## 1. Asset Market Developments ## Source details **Canonical URL:** [1. Asset Market Developments](https://www.imf.org/-/media/files/publications/cr/2018/cr18215.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18215.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18215.pdf.json) --- ### Context and structural background - Growth averaged 6½ percent a year during 2000–16, reflecting outward and market-oriented reforms since 1986 and structural transition from agriculture to manufacturing and services. - Government emphasis: macroeconomic stability as foundation for private sector-led growth, focusing on public debt sustainability, building buffers, and strengthening the banking sector. - Remaining constraints: legacy banking system and SOE issues; lack of a level playing field for land and credit; private sector and foreign ownership limits; regulatory barriers that slow investment and productivity in non-FDI firms. ### 2017: key outcomes - Growth accelerated to 6.8 percent in 2017 while inflation remained below the 4 percent target. - Private consumption supported by rural-to-urban migration, rising incomes, a growing middle class, accommodative financial conditions, stronger bank balance sheets, and an improving business climate. - Current account surplus reached 2½ percent of GDP in 2017; the CA gap was 5.2 percent of GDP. - The REER undervaluation associated with the CA gap was 7 percent. - Surpluses mainly generated in the FDI sector while the non-FDI sector continued to run a large deficit. - Vietnam received record FDI and other capital inflows in 2017. - The State Bank of Vietnam accumulated US$12½ billion of international reserves in 2017 (equivalent to 5.7 percent of GDP). - Fiscal consolidation in 2017 was largely revenue-based; equitization proceeds of 1.2 percent of GDP helped contain PPG debt to 58½ percent of GDP at end-2017. - The wage bill was approximately 9½ percent of GDP. ### Outlook and risks (short- and medium-term projections) - Growth projected at 6.6 percent in 2018. - Q1 2018: broad-based GDP growth of 7½ percent, headline inflation of 2.7 percent. - Inflation forecast to rise to just under the 4 percent target, led by higher oil prices and gradual increases in administered prices. - Rising potential growth to 6½ percent per annum attributed to improvements in capital stock from strong FDI inflows; higher aggregate productivity associated with labor moving out of agriculture; and a better business climate. - On current trends and assuming reforms continue at their current pace, 6½ percent annual growth remains feasible beyond 2018. - CA surplus expected to decline over the medium term; reserve cover to remain constant at 2½–3 months of imports and 77 percent of the ARA metric. - Equitization proceeds financing will last only another 3−5 years, with interest rates potentially rising thereafter. - Aging projected to affect debt dynamics around 2035. Significant risks - Domestic: elevated public debt; sustained high credit growth, high leverage, low bank capital buffers, inflexible exchange rate; cyber security risks; longer-term climate change, aging, technological disruption. - External: rising trade protectionism; tighter global financial conditions; slower partner country growth; geopolitical tensions. - Institutional and information system weaknesses constrain proactive risk detection and management. ### Fiscal policy: achievements and recommendations Findings - 2017 fiscal consolidation largely revenue-based; VAT collections fell short. - Public investment exceeded budget targets due to carry-over spending (about ½ percent of GDP) and accelerated project disbursements. - Staff projects a consolidated state budget deficit of around 4.7 percent of GDP during 2018−23 (GFS classification, but excluding the cash surplus of extra budgetary funds). - PPG debt was 58½ percent of GDP at end-2017, below the statutory limit of 65 percent. - Authorities’ 2018 budget envisages a neutral fiscal stance. Recommendations and scenarios - More ambitious, high-quality consolidation warranted to create space for longer-term challenges and contingencies. - Authorities committed to lowering the deficit to 3½ percent of GDP by 2020 (3.9 percent by GFS classification). - Staff recommends bringing PPG debt to around 55 percent of GDP by 2022. - Achieving the lower debt level would require stronger consolidation than currently planned—lowering the deficit by ⅓ percent of GDP per year on average over 2018−23. - Specific fiscal measures and institutional changes suggested: - Cap annual growth in nominal government spending to 10 percent. - Produce comprehensive fiscal accounts based on GFSM 2014 (planned for mid-2018). - Improve tax policy: review and narrow tax exemptions; broaden the land tax base to create a full property tax; increase environmental excises further; unify the VAT rate of final and intermediate goods. Gradually raising the VAT rate to 12 percent noted as a possible measure. - Strengthen tax administration: make the large taxpayer unit fully operational; consolidate subnational collection offices; simplify administrative procedures; intensify IT use and risk-based auditing; simplify omnibus tax reform law. - Anchor public investment in a medium-term framework; improve allocation, coordination, project appraisal, prioritization and selection; protect priority projects. - Protect priority social spending and tighten non-priority spending; rationalize the large wage bill by trimming headcount and linking wages to performance. - Continue SOE reform and divestment; ensure tariffs gradually cover full costs; design cost recovery in education and health carefully to protect the poor. - Pursue social security reforms: raise retirement ages, increase contributions, and rationalize benefits for pension sustainability. ### Monetary, exchange rate, and financial sector policy recommendations Monetary and exchange rate - Tighten monetary policy by aligning credit growth with fundamentals. - Exchange rate should become more flexible and the monetary framework should gradually transition to inflation targeting. - Greater exchange rate flexibility would reduce the need for large reserve buffers. Financial sector and macroprudential - Banks need further strengthening to improve financial intermediation to support the domestic sector. - Supervision, risk management, and regulation should be beefed up alongside macroprudential measures. - Preparations needed for cyber security risks and for institutional/informational upgrades for risk monitoring. ### Structural reform priorities to raise non-FDI investment and close the external surplus - Address barriers constraining domestic investment and productivity in non-FDI firms: level the playing field between state and private sectors; ease private and foreign ownership limits. - Improve access to land and credit and remove regulatory barriers. - Strengthen intermediation of external surpluses to the domestic economy by addressing financial sector weaknesses and SOE legacy issues. - Continue market-oriented reforms to reduce the economic role of the state, boost business conditions, and improve the quality of growth and innovation. - Implementation of CPTPP and the FTA with the EU would further boost medium-term growth. ### Authorities’ views — fiscal policy objectives and measures - National Assembly commitment: statutory debt limit and a 3½ percent of GDP deficit by 2020. - Revenue strategy: - Raise total revenue by broadening tax bases, further reforming tax administration, and better utilizing natural resource and property tax revenues. - A draft property tax bill (raising non-agricultural land tax rates and introducing property taxes) to be considered by the National Assembly in late 2018. - Expenditure controls and civil service reform: - Stronger expenditure controls, new limits on carry-forward spending, eliminating recurrent spending on autonomous public-sector delivery units (PSDUs), and continuing the two-out one-in policy for civil servants. - Civil service reorganized to improve capacity and lower headcount but wage increases needed to attract and retain talent. - PIMA and investment financing: - PIMA is a strategic priority; private funding via PPPs will be considered. - Fiscal accounts and extra-budgetary funds: - Improve comprehensiveness and timeliness of fiscal accounts and centralize management of the seventy extra budgetary funds. ### Fiscal projections (selected indicators) — IMF staff estimates - Baseline projections (series presented across years in source): - Total revenue and grants: 23.7 23.6 23.3 23.0 22.9 22.9 22.9 22.8 - Capital expenditure: 7.5 7.4 7.3 7.3 7.3 7.3 7.3 7.3 - Current expenditure: 21.0 20.7 20.7 20.7 20.6 20.5 20.4 20.3 - Net lending (+)/borrowing (-): -4.8 -4.5 -4.6 -4.7 -4.7 -4.7 -4.7 -4.7 - Primary surplus (+)/deficit (-): -2.9 -2.5 -2.6 -2.8 -2.7 -2.7 -2.6 -2.7 - Equitization fund transfers to bugdet: 0.7 1.2 1.2 0.6 0.4 0.3 0.1 0.1 - Public and public-guaranteed debt: 59.9 58.5 57.9 57.5 57.3 57.5 57.8 58.3 - Real growth: 6.2 6.8 6.6 6.5 6.5 6.5 6.5 6.5 - Consolidation Scenario (selected series): - Total revenue and grants: 23.7 23.6 23.3 23.4 23.7 23.8 23.9 23.9 - Capital expenditure: 7.5 7.4 7.3 7.3 7.6 7.7 7.8 7.9 - Current expenditure: 21.0 20.7 20.6 20.4 20.1 19.8 19.5 19.2 - Net lending (+)/borrowing (-): -4.8 -4.5 -4.6 -4.3 -4.0 -3.7 -3.4 -3.1 - Primary surplus (+)/deficit (-): -2.9 -2.5 -2.6 -2.5 -2.1 -1.9 -1.7 -1.3 - Equitization fund transfers to bugdet: 0.7 1.2 1.2 0.7 0.5 0.4 0.2 0.2 - Public and public-guaranteed debt: 59.9 58.5 57.9 57.1 56.0 55.1 54.2 52.8 - Real growth: 6.2 6.8 6.6 6.4 6.5 6.6 6.7 6.8 Notes - Consolidation scenario assumes negative GDP multiplier of 0.3, implementation of a tax policy reform in 2019, PIM efficiency gains beginning in 2020, and structural reforms raising real GDP growth by 0.4 percent over the baseline by 2023. ### Monetary and exchange rate policies — developments and assessment - Recent stance: - Monetary conditions accommodative amid rising real money demand. - SBV set lower credit growth ceilings in 2017 but cut its policy rate by 25 bps in mid-2017. - Credit outstanding reached 130 percent of GDP in 2017, creating a sizeable credit gap. - External inflows were strong; SBV built reserves without full sterilization. - Inflation remained low; set to gradually increase to the 4 percent target over the medium-term. - Key vulnerabilities: - Credit growth outstripping financial deepening, elevated asset market valuations. - Overnight interbank rates slid well below the policy (repo) rate. Monetary policy recommendations - Tighten policy to drain excess liquidity, reduce credit gaps, and keep inflation contained. - Lower credit growth targets further: - The lower credit target of 17 percent set for 2018 should help tighten monetary conditions but a more ambitious reduction to no more than 14 percent is needed compared to the baseline. - Bring interbank and overnight rates closer to the policy rate. - Allow greater two-way exchange rate flexibility within the current ± 3 percent band. - Continue reserve accumulation more gradually; accompany interventions with active liquidity management. - Modernize the monetary policy framework: - Adopt inflation as the nominal anchor, with greater exchange rate flexibility and improved monetary transmission. - Phase out credit targets; develop macroprudential tools. - Ensure central bank operational independence and technical capability; develop tools and expertise gradually and initiate transition in times of economic strength. ### Financial sector: strengths and remaining weaknesses Strengths and reforms - Bank profits and asset quality improving in most large banks; Resolution 42 and higher real estate prices facilitating collateral disposal and restructuring. - Amendments to the Law on Credit Institutions enhance corporate governance. - Several banks addressed legacy bad assets and boosted capital; large private banks close to the 8 percent CAR Basel II requirement. - Banking system more competitive. Remaining weaknesses and risks - Profitability low relative to ASEAN peers for some banks; three weak banks taken over by the SBV in 2015 remain a concern. - SOCBs profitable but required dividend payments hamper capital buildup. - Capital buffers thin in some SOCBs and a few private banks. - Reported NPL ratios still high for some banks; broader NPLs could be higher if ever-greening and connected lending fully accounted. - Shift to consumer lending, margin lending and elevated equity prices raise risks. - Data gaps constrain supervision and risk assessment. Financial sector recommendations - SOCBs recapitalization and ownership: - Recapitalize SOCBs quickly and manage at arm’s length. - Reduce required dividend payments to the budget and inject fresh capital using government funds. - Recapitalization costs estimated at 1–1½ percent of GDP to meet regulatory and Basel II requirements by 2020. - Reduce state ownership below 65 percent and raise foreign ownership limits to help recapitalize via new equity issues. - Restructure and sell or liquidate banks taken over by the SBV. - NPL resolution and asset management: - Accelerate asset recovery to less than current 5–10-year timeframe. - Finalize implementing regulations for Resolution 42; increase VAMC capital; expand fast-track court procedures; stop warehousing bad assets; evolve VAMC into an asset management company and phase it out gradually. - Data, supervision, and standards: - Improve loan classification data, disaggregated credit and corporate exposures, and real estate market data. - Broaden application of international accounting standards to improve transparency. - Macroprudential and crisis frameworks: - Introduce leverage ratios and countercyclical buffers (CCBs), complemented by LTV and DSTI requirements. - Ensure robust liquidity and crisis management frameworks, early intervention clarity, information sharing, and communication. - Establish strong deposit insurance and an effective lender of last resort. - Strengthen AML/CFT framework in line with FATF standards. ### Asset market developments (key points) - Ample liquidity has elevated asset valuations. - Vietnamese stock markets boomed; market capitalization in the Ho Chi Minh City and Hanoi stock indices tripled in 2016–17. - Sharp stock price increases driven by growth expectations, SOE reforms and global financial conditions; downside if growth slows or reforms delay. - Real estate prices rebounded from GFC lows but remain below 2008 highs; price-to-rent ratios suggest price increases align with growing housing demand. - Availability of affordable housing increasing, supported partly by low-interest mortgage lending by SOCBs. ### Enabling private-sector-led growth and innovation Progress and drivers - Administrative measures scrapped in 2017 to level the playing field; business formation rose to record levels. - CPTPP, EU-FTA, and other FTAs expected to boost modernization and reforms. - Legal framework for equitization and SOE reform revamped with creation of independent State Capital Management Committee (SCMC). - Several large and profitable SOEs in non-strategic sectors slated for divestment in 2016−20, with momentum in 2017 and 2018. - Public commitments to address high-level corruption; Vietnam has a high-quality labor force, high female labor force participation, and strong mobile penetration and digital readiness. Remaining agenda and policy focus - Large agenda to achieve higher middle-income status: raise labor productivity, tackle barriers to domestic investment, reduce informality, and formulate digital-age strategy. - ILO (2016) estimate: 56 percent of jobs in the ASEAN-5 are at risk of automation by 2025 in retail and wholesale trade, construction and manufacturing, with women at disproportionate risk. - Policy focus: invest in human capital and high-quality infrastructure; boost connectivity and incubators for startups; facilitate participation in global digital platforms; reform tertiary education. ### Box 2. Gender Gaps — overview, challenges, and policy implications Key indicators - Female labor force participation: over 73 percent. - Gender wage gap: just under 20 percent. - In the FDI sector: women comprise some 65 percent of the workforce; average wages in the FDI sector are the highest in the economy. - Women chair the National Assembly; nearly 27 percent of MPs are women. - Over 63 percent of working women are self-employed and family laborers. - Women’s access to the formal financial sector is low relative to other lower middle-income countries. Main strengths - High female labor force participation and high female educational attainment; parity or advantage in net enrollment rates from primary through tertiary education. - Strong female presence in high-wage FDI-sector employment and relatively strong parliamentary representation. Principal challenges - Low share of women with strong technical training. - Heavy concentration in self-employment and family labor (over 63 percent). - Occupational concentration in piece-rate industries at high risk of automation. - Legal/regulatory barriers: earlier mandatory retirement age for women; disqualification for certain jobs. - Disproportionate unpaid family and societal care burdens. - Low access to formal financial services. Policy implications - Strengthen technical and vocational training access for women, boost private-sector in-house training and lifelong learning. - Improve women’s access to formal financial services. - Address legal and regulatory barriers including retirement-age differentials. - Reduce unpaid care burdens through social policies and services. - Monitor automation risks and design transition policies for affected women. ### Debt sustainability and external assessment (selected findings) - PPG debt rose by 10 percentage points of GDP in the last five years, to 58.5 percent of GDP in 2017. - Staff assesses debt sustainability risk as low to moderate. - Baseline: PPG debt-to-GDP ratio declines by 0.6 percentage points in 2018; remains below 60 percent of GDP by 2023. - Effective interest rate series (selected): 4.2 (2016), 4.5 (2017), 4.2 (2018), 5.3 (2019), 6.0 (2020), 6.0 (2021), 6.3 (2022), 6.0 (2023). - Stress tests: - Real interest rate shock raises PPG debt to 60 percent of GDP. - Combined macro-fiscal shock in 2018 increases PPG debt to 66 percent of GDP by 2023. - Negative-case scenario: PPG debt could reach about 73 percent of GDP with 10 percent likelihood by 2023. - Positive shocks: debt-to-GDP could fall to 50 percent with 25 percent probability by 2023. - External position: - External position substantially stronger than warranted by fundamentals; CA gap 5.2 percent of GDP and exchange rate undervalued by 7 percent. - FDI manufacturing sector generates a trade surplus of 15.5 percent of GDP; domestic non-FDI sector runs a trade deficit of 8.7 percent of GDP and has productivity 20 percent of the FDI sector. - 2017 external inflows: FDI inflows US$14.1 billion (up 12 percent from 2016); FII inflows US$1.9 billion (from 0.2). - Reserve coverage: 77 percent of the adequacy metric; reserves about 2.3 months of imports at end−2017. Policy implications from external assessment - Structural and financial sector reforms to raise private investment. - Protect public investment while raising its efficiency and lowering the budget deficit. - Modernize monetary framework with greater two-way exchange rate flexibility to facilitate nominal appreciation and reduce reserve accumulation needs. ### Risk Assessment Matrix — high-likelihood/high-impact risks and responses (selected) - Tighter global financial conditions: Likelihood H; Impact M. Responses: tighten monetary policy, allow exchange rate flexibility, strengthen bank balance sheets, accelerate fiscal consolidation and structural reforms. - Poor quality and insufficient fiscal consolidation: Likelihood H; Impact H. Responses: strengthen revenues, curtail non-essential spending, reduce wage bill, improve investment quality, use SOE equitization receipts prudently. - Continued high credit targets: Likelihood H; Impact H. Responses: reduce credit growth targets, accelerate NPL resolution and recapitalization, develop macroprudential framework. - Climate change: Likelihood H; Impact H. Responses: raise renewables, tax fossil fuels, invest in climate resilient infrastructure, incentivize green growth, improve coordination on technological change. ### Executive Board / Staff appraisal highlights (selected indicators and projections) - Real GDP (percent change): 2017 = 6.8; 2018 (proj) = 6.6; 2019 (proj) = 6.5. - CPI (period average): 2017 = 3.5; 2018 (proj) = 3.8; 2019 (proj) = 4.0. - Current account balance (percent of GDP): 2017 = 2.5; 2018 (proj) = 2.1; 2019 (proj) = 1.8. - Gross international reserves (in billions of U.S. dollars): 2017 = 49.4; 2018 (proj) = 59.6; 2019 (proj) = 72.0. - Public and publicly guaranteed debt (end of period, percent of GDP): 2017 = 58.5; 2018 (proj) = 57.9; 2019 (proj) = 57.5. - Credit-to-GDP ratio (percent of GDP): 2017 = 130.7; 2018 (proj) = 136.8; 2019 (proj) = 141.4. - Key memorandum items: Nominal GDP (in billions of U.S. dollars): 2017 = 220.4; 2018 (proj) = 241.0; 2019 (proj) = 264.5. Per capita GDP (in U.S. dollars): 2017 = 2,354; 2018 (proj) = 2,548; 2019 (proj) = 2,769. *Source: IMF staff report excerpt — "1. Asset Market Developments" (cr18215).* ### 1. Asset Market Developments _________________________________________________________________ 16 ### 1. Asset Market Developments ### Context and structural background - Growth averaged 6½ percent a year during 2000–16, reflecting outward and market-oriented reforms since 1986 and structural transition from agriculture to manufacturing and services. - The government emphasizes macroeconomic stability as the foundation for private sector-led growth, focusing on public debt sustainability, building buffers, and strengthening the banking sector. - Remaining constraints include legacy banking system and SOE issues, lack of a level playing field for land and credit, private sector and foreign ownership limits, and regulatory barriers that slow investment and productivity in non-FDI firms. ### 2017: key outcomes - Growth accelerated to 6.8 percent in 2017 while inflation remained below the 4 percent target. - Private consumption was supported by rural-to-urban migration, rising incomes, a growing middle class, accommodative financial conditions, stronger bank balance sheets, and an improving business climate. - Current account surplus reached 2½ percent of GDP in 2017; the CA gap was 5.2 percent of GDP (Appendix II). - The REER undervaluation associated with the CA gap was 7 percent. - Surpluses were mainly generated in the FDI sector while the non-FDI sector continued to run a large deficit. - Vietnam received record FDI and other capital inflows in 2017. - The State Bank of Vietnam accumulated US$12½ billion of international reserves in 2017 (equivalent to 5.7 percent of GDP). - Fiscal consolidation in 2017 was largely revenue-based; equitization proceeds of 1.2 percent of GDP helped contain PPG debt to 58½ percent of GDP at end-2017. - The wage bill was approximately 9½ percent of GDP. ### Outlook and risks (short- and medium-term projections) - Growth is projected at 6.6 percent in 2018, in line with official and consensus forecasts. - Q1 2018 developments: broad-based GDP growth of 7½ percent, headline inflation of 2.7 percent. - Inflation is forecast to rise to just under the 4 percent target, led by higher oil prices and gradual increases in administered prices. - Rising potential growth to 6½ percent per annum is attributed to: improvements in capital stock from strong FDI inflows; higher aggregate productivity associated with labor moving out of agriculture; and a better business climate. - On current trends and assuming reforms continue at their current pace, 6½ percent annual growth remains feasible beyond 2018. - The CA surplus is expected to decline over the medium term as structural reforms boost investment and REER appreciation resumes its trend; this would leave reserve cover constant at 2½–3 months of imports and 77 percent of the ARA metric. - Financing from equitization proceeds will last for only another 3−5 years, with interest rates potentially rising thereafter. - Aging is projected to affect debt dynamics around 2035 (Appendix IV). Significant risks - Domestic: elevated public debt limits scope for infrastructure investment and counter-cyclical fiscal policy; sustained high credit growth, high leverage, low bank capital buffers, and an inflexible exchange rate could produce balance sheet vulnerabilities; cyber security risks; longer-term challenges from climate change, aging, and technological disruption. - External: rising trade protectionism, tighter global financial conditions, slower partner country growth, and geopolitical tensions could transmit via trade and financial channels and amplify domestic fiscal and financial vulnerabilities. - Institutional and information system weaknesses constrain proactive risk detection and management (Appendix III). ### Fiscal policy: achievements and recommendations Findings - 2017 fiscal consolidation was largely revenue-based, driven by higher non-tax revenues (including land-related items) and lower administrative expenditures; VAT collections fell short as anticipated reforms were delayed. - Public investment exceeded budget targets due to carry-over spending (about ½ percent of GDP) and accelerated project disbursements. - Under current tax and expenditure plans, staff projects a consolidated state budget deficit of around 4.7 percent of GDP during 2018−23 (GFS classification, but excluding the cash surplus of extra budgetary funds). - PPG debt was 58½ percent of GDP at end-2017, below the statutory limit of 65 percent. - Authorities’ 2018 budget envisages a neutral fiscal stance. Recommendations and scenarios - More ambitious, high-quality consolidation is warranted to create space for longer-term challenges and contingencies. - Authorities are committed to lowering the deficit to 3½ percent of GDP by 2020 (3.9 percent by GFS classification). - Staff recommends bringing PPG debt to around 55 percent of GDP by 2022 to ensure longer-term debt sustainability. - Achieving the lower debt level would require stronger consolidation than currently planned—lowering the deficit by ⅓ percent of GDP per year on average over 2018−23. - Specific fiscal measures and institutional changes suggested: - Cap annual growth in nominal government spending to 10 percent. - Produce comprehensive fiscal accounts based on GFSM 2014 (planned for mid-2018) to improve planning and execution. - Improve tax policy: review and narrow tax exemptions; broaden the land tax base to create a full property tax; increase environmental excises further; unify the VAT rate of final and intermediate goods. Gradually raising the VAT rate to 12 percent was noted as a possible measure. - Strengthen tax administration: make the large taxpayer unit fully operational; consolidate subnational collection offices; simplify administrative procedures; intensify IT use and risk-based auditing; simplify omnibus tax reform law. - Anchor public investment in a medium-term framework; improve allocation, coordination, project appraisal, prioritization and selection; protect priority projects. - Protect priority social spending and tighten non-priority spending; rationalize the large wage bill by trimming headcount and linking wages to performance. - Continue SOE reform and divestment; ensure tariffs gradually cover full costs; design cost recovery in education and health carefully to protect the poor. - Pursue social security reforms: raise retirement ages, increase contributions, and rationalize benefits for pension sustainability. ### Monetary, exchange rate, and financial sector policy recommendations Monetary and exchange rate - Monetary policy should be tightened by aligning credit growth with fundamentals. - The exchange rate should become more flexible and the monetary framework should gradually transition to inflation targeting. - Greater exchange rate flexibility would reduce the need for large reserve buffers. Financial sector and macroprudential - Banks need further strengthening to improve financial intermediation to support the domestic sector. - Supervision, risk management, and regulation should be beefed up alongside macroprudential measures. - Preparations are needed for cyber security risks and for institutional/informational upgrades for risk monitoring. ### Structural reform priorities to raise non-FDI investment and close the external surplus - Address barriers that constrain domestic investment and productivity in non-FDI firms, including leveling the playing field between state and private sectors and easing private and foreign ownership limits. - Improve access to land and credit and remove regulatory barriers. - Strengthen intermediation of external surpluses to the domestic economy by addressing financial sector weaknesses and SOE legacy issues. - Continue market-oriented reforms to reduce the economic role of the state, boost business conditions, and improve the quality of growth and innovation. - Implementation of CPTPP and the FTA with the EU would further boost medium-term growth. *Source: IMF staff report excerpt — "1. Asset Market Developments" (cr18215).* ### 13. Authorities’ views. Fiscal policy recommendations are broadly consistent with the ### 13. Authorities’ views. Fiscal policy recommendations are broadly consistent with the ### Fiscal policy objectives and measures - National Assembly commitment: statutory debt limit and a 3½ percent of GDP deficit by 2020. - Revenue strategy: - Raise total revenue by broadening tax bases, further reforming tax administration, and better utilizing natural resource and property tax revenues. - A draft property tax bill, raising non-agricultural land tax rates and introducing property taxes, will be considered by the National Assembly in late 2018. - Expenditure controls and civil service reform: - Stronger expenditure controls, new limits on carry-forward spending, eliminating recurrent spending on autonomous public-sector delivery units (PSDUs), and continuing the two-out one-in policy for civil servants. - Comprehensive civil service and social insurance reforms will continue, following recent increases in early retirement penalties and years of service for calculating benefits. - Civil service is being reorganized to improve capacity and lower headcount but wage increases are needed to attract and retain talent. - PIMA and investment financing: - PIMA is a strategic priority, but Vietnam’s large investment needs cannot be met solely with public funding. - Private funding will be considered in the form of public private partnership (PPP) agreements. - Fiscal accounts and extra-budgetary funds: - Improving the quality (especially comprehensiveness and timeliness) of fiscal accounts and centralized management of the seventy extra budgetary funds are important goals and require collaboration across government agencies. ### Fiscal projections (selected indicators) — Source: IMF staff estimates - Baseline (first column block): - Total revenue and grants: 23.7 23.6 23.3 23.0 22.9 22.9 22.9 22.8 - Capital expenditure: 7.5 7.4 7.3 7.3 7.3 7.3 7.3 7.3 - Current expenditure: 21.0 20.7 20.7 20.7 20.6 20.5 20.4 20.3 - Net lending (+)/borrowing (-): -4.8 -4.5 -4.6 -4.7 -4.7 -4.7 -4.7 -4.7 - Primary surplus (+)/deficit (-): -2.9 -2.5 -2.6 -2.8 -2.7 -2.7 -2.6 -2.7 - Equitization fund transfers to bugdet: 0.7 1.2 1.2 0.6 0.4 0.3 0.1 0.1 - Public and public-guaranteed debt: 59.9 58.5 57.9 57.5 57.3 57.5 57.8 58.3 - Real growth: 6.2 6.8 6.6 6.5 6.5 6.5 6.5 6.5 - Consolidation Scenario (second column block; labeled “Baseline” and “Consolidation Scenario 2/”): - Total revenue and grants: 23.7 23.6 23.3 23.4 23.7 23.8 23.9 23.9 - Capital expenditure: 7.5 7.4 7.3 7.3 7.6 7.7 7.8 7.9 - Current expenditure: 21.0 20.7 20.6 20.4 20.1 19.8 19.5 19.2 - Net lending (+)/borrowing (-): -4.8 -4.5 -4.6 -4.3 -4.0 -3.7 -3.4 -3.1 - Primary surplus (+)/deficit (-): -2.9 -2.5 -2.6 -2.5 -2.1 -1.9 -1.7 -1.3 - Equitization fund transfers to bugdet: 0.7 1.2 1.2 0.7 0.5 0.4 0.2 0.2 - Public and public-guaranteed debt: 59.9 58.5 57.9 57.1 56.0 55.1 54.2 52.8 - Real growth: 6.2 6.8 6.6 6.4 6.5 6.6 6.7 6.8 - Notes in source: - 2/ Public guaranteed debt, interest rates, ODA onlending and valuation changes are assumed to be the same as in the baseline. The consolidation scenario incorporates the negative GDP growth impact of fiscal consolidation with a multiplier of 0.3. The scenario also assumes the implementation of a tax policy reform in 2019, and a positive impact of public investment efficiency gains following PIM improvements to begin in 2020. The scenario further assumes structural reforms aimed at improving public spending efficiency and addressing bank recapitalization needs, which together with higher public investment is expected to increase real GDP growth by 0.4 percent over the baseline by 2023. - 1/ The baseline projections include assumptions of lower trade-related tax revenue due to international trade agreements, gradual improvements in tax collection, and current plans for SOE equitization/divestment. Figures exclude net lending of Vietnam Development Bank and revenue and exenditure of Vietnam Social Security and other extrabudgetary funds. ### Monetary and exchange rate policies — developments and assessment - Recent stance and context: - Monetary conditions have been accommodative in an environment of rising real money demand. - SBV set lower credit growth ceilings in 2017 but cut its policy rate by 25 bps in mid-2017 to support growth. - Credit outstanding reached 130 percent of GDP in 2017, resulting in a sizeable credit gap. - External inflows were strong during the year, including from equitization, with the SBV building reserves without full sterilization. - Inflation remained low; inflation is set to gradually increase to the 4 percent target over the medium-term as import prices strengthen. - Key vulnerabilities identified: - Credit growth outstripping financial deepening and contributing to elevated asset market valuations. - Overnight interbank rates slid well below the policy (repo) rate; interbank and overnight rates are below policy rate. ### Monetary policy recommendations - Tighten policy to drain excess liquidity, reduce credit gaps, and keep inflation contained. - Lower credit growth targets further: - The lower credit target of 17 percent set for 2018 should help tighten monetary conditions but a more ambitious reduction to no more than 14 percent is needed compared to the baseline. - Bring interbank and overnight rates closer to the policy rate. - Allow greater two-way exchange rate flexibility within the current ± 3 percent band. - Continue reserve accumulation at a more gradual pace; accompany interventions with active liquidity management. - Modernize the monetary policy framework: - Adopt a modern framework using inflation as the nominal anchor, accompanied by greater exchange rate flexibility and improved monetary transmission. - Phase out credit targets to achieve more market-based capital allocation and improve banks’ risk management. - Develop macroprudential tools to deal with financial stability risks. - Ensure central bank operational independence, technical capability, and effective communication. - Develop tools, institutions, and expertise gradually; initiate transition in times of economic strength and stability. ### Monetary authorities’ views - SBV view summary: - Monetary policy maintained macroeconomic stability in the face of large capital inflows, including equitization receipts, which posed challenges for liquidity management. - SBV succeeded in maintaining credit growth below target although growth was strong. - Rising money demand, financial deepening and de-dollarization helped control inflation. - SBV intends to adhere to the 2018 credit growth target, while reassessing the target over the course of the year. - SBV shares staff’s view on the need to transition gradually to a modernized framework using inflation as the nominal anchor and greater exchange rate flexibility. - SBV will continue to strengthen capacity and will sequence measures depending on economic conditions and capacity development across institutions. - Market determination of interbank rates will need to await improvement of financial sector risk management and transition to Basel II standards. ### Financial sector: strengths and remaining weaknesses - Reforms and improvements: - Bank profits and asset quality are improving in most large banks, helped by strong economy and faster disposal of NPLs. - Legal changes in 2017 (Resolution 42) and higher real estate prices are facilitating disposal of collateral and restructuring of bad assets. - Amendments to the Law on Credit Institutions enhance corporate governance by clarifying bankruptcy and restructuring options. - Several banks have addressed legacy bad assets, raised profits and boosted capital; large private banks are already close to the 8 percent CAR Basel II requirement. - Banking system has become more competitive. - Remaining weaknesses and risks: - Profitability remains low relative to other ASEAN countries, particularly for some large private banks, including three weak banks taken over by the SBV in 2015. - SOCBs are profitable but required dividend payments hamper ability to use profits to boost capital. - Capital buffers remain thin in some SOCBs and a few private banks. - Reported NPL ratios are still high for some banks and could be higher if ever-greening and connected lending were fully accounted for. - Recent shift to consumer lending, including mortgages and durable goods, and margin lending could sour in a cyclical downturn. - Strong growth in asset prices may be leading to a buildup in financial sector risks; elevated equity prices complicate banks’ ability to raise Tier 1 capital. - Data gaps constrain supervision and risk assessment. ### Financial sector recommendations (banking, supervision, macroprudential) - SOCBs recapitalization and ownership: - SOCBs should be recapitalized quickly and managed at arms-length. - Required dividend payments to the budget should be reduced and fresh capital injected using government funds. - Recapitalization costs are an estimated 1-1½ percent of GDP to raise CAR up to current regulatory requirements and to meet Basel II requirements by 2020. - To help SOCBs recapitalize with new equity issues, state ownership should be reduced below 65 percent and foreign ownership limits raised. - Banks taken over by the SBV should be restructured and sold to strategic investors or liquidated. - NPL resolution and asset management: - Accelerate asset recovery by speeding up NPL resolution to less than the current 5–10-year timeframe. - Finalize implementing regulations for Resolution 42 to clarify enforcement, increase VAMC capital, and expand fast-track court procedures to cover a broader category of NPLs. - VAMC should stop warehousing bad assets; evolve into an asset management company by buying more NPLs at market prices in the near-term; and be gradually phased out over the medium-term. - Data, supervision, and standards: - Improve data quality on loan classification, disaggregated credit and banking sector and corporate exposures, and real estate markets. - Broaden required application of international accounting standards to improve transparency and help attract foreign capital. - Macroprudential and crisis frameworks: - Introduce leverage ratios and countercyclical buffers (CCBs), complemented by LTV and DSTI requirements to temper consumer and mortgage loan risks. - Ensure robust liquidity and crisis management frameworks, legal and operational clarity on early intervention, information sharing, and communication. - Establish a strong and adequately funded deposit insurance scheme and an effective lender of last resort. - Strengthen the AML/CFT framework (including customer due diligence for politically exposed persons) in line with FATF standards. ### Authorities’ views on banking reforms - Authorities view summary: - Banking sector reforms have contributed to macro-financial stability and growth but vigilance is needed about emerging risks. - Capitalization and consolidation of SOCBs is a priority; strong bank profits in 2017 make it a good time for bank restructuring to improve governance, transparency and efficiency. - Since the budget now has some room, SOCBs should be allowed to retain profits until legacy NPLs are fully resolved; this proposal is awaiting a high-level decision. - Agribank is targeted for equitization by 2019, after accounting for land holdings and land use plans. - Resolving legacy NPLs and preventing NPLs from rising are major priorities; banks have improved risk management and IT improvements (such as the Credit Information Bureau) have boosted financial deepening and credit demand while improving credit risk assessment. - New concerns: rising stock prices, margin lending for equity investment, and growing consumer lending. Speculative real estate investments have declined. - SBV is encouraging banks to reduce high-risk credit concentration and to improve internal risk management by strengthening prudential regulations; will conduct offsite supervision in institutions with concentration of these types of lending. - Recognition of need to improve data quality; SBV plans to harmonize definitions across regulations to improve data timeliness and accuracy. - Macroprudential policies such as LTV ratios and CCBs are under consideration but implementation would need to await availability of better data and transition to Basel II in 2020. ### Asset market developments (Box 1) — key points - Ample liquidity has elevated asset valuations. - Vietnamese stock markets have boomed, outperforming US and ASEAN markets; market capitalization in the Ho Chi Minh City and Hanoi stock indices tripled in 2016–17. - Sharp increase in stock prices driven by expectations for economic growth, SOE reforms and global financial conditions; slower growth, delays in reforms or loss of investor confidence could result in a market correction. - Real estate prices have rebounded from GFC lows but remain below 2008 highs; price-to-rent ratios suggest the increase in property prices is in line with growing housing demand from a rapidly growing urban middle class with rising incomes. - Availability of affordable housing is increasing, supported in part by low-interest mortgage lending by SOCBs. ### Enabling private-sector-led growth and innovation - Progress and reform drivers: - Administrative measures were scrapped in 2017 to level the playing field; business formation has risen to record levels. - CPTPP, EU-FTA, and commitments under other FTAs should further boost modernization and reforms. - Legal framework for equitization, divestment and SOE reform being revamped with creation of independent State Capital Management Committee (SCMC). - Several large and profitable SOEs in non-strategic sectors slated for divestment in 2016−20, with momentum in 2017 and 2018. - Public commitments have stepped up efforts to address high-level corruption and reduce perceptions of corruption. - Vietnam has a high-quality labor force with high female labor force participation and is ahead of ASEAN peers in mobile penetration and digital-economy readiness. - Remaining reform agenda: - Large agenda to achieve higher middle-income status: raise labor productivity, tackle barriers to domestic investment, reduce informality and dualism, and formulate a strategy for the digital age. - ILO (2016) estimate: 56 percent of jobs in the ASEAN-5 are at risk of automation by 2025 in retail and wholesale trade, construction and manufacturing, with women at disproportionate risk. - Policy focus areas: - Investment toward the digital future: continued investments in human capital and high-quality infrastructure to improve productivity, business climate and innovation. - Boost connectivity, enhance incubators for startups, facilitate participation in global and regional digital platforms and production. - Fundamental reform of tertiary education. *Source: IMF staff estimates and authorities’ views as presented in the supplied content.* ### Box 2. Gender Gaps ### Box 2. Gender Gaps ### Overview and key indicators - Female labor force participation is over 73 percent, close to that for men, surpassing levels in comparator ASEAN countries, and the 2016 OECD average. - Current net enrollment rates for women are now equal to, or higher, than those for men from primary through tertiary education. - The gender wage gap is, on average, just under 20 percent. - In the FDI sector: - Women comprise some 65 percent of the workforce. - Average wages in the FDI sector are the highest in the economy. - Women’s political representation: - Women chair the National Assembly. - Women comprise nearly 27 percent of MPs. - Labor composition: - Over 63 percent of working women are self-employed and family laborers. - Women’s access to the formal financial sector is low (as for men) relative to other lower middle-income countries. ### Main strengths highlighted - High female labor force participation (over 73 percent) that compares favorably with regional comparators and the 2016 OECD average. - High overall female educational attainment and parity or advantage in net enrollment rates from primary through tertiary levels. - Strong female presence in high-wage FDI-sector employment (women comprise some 65 percent of the FDI workforce). - Relatively strong parliamentary representation (nearly 27 percent of MPs; women chair the National Assembly). ### Principal challenges and constraints - Low share of women in the employed labor force with strong technical training (a constraint shared with men). - Heavy concentration of women in self-employment and family labor (over 63 percent of working women). - Occupational concentration in certain formal-sector industries (e.g., garments and automobile parts) that: - Are remunerated at piece rates. - Face high risk of automation. - Legal and regulatory barriers for women, including: - An earlier mandatory retirement age for women. - Disqualification for certain jobs. - Disproportionate unpaid family and societal care burden for women across education and income levels. - Low access to formal financial services relative to peers, likely restricting women’s ability to form businesses. ### Policy implications and areas for action (implied by findings) - Strengthen technical and vocational training access for women to increase participation in STEM and reduce skills mismatches. - Modernize and improve the quality of vocational training, boost private-sector led in-house training, and provide lifelong learning opportunities to raise labor productivity and facilitate rural-urban migration. - Improve women’s access to formal financial services to support business formation and investment. - Address legal and regulatory barriers that limit women’s employment opportunities, including retirement-age differentials and job disqualifications. - Reduce unpaid care burdens through social policies and services that reallocate care responsibilities and enable greater labor market participation by women. - Monitor industry-specific automation risks and design policies to support transitions for women concentrated in high-risk, piece-rate sectors. *Source: Box 2. Gender Gaps, cr18215 - Box 2. Gender Gaps (IMF).* ### 32. It is recommended that the next Article IV Consultation take place on the standard ### Vietnam: 2018 Article IV Consultation — Staff Appraisal ### Proposed Decision and Next Consultation - The Executive Board endorses the thrust of the staff appraisal in the report for the 2018 Article IV consultation with Vietnam (SM/18/125, 5/29/2018). - It is expected that the next Article IV consultation with Vietnam will take place on the standard 12-month cycle. - It is recommended that the next Article IV Consultation take place on the standard 12-month cycle. ### Growth and Inflation - Real GDP (percent change): 2013: 5.4; 2014: 6.0; 2015: 6.7; 2016: 6.2; 2017: 6.8; 2018 (proj): 6.6; 2019 (proj): 6.5. - GDP growth led by services and industry; strong domestic demand with contributions from Consumption and Gross capital formation. - CPI (period average): 2013: 6.6; 2014: 4.1; 2015: 0.6; 2016: 2.7; 2017: 3.5; 2018 (proj): 3.8; 2019 (proj): 4.0. - CPI (end of period): 2013: 6.0; 2014: 1.8; 2015: 0.6; 2016: 4.7; 2017: 2.6; 2018 (proj): 4.0; 2019 (proj): 4.0. - Core inflation (end of period): 2013: 4.2; 2014: 2.7; 2015: 1.7; 2016: 1.9; 2017: 1.3; 2018 (proj): 2.0; 2019 (proj): 3.1. - Output gap measures show variability with an estimated output gap series (Figure caption: Output gap in percent of potential GDP). ### Monetary Policy and Credit - Monetary policy described as accommodative, with credit targets well above trend growth. - Broad money (M2) growth (percent change, end of period): 2013: 18.8; 2014: 17.7; 2015: 16.2; 2016: 18.4; 2017: 15.0; 2018 (proj): 16.8; 2019 (proj): 18.9. - Credit to the economy (percent change, end of period): 2013: 12.7; 2014: 13.8; 2015: 18.8; 2016: 18.8; 2017: 17.4; 2018 (proj): 16.9; 2019 (proj): 15.3. - Credit-to-GDP ratio (Total in percent of GDP): 2013: 96.8; 2014: 100.3; 2015: 111.9; 2016: 123.8; 2017: 130.7; 2018 (proj): 136.8; 2019 (proj): 141.4. - Interest rates (end of period): nominal three-month deposit rate (households) noted historically (e.g., 2013: 6.9; 2014: 5.0; 2015: 4.8; 2016: 4.9), and nominal short-term lending rate (less than one year): 2013: 9.7; 2014: 8.5; 2015: 7.2; 2016: 7.2. ### External Accounts, Trade, FDI, and Reserves - Current account balance (in percent of GDP): 2013: 4.5; 2014: 4.9; 2015: -0.1; 2016: 2.9; 2017: 2.5; 2018 (proj): 2.1; 2019 (proj): 1.8. - Balance of Payments (in billions of U.S. dollars): Current account balance — 2013: 7.7; 2014: 9.1; 2015: -0.1; 2016: 5.9; 2017: 5.4; 2018 (proj): 5.0; 2019 (proj): 4.8. - Trade balance (in billions of U.S. dollars): 2013: 8.7; 2014: 12.1; 2015: 7.4; 2016: 11.0; 2017: 11.6; 2018 (proj): 11.3; 2019 (proj): 11.1. - Exports f.o.b. (in percent of GDP): 2013: 77.4; 2014: 80.8; 2015: 84.6; 2016: 87.7; 2017: 97.1; 2018 (proj): 103.7; 2019 (proj): 109.4. - Imports f.o.b. (in percent of GDP): 2013: 72.3; 2014: 74.3; 2015: 80.8; 2016: 82.2; 2017: 91.9; 2018 (proj): 99.0; 2019 (proj): 105.2. - FDI inflows and commitments remain strong and focused on manufacturing, with increasing diversification. - Gross international reserves (in billions of U.S. dollars): 2013: 26.1; 2014: 34.5; 2015: 28.5; 2016: 36.8; 2017: 49.4; 2018 (proj): 59.6; 2019 (proj): 72.0. - Reserves in months of prospective GNFS imports: 2013: 2.1; 2014: 2.4; 2015: 1.9; 2016: 2.0; 2017: 2.3; 2018 (proj): 2.4; 2019 (proj): 2.5. - Real effective exchange rate: trend and depreciation episodes noted (Figure: 2000Q1—2017Q4, 2010=100). ### Fiscal Policy and Public Debt - General government finances (in percent of GDP): Revenue and grants — 2013: 23.1; 2014: 22.2; 2015: 23.8; 2016: 23.7; 2017: 23.6; 2018 (proj): 23.3; 2019 (proj): 23.0. - Expenditure (in percent of GDP): 2013: 30.5; 2014: 28.5; 2015: 29.2; 2016: 28.5; 2017: 28.1; 2018 (proj): 27.9; 2019 (proj): 27.8. - Net lending (+)/borrowing (-) (in percent of GDP): 2013: -7.4; 2014: -6.3; 2015: -5.5; 2016: -4.8; 2017: -4.5; 2018 (proj): -4.6; 2019 (proj): -4.7. - Public and publicly guaranteed debt (end of period, in percent of GDP): 2013: 52.0; 2014: 55.0; 2015: 57.4; 2016: 59.9; 2017: 58.5; 2018 (proj): 57.9; 2019 (proj): 57.5. - Tax revenue (in percent of fiscal year GDP): 2013: 19.1; 2014: 18.2; 2015: 18.0; 2016: 17.9; 2017: 19.1; 2018 (proj): 18.7; 2019 (proj): 18.7. - Oil revenue (in percent of GDP): 2013: 3.4; 2014: 2.5; 2015: 1.6; 2016: 0.9; 2017: 0.9; 2018 (proj): 0.7; 2019 (proj): 0.6. - Falling yields have moderated debt service costs; public expenditure driven mainly by non-social current spending. ### Financial Sector Strengths and Risks - Profitability: Aggregate ROA (FSI) shows improvement but remains low compared to regional peers. - Return on Assets (FSI): 2012: 0.8; 2013: 0.5; 2014: 0.3; 2015: 0.4; 2016: 0.5; 2017: 0.8. - Non-performing Loans to Total Gross Loans (FSI): 2012: 3.4; 2013: 3.1; 2014: 2.9; 2015: 2.3; 2016: 2.3; 2017: 2.0. - Staff-estimated broader NPL ratio (including loans sold to VAMC and restructured under Decision 780) about 7.5 percent of total loans as of December 2017. - Regulatory Capital to Risk-Weighted Assets (FSI): 2012: 11.8; 2013: 13.4; 2014: 11.8; 2015: 12.8; 2016: 12.6; 2017: 12.2. - Capital adequacy ratios remain low in state-owned commercial banks due to dividend payments to budget. - Credit growth funded by stable credit-deposit ratios; consumer lending rising and may worsen asset quality in a downturn. - Financial Soundness Indicators (selected, in percent): Return on Equity — 2012: 8.2; 2013: 5.8; 2014: 3.2; 2015: 5.4; 2016: 6.6; 2017: 10.2. ### Competitiveness, Business Climate, and Human Capital - Strong export performance supported by low trade costs and trade agreements. - Well-educated labor force evidenced by Pisa 2015 Score placement. - Public capital stock per capita (2015 General Government Capital Stock per Capita, 2011 PPP$‑adjusted): Vietnam: 3,364.3 (figure among comparators shown in chart). - Regulatory quality and control of corruption: percentile ranks improved but remain below advanced economies (Regulatory Quality and Control of Corruption percentile rank charts: 2010 vs 2015). - Ease of Doing Business ranking illustrated (rankings from 1–190). ### Gender Gaps - Female labor force participation rate trends (1990–2015): Vietnam compared with regional peers (figure). - Women in national parliaments, 2018 (percent of parliament members): Vietnam shown among comparators (figure). ### Key Statistics and Memoranda (selected) - Nominal GDP (in trillions of dong): 2013: 3,584; 2014: 3,938; 2015: 4,193; 2016: 4,503; 2017: 5,008; 2018 (proj): 5,509; 2019 (proj): 6,142. - Nominal GDP (in billions of U.S. dollars): 2013: 170.6; 2014: 185.9; 2015: 191.5; 2016: 201.3; 2017: 220.4; 2018 (proj): 241.0; 2019 (proj): 264.5. - Per capita GDP (in U.S. dollars): 2013: 1,900; 2014: 2,049; 2015: 2,088; 2016: 2,172; 2017: 2,354; 2018 (proj): 2,548; 2019 (proj): 2,769. - Total external debt (end of period, in billions USD): 2013: 63.3; 2014: 70.6; 2015: 78.2; 2016: 89.4; 2017: 108.4; 2018 (proj): 121.0; 2019 (proj): 134.9. - External debt as percent of GDP: 2013: 37.3; 2014: 38.3; 2015: 42.0; 2016: 45.2; 2017: 49.1; 2018 (proj): 50.6; 2019 (proj): 51.4. - Exchange rate (dong per U.S. dollar, end of period): 2013: 21,105; 2014: 21,385; 2015: 22,485; 2016: 22,761; 2017: 22,698. *Source: IMF staff appraisal for the 2018 Article IV consultation with Vietnam (SM/18/125, 5/29/2018).* ### Appendix I. Progress Against IMF Recommendations ### Appendix I. Progress Against IMF Recommendations ### Fiscal Policies - Recommendation: Implement tax reform to broaden and diversify revenue base and undertake civil service reform. - Actions since 2017 Article IV Consultations: - Draft tax reforms tabled for discussions in late 2017. Revisions are underway. - Tax administration improvements: updating of electronic infrastructure; increasing rates of electronic e-filing and electronic tax refunds (particularly for VAT); improved coordination between the large taxpayer office and the local authorities. - Reductions in frequency of tax filing requirements and streamlining of procedures from 535 to 289 supporting the business climate. - Recommendation: Capital expenditure should be protected and its efficiency should be raised. - Actions since 2017 Article IV Consultations: - High-level efforts to accelerate disbursement of project funding through streamlined administrative measures, technical support, and economic incentives in 2017. - A PIMA is planned for 2018. (Undertake a Public Investment Management Assessment (PIMA).) ### Monetary Policy - Recommendation: Modernize the monetary framework by anchoring monetary policy on price stability, allowing greater exchange rate flexibility and phasing out credit growth targets. - Actions since 2017 Article IV Consultations: - Set interbank interest rates at the repo rate level and reduce credit growth targets to below 15 percent. - The main objective of monetary policy remains price and exchange rate stability. - The SBV will continue to strengthen its capacity for inflation targeting, but the sequencing of measures will depend on economic conditions and capacity development across a range of institutions. - Credit grew by 17½ percent in 2017, but credit growth targets were set at a lower level (17 percent) in 2018. - Interbank rate remained below the repo rate level in 2017 due to the rise in equitization related capital inflows into the banking system. ### Financial Sector Policies - Recommendation: Accelerate NPL resolution and banks recapitalization. - Actions since 2017 Article IV Consultations: - Legal changes in 2017 (Resolution 42) and higher real estate prices are facilitating disposal of collateral, restructuring of bad assets, and disposal of NPLs. - Amendments to the Law on Credit Institutions are enhancing bank corporate governance by clarifying bankruptcy and other restructuring options. - Several banks have addressed legacy bad assets, raised profits and boosted capital; large private banks are already close to the 8 percent capital adequacy ratio (CAR) Basel II requirement. - Capital buffers remain thin in some SOCBs and a few private banks. - Reported NPL ratios are still high for some banks and could be higher still if evergreening and connected lending were properly accounted for. ### Structural Policies - Recommendation: Accelerate SOE reform, upgrade governance and management and increase transparency. - Actions since 2017 Article IV Consultations: - Legal framework for equitization, divestment and reform of SOEs is being revamped with creation of an independent State Capital Management Committee (SCMC) overseeing all large SOEs to improve accountability and efficiency, while leaving management and regulation with line ministries and regulatory bodies. - Several large and profitable SOEs in non-strategic sectors are slated for divestment in 2016−20, with substantial momentum evident in 2017 and 2018. - Recommendation: Undertake product market reforms aimed at reducing regulatory barriers to entry to enhance competition and raise sectoral productivity. - Actions since 2017 Article IV Consultations: - Significant reduction in red tape and administrative procedures starting in mid-2017 and ongoing. - Further reforms are likely in the context of the implementation of free trade agreements. - Recommendation: Increase the environmental tax and gradually raise energy prices to fully price externalities associated with fossil fuels. - Actions since 2017 Article IV Consultations: - Environmental tax increases are likely to come into effect in July 2018. *Appendix I. Progress Against IMF Recommendations — IMF staff compilation* --- ### Appendix II. External Assessment ### Overall assessment - The external position is substantially stronger than warranted by fundamentals and desirable policies. - The current account (CA) gap is 5.2 percent of GDP and the exchange rate is undervalued by 7 percent. - Policy implications: - Address CA gap through more ambitious structural and financial sector reforms that strengthen private investment. - Protect and improve efficiency of public investment while pursuing fiscal consolidation. - Allow greater two-way exchange rate flexibility to reduce need to build buffers. ### Sectoral and structural drivers - FDI manufacturing sector: - Generates a large trade surplus of 15.5 percent of GDP. - Dominated by electronics multinationals and apparel producers integrated into Asian supply chains; engaged in final assembly and processing, with higher value-added activities increasingly located in Vietnam. - Domestic non-FDI sector: - Runs a trade deficit of 8.7 percent of GDP. - Productivity in this sector is low (20 percent of that of the FDI sector). - Exports dominated by agricultural commodities and oil. - Slow SOE reform progress, barriers faced by SMEs, credit misallocation and weaknesses in financial intermediation impede development outside the FDI sector. ### Savings, investment, and capital formation - Investment trend: - Gross capital formation has been below most countries in the region. - Excluding the FDI sector, investment has fallen by 10 percentage points, to 20 percent of GDP, in the last decade. - Decline reflects cutbacks in SOE capital formation in heavy industries, barriers to private manufacturing and SMEs, and declining public investment despite high fiscal deficits. - Saving trend: - Saving has remained at about 30 percent of GDP. - High saving reflects ineffective financial intermediation of high profits in the FDI sector into productive investment opportunities because of foreign ownership limits and banking system weaknesses. ### External flows and reserves - 2017 external inflows: - FDI inflows amounted US$14.1 billion, up 12 percent from 2016, mainly in manufacturing. - FII inflows surged from 0.2 to US$1.9 billion. - Private external disbursements rose, mainly due to FDI enterprises borrowing from parent companies and national banks. - Estimated errors and omissions remain high due to unreported imports and increase in US dollar currency holdings by residents outside the formal financial sector. - Reserve coverage: - Reserve coverage now stands at 77 percent of the adequacy metric, owing to an increase in GIR by US$12.5 billion in 2017. - At around 2.3 months of imports of goods and services at end−2017, reserves remain under the regional emerging market countries’ average of nine months. ### Valuation and model-based results - External balance assessment: - EBA current account norm: -3.8 percent (EBA-lite), indicating an REER undervaluation of 8.4 percent. - Adjusted cross-country panel regressions suggest a CA norm of -2.8 percent of GDP; using an EBA-lite semi-elasticity of the CA of -0.7 yields an REER undervaluation of 7 percent. - The equilibrium real exchange rate approach points to a substantial overvaluation, but the fit is poor; staff judgment relies on adjusted REER results of the CA regression. ### Recent REER and reserve metrics - REER: - REER appreciated on average by 4 percent per year from 2005 until 2016. - In 2017, the REER depreciated by 4.4 percent as the Dong remained pegged to a weakening U.S. dollar. - Reserve adequacy metric charted 2000Q1–2017Q4 shows reserve coverage relative to "Adequate" reserves under fixed and flexible exchange rate assumptions. ### Conclusion and recommendations - There is evidence of substantial CA strength of some 5.2 percent of GDP reflecting the dual structure of the economy. - Policy recommendations: - Structural and financial sector reforms to raise private investment. - Protect public investment while raising its efficiency and lowering the budget deficit. - Modernize the monetary framework with greater two-way exchange rate flexibility to facilitate nominal appreciation and reduce need to accumulate reserves. *Appendix II. External Assessment — IMF staff compilation* --- ### Appendix III. Risk Assessment Matrix ### Key external risks, likelihood, impact, and policy responses - Risk: Tighter global financial conditions - Likelihood: H - Impact: M — Decline in financial market confidence, capital outflows with pressure on the exchange rate and reserves, stock market correction and tightening of liquidity conditions, increase in sovereign yields, pressure on banks with weak balance sheets. - Policies to minimize impact: - Tighten monetary policy and allow exchange rate flexibility, with judicious currency intervention to avoid excessive volatility. - Strengthen bank balance sheets. - Initiate modernization of the monetary framework using inflation as a nominal anchor. - Accelerate growth friendly fiscal rebalancing and consolidation, and structural reforms to support confidence and FDI and build adequate buffers. - Risk: Intensification of the risk of fragmentation/security dislocation - Likelihood: H - Impact: (not specified in excerpt) - Risk: Significant China slowdown and its spillovers - Likelihood: L/M - Impact: M — Decline in growth due to weaker export growth, FDI, and remittances. Pressures on the exchange rate and international reserves. Deterioration in public sector and bank balance sheets. - Policies to minimize impact: - Allow greater exchange rate flexibility, move toward using inflation as a nominal anchor. - Accelerate financial sector, SOE, and structural reforms. - Undertake fiscal rebalancing to support growth and public investment while ensuring debt sustainability. - Risk: Significant U.S. slowdown and its spillovers - Likelihood: H - Impact: M (summary line in table) - Risk: Retreat from cross border integration - Likelihood: M - Impact: H — Weaker export growth, FDI, and remittances; supply chains could be interrupted. - Policies to minimize impact: - Rapid implementation of CPTPP and FTAs with the EU, Eurasian Economic Union, and Korea. - Deepen regional trade integration. - Strengthen competitiveness through accelerated SOE, structural, and banking sector reforms. - Risk: Poor quality and insufficient fiscal consolidation - Likelihood: H - Impact: H — Weaker medium-term productivity and output growth, higher sovereign yields, crowding out generate unsustainable debt dynamics and impact bank balance sheets. Lower investor confidence and capital flight create exchange rate pressures. - Policies to minimize impact: - Strengthen revenues by reducing tax exemptions, improving tax administration, introducing a property tax. - Curtail non-essential spending, reduce wage bill by implementing civil service reform, improve quality of investment spending. - Use SOE equitization receipts to help finance the budget and buyback debt, but this should not substitute for structural consolidation. - Risk: Continued high credit targets - Likelihood: H - Impact: H — Excessive risk taking exacerbates weaknesses in bank balance sheets. Credit misallocation gives rise to economic inefficiencies, reduces productivity and growth and creates an adverse sovereign-macroeconomic-financial feedback loop. - Policies to minimize impact: - Reduce credit growth targets and phase out over the medium-term. - Accelerate NPL resolution and recapitalization of systemically important banks, resolve small unviable banks, strengthen safety nets. - Monitor vulnerabilities and proactively manage risks to prevent excessive risk taking by banks. - Make progress on developing a macroprudential framework. - Risk: Climate change - Likelihood: H - Impact: H — Vietnam is among the top ten countries affected by air pollution. Greenhouse gas emissions are expected to double between 2010 and 2020 and triple by 2030. By 2100, climate change could impact more than 12 percent of the population and reduce growth by 10 percent. - Policies to minimize impact: - Lower the intensity of fossil fuels by raising the contribution of renewable energy. - Provide stronger incentives for green growth through taxation of fossil fuels that fully price environmental externalities. - Invest in climate resilient infrastructure. - Shift to autonomous, electric, shared vehicles to reduce congestion and pollution in cities. - Improve government capacity to coordinate technological change and promote and green growth. - Note: “L” =Low; “M” =Medium; “H” =High. The RAM shows events that could materially alter the baseline path. The relative likelihoods are staff’s subjective assessment: “low” <10 percent, “medium” 10–30 percent, “high” 30–50 percent. Non-mutually exclusive risks may interact and materialize jointly. *Appendix III. Risk Assessment Matrix — IMF staff compilation* ### Appendix IV. Public and External Debt Sustainability Analysis ### Appendix IV. Public and External Debt Sustainability Analysis ### Overview - Vietnam’s public and publicly guaranteed (PPG) debt rose by 10 percentage points of GDP in the last five years, to 58.5 percent of GDP in 2017. - Staff assesses the debt sustainability risk as low to moderate, reflecting uncertainty about fiscal consolidation measures and equitization revenues and risks from potential contingent liabilities related to banks and SOEs. - Under staff’s baseline projections (incorporating less consolidation than authorities’ plan), PPG debt would remain about constant until 2023. ### Framework and Coverage - DSA framework used: the debt sustainability analysis (DSA) framework for market access countries with higher scrutiny (risk-based, expanded). - The DSA includes: (i) assessment of realism of baseline assumptions and projected fiscal adjustment; (ii) analysis of risks associated with the debt profile; (iii) macro-fiscal risks; (iv) stochastic debt projection; (v) standardized heat map. - Coverage: public and publicly guaranteed debt and external debt. Analysis covers central government, state owned enterprises (SOEs) and specialized financial institutions (SFIs) limited to government-guaranteed debt. Local government debt included in public debt. ### Macro-fiscal assumptions and realism of baseline - Growth: slightly declines from 6.8 percent in 2017 to 6.6 percent in 2018, stabilizes at potential—6.5 percent—in the medium term. - Primary fiscal balance: staff projects a primary fiscal deficit of 2.6 percent in 2018, assumed to remain constant over the medium-term. - Realism: median forecast errors for real GDP growth, primary balance and inflation during 2008–16 are around -0.4 percent (no systematic projection bias). - Cross-country evidence: maximum three-year adjustment in cyclically adjusted primary balance (CAPB) over projected period is 1 percent; consolidation assumed mainly via expenditure reduction. ### Public debt sustainability — baseline and drivers - Baseline projection: PPG debt-to-GDP ratio declines by 0.6 percentage points in 2018; PPG debt should remain below 60 percent of GDP by 2023. - Factors making projections more benign than 2017 analysis: - greater planned use of non-debt creating equitization revenues for budget financing; - a lower 2017 deficit; - lower interest payments due to lower financing needs in 2016 and 2017; - lower interest rates. - Debt profile dynamics and shares: - Most debt has medium to long-term maturity. - Share of foreign currency-denominated debt projected to decrease from 43 percent of total debt in 2016 to 39 percent in 2023. - Identified fiscal flows (selected figures from DSA table and figure): - Nominal gross public debt: 47.7 (2016), 59.9 (2017), 58.5 (2017 in text) — baseline path shows 57.8 (2018), 57.4 (2019), 57.1 (2020), 57.4 (2021), 57.6 (2022), 58.2 (2023) (Figure 1 columns). - Public gross financing needs: 8.8 (2016), 7.3 (2017), 6.9 (2018), 6.9 (2019), 7.4 (2020), 7.6 (2021), 8.0 (2022), 8.0 (2023), 8.2 (cumulative shown). - Primary deficit series: 3.0 (2016), 2.9 (2017), 2.7 (2018), 2.6 (2019), 2.8 (2020), 2.7 (2021), 2.7 (2022), 2.6 (2023). - Effective interest rate (defined as interest payments divided by debt stock excluding guarantees at end of previous year): 4.2 (2016), 4.5 (2017), 4.2 (2018), 5.3 (2019), 6.0 (2020), 6.0 (2021), 6.3 (2022), 6.0 (2023) (Figure 1). - Contingent liabilities included in projections: - Includes 0.2 percent of GDP remaining cost of recapitalizing Agribank (8.8 trillion dong), assumed finalized by end-2019. - DSA does not include potentially large contingent liabilities from potentially high levels of non-guaranteed SOE debt and costs of recapitalizing SOCBs and the SCIC; lack of specific information limits assessment. ### Stress tests, scenarios, and probabilistic outcomes - Scenario comparisons: - Constant primary balance scenario tracks baseline closely. - Historical scenario (real GDP growth, primary balance and real interest rates set at historical average) yields a level of PPG debt similar to constant primary balance but temporarily higher financing needs. - Macro-fiscal stress tests (selected outcomes): - Real interest rate shock: effective interest rate increased by 55 basis points in 2020 to 185 basis points in 2023 → raises PPG debt to 60 percent of GDP. - Combined macro-fiscal shock in 2018 → increases PPG debt to 66 percent of GDP by 2023. - Stochastic simulation probabilities: - Negative-case scenario: PPG debt could reach about 73 percent of GDP with 10 percent likelihood by 2023. - Combination of positive shocks: debt-to-GDP ratio could fall to 50 percent with a 25 percent probability by 2023. - Heat map: - Shows a low risk of debt distress. - Gross-financing-needs-to-GDP ratio remains below the 15 percent threshold under all shocks. - Assessment highlights risks in external financing requirements and foreign currency debt. ### External debt sustainability - Levels and recent changes: - External debt-to-GDP ratio rose to 49.2 percent in 2017. - PPG external debt remained constant at 26 percent of GDP between 2016 and 2017. - Private external debt increased strongly in 2017, mainly from FDI companies and banks. - Short-term external private debt grew by 70 percent to reach US$22 billion in 2017; about half of the increase went towards the purchase of SABECO’s shares (SOE equitized in December 2017). - Projections: - Baseline: external debt increases to 50.2 percent of GDP in 2018 and reaches 54 percent of GDP by 2023 as gross external financing needs rise. - Vietnam’s external debt is vulnerable to real depreciation and current-account shocks; growth and interest rate shocks have limited impact on external debt dynamics. - External DSA table (selected figures): - Baseline external debt: 37.1 (2013), 38.0 (2014), 40.9 (2015), 44.4 (2016), 49.2 (2017), 50.2 (2018), 51.0 (2019), 51.7 (2020), 52.5 (2021), 53.3 (2022), 54.1 (2023). - Gross external financing need (in billions of US dollars): 5.3 (2013), 5.0 (2014), 15.1 (2015), 10.3 (2016), 18.6 (2017), 25.3 (2018), 28.3 (2019), 31.6 (2020), 35.2 (2021), 39.2 (2022), 42.9 (2023). - External debt-to-exports ratio (in percent): 44.4 (2013), 43.8 (2014), 45.2 (2015), 47.4 (2016), 47.7 (2017), 45.7 (2018), 44.1 (2019), 42.6 (2020), 41.0 (2021), 39.5 (2022), 38.0 (2023). ### Key risks and policy implications (as highlighted in the DSA) - Key risks: - Uncertainty about fiscal consolidation measures and equitization revenues. - Potential contingent liabilities from banks, SOCBs, SOEs, and the SCIC not fully captured. - External risks: real depreciation and current-account shocks affecting external debt dynamics. - Policy implications / recommended priorities (based on DSA findings): - Identify and implement concrete fiscal consolidation measures to reduce uncertainty around the baseline. - Ensure transparency and monitoring of SOE and bank liabilities, including non-guaranteed SOE debt. - Manage external vulnerabilities by monitoring short-term external private debt and external financing needs. - Use non-debt creating equitization revenues as planned, while ensuring realism of revenue assumptions. *Source: IMF staff.* ### Appendix V. Vietnam—Draft Press Release ### Appendix V. Vietnam—Draft Press Release ### Key findings and 2017–18 outlook - Growth accelerated to 6.8 percent in 2017 while inflation remained below the 4 percent target. - Private consumption was driven by rural-to-urban migration, rising incomes, and a growing middle class, and supported by accommodative financial conditions, stronger bank balance sheets, and an improving business climate. - Current account surplus increased in 2017 driven by exports, tourism, remittances, real effective depreciation due to a weaker dollar, and the global recovery. - Vietnam received record FDI and other capital inflows in 2017. - The central bank maintained the Dong within a tight range to the dollar and accumulated US$12½ billion of international reserves in 2017. - Growth is projected at 6.6 percent in 2018; inflation is forecast to rise to just under the 4 percent target. - On current trends and if reforms continue at their current pace, 6½ percent annual growth remains feasible beyond 2018. - The current account surplus is expected to decline over the medium term as structural reforms boost investment and real effective appreciation of the Dong resumes its trend, leaving reserves at 2½–3 months of imports. ### Executive Board Assessment (summary) - Vietnam’s dynamic, highly open economy continues to perform well, aided by macroeconomic and financial stability, stepped up economic reforms, and inflows of foreign direct investment that are enabling structural transformation and raising potential growth. - Financial buffers are still thin; macroeconomic policy frameworks remain inflexible, complicating shock management. - The external position is substantially stronger than warranted by fundamentals. - The strong economy provides an opportunity for more ambitious reforms to level the playing field by tackling remaining distortions and capacity constraints, increasing investment, and reducing the external surplus. - It is recommended that the next Article IV Consultation take place on the standard 12-month cycle. ### Policy recommendations and priorities - Fiscal policy - Emphasize high-quality consolidation to meet large development needs and ensure fiscal space for longer-term challenges. - Adopt a slightly more ambitious consolidation than currently planned and a lower debt ceiling than the current statutory limit to create additional fiscal room before aging sets in the mid-2030s and to provide for contingencies. - Stronger consolidation should rely on high-quality structural fiscal measures and measures to boost private investment. - Reform focus: broaden tax bases; reduce administrative and wage-related spending; protect social spending through well designed social security and civil service reforms; protect and improve the quality of public investment. - Implement comprehensive and timely fiscal accounts based on GFSM 2014 and improve budget planning and execution to facilitate consolidation. - Monetary and exchange rate policy - Tighten monetary policy by further lowering credit growth to align with ongoing improvements in financial deepening. - Allow greater two-way exchange rate flexibility within the current band to reduce speculative inflows, absorb shocks, and help bring down the external surplus. - Continue reserve accumulation but more gradually, with fully sterilized interventions. - Modernize the monetary framework: gradually ease away from credit targets and begin a phased shift to inflation targeting and greater exchange rate flexibility. - Financial sector - Further strengthen financial sector balance sheets, supervision, and risk management. - Capitalize SOCBs swiftly with government funds, and by raising private sector and foreign ownership limits. - Develop a macroprudential framework and improve data quality on credit aggregates and balance sheet exposures. - Ensure robust liquidity and crisis management frameworks are in place with legal and operational clarity for early intervention and communication. - Structural reforms - Broaden and accelerate reforms to tackle remaining barriers to investment and raise labor productivity. - Priority areas: high-quality infrastructure investments; reduce regulatory barriers and transition to international standards for regulatory excellence, transparency and data quality; tertiary education reforms; reduce concentration of land ownership in state hands; continued SOE reforms. - Enhance anti-corruption measures and address the threat of climate change. ### Selected economic and financial indicators (highlights from Table 1) - Real GDP (percent change): 2017 = 6.8; 2018 (projection) = 6.6; 2019 (projection) = 6.5 - CPI (period average): 2017 = 3.5; 2018 (projection) = 3.8; 2019 (projection) = 4.0 - CPI (end of period): 2017 = 2.6; 2018 (projection) = 4.0; 2019 (projection) = 4.0 - Core inflation (end of period): 2017 = 1.3; 2018 (projection) = 2.0; 2019 (projection) = 3.1 - Gross national saving (in percent of GDP): 2017 = 29.0; 2018 (projection) = 29.8; 2019 (projection) = 30.2 - Private saving: 2017 = 26.2; 2018 = 26.9; 2019 = 27.4 - Public saving: 2017 = 2.8; 2018 = 2.9; 2019 = 2.8 - Gross investment (in percent of GDP): 2017 = 26.6; 2018 = 27.7; 2019 = 28.4 - Private investment: 2017 = 19.2; 2018 = 20.3; 2019 = 21.1 - Public investment: 2017 = 7.4; 2018 = 7.4; 2019 = 7.4 - General government finances (in percent of GDP) - Revenue and grants: 2017 = 23.6; 2018 (projection) = 23.3; 2019 (projection) = 23.0 - Of which: Oil revenue: 2017 = 0.9; 2018 = 0.7; 2019 = 0.6 - Expenditure: 2017 = 28.1; 2018 = 27.9; 2019 = 27.8 - Expense: 2017 = 20.7; 2018 = 20.6; 2019 = 20.4 - Net acquisition of nonfinancial assets: 2017 = 7.4; 2018 = 7.3; 2019 = 7.3 - Net lending (+)/borrowing(-): 2017 = -4.5; 2018 = -4.6; 2019 = -4.7 - Public and publicly guaranteed debt (end of period): 2017 = 58.5; 2018 (projection) = 57.9; 2019 (projection) = 57.5 - Money and credit (percent change, end of period) - Broad money (M2): 2017 = 15.0; 2018 (projection) = 16.8; 2019 (projection) = 18.9 - Credit to the economy: 2017 = 17.4; 2018 = 16.9; 2019 = 15.3 - Balance of payments (in percent of GDP) - Current account balance (including official transfers): 2015 = -0.1; 2016 = 2.9; 2017 = 2.5; 2018 (projection) = 2.1; 2019 (projection) = 1.8 - Exports f.o.b.: 2017 = 97.1; 2018 (projection) = 103.7; 2019 (projection) = 109.4 - Imports f.o.b.: 2017 = 91.9; 2018 (projection) = 99.0; 2019 (projection) = 105.2 - Capital and financial account: 2017 = 9.0; 2018 (projection) = 2.2; 2019 (projection) = 2.9 - Gross international reserves (in billions of U.S. dollars): 2017 = 49.4; 2018 (projection) = 59.6; 2019 (projection) = 72.0 - In months of prospective GNFS imports: 2017 = 2.3; 2018 = 2.4; 2019 = 2.5 - Total external debt (end of period): 2017 = 49.1; 2018 (projection) = 50.6; 2019 (projection) = 51.4 - Nominal exchange rate (dong/U.S. dollar, end of period): 2013 = 21,105; 2014 = 21,385; 2015 = 22,485; 2016 = 22,761; 2017 = 22,698 - Memorandum items: - GDP (in trillions of dong at current market prices): 2017 = 5,008; 2018 (projection) = 5,509; 2019 (projection) = 6,142 - GDP (in billions of U.S. dollars): 2017 = 220.4; 2018 (projection) = 241.0; 2019 (projection) = 264.5 - Per capita GDP (in U.S. dollars): 2017 = 2,354; 2018 (projection) = 2,548; 2019 (projection) = 2,769 ### Fund relations, technical assistance, and external partners - IMF membership: Joined September 21, 1956; Article VIII. - Quota and SDR holdings: - Quota: 1,153.10 (SDR Million) = 100.00 percent of quota. - Fund holdings of currency: 1,153.10 (SDR Million) = 100.00 percent of quota. - Net cumulative allocation (SDR Department): 314.79 (SDR Million) = 100.00 percent allocation; Holdings 269.77 = 85.70 percent. - Latest financial arrangements (historical): ECF arrangements and Stand-By arrangements listed with approved and drawn amounts (no outstanding purchases and loans currently). - Exchange arrangement: Classified as de facto stabilized; de jure managed floating. SBV is gradually increasing exchange-rate flexibility; in August 2015 the VND/USD trading band was widened to +/-3 percent from +/-1 percent; in January 2016 the VND/USD rate was announced to be adjusted daily based on specified criteria. - Technical assistance and collaboration: - Recent TA from FAD on tax administration organization; from MCM on modernizing the monetary policy framework; STA provided TA on Government Finance Statistics, National Accounts and Consumer Price Index. - TAOLAM provides TA on external sector statistics and STI organizes trainings. - Resident Representative: Mr. Jonathan Dunn (for Vietnam and Lao P.D.R., based in Hanoi). - IMF collaboration with World Bank and ADB on fiscal, monetary, financial sector, and statistical issues; details of World Bank Group and ADB programs, lending, and technical assistance are summarized in the staff report. ### Statistical issues and data adequacy - General: Data provision has some shortcomings but is broadly adequate for surveillance; most affected areas are financial sector, national accounts, government finance, and external sector statistics. - National accounts: GSO provides quarterly (cumulative) and annual data; recommendation to compile discrete and independent quarterly GDP instead of cumulative estimates and to centralize national and provincial estimates at GSO. Base year is 2010; plan to implement the 2008 SNA by 2020. - Prices statistics: CPI methodology broadly in line with international standards; rental equivalence approach implemented for owner-occupied housing; improvements recommended for rental sample rotation, weights update in 2019, and price collection frequency. - Government finance statistics: Current coverage excludes quasi fiscal activities of the central bank, SOEs, and extra-budgetary funds (including Social Security Fund, Enterprise Restructuring Fund, Development Assistance Fund, Export Support Fund, local development funds, and the Sinking Fund). Compilation is on a cash basis for final annual data; need to align definitions with GFSM 2014. Authorities expect to provide GFSM 2014 consistent data starting in 2018. - Monetary statistics: SBV reports monthly monetary data using old report forms with limited information; STA recommends a reporting scheme with comprehensive breakdowns by counterparty and currency to facilitate migration to standardized report forms. - External sector statistics: BOP statistics rely on limited source data; BPM6 reporting began for 2013 data but timeliness remains an issue. Recommendations include establishing an International Transaction Reporting System, conducting annual FDI surveys, improving treatment of goods for processing, remittances estimates, unrecorded trade in gold, distinguishing international reserves transactions from valuation changes, and improving timeliness and dissemination formats including IIP. - Financial Soundness Indicators: Vietnam reports 10 of the 12 core FSIs, 7 of the 13 encouraged FSIs for deposit takers, and one FSI for real estate markets with semi-annual frequency; data reported with lag of more than two quarters. - Data dissemination and standards: Participant in GDDS since September 2003 and e-GDDS since 2015; STA assisted in developing a National Summary Data Page; recommended strategy to progress toward SDDS thresholds. Currently no data ROSC available. - Reporting to STA: No government finance statistics are currently reported for publication in the IMF’s Government Finance Statistics Yearbook or International Financial Statistics; annual GFS data through 2004 were reported historically; no sub-annual fiscal data reported for publication in IFS since 2001. *Source: cr18215 - Appendix V. Vietnam—Draft Press Release (staff report excerpts).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18215.pdf_