the credibility of the SBV with market participants. At the same time, weak domestic demand weighed on real GDP growth which slowed to 5¼ percent (y/y) in 2012 (from 6¼ percent in 2011). While headline inflation has come down, core inflation (excluding raw food and energy) remains high, limiting the room for rate cuts.

Going forward, recent stabilization gains need to be consolidated through appropriate macroeconomic policies to further bolster international reserves and fiscal buffers. The Vietnamese authorities need to accelerate reforms in the banking sector and the SOE sectors to reduce vulnerabilities and restore Vietnam to a higher, sound and sustainable growth path. The authorities have initiated important structural reforms in the banking and SOE sectors, which is welcome. These measures need to be implemented decisively and additional steps considered.