## 1vnmea2022001

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---

### COVID-19 Developments — context, health, and near-term macro trends
- Context and recent developments
  - Vietnam entered the pandemic with robust growth, price stability, low public debt ratios, strong FDI and trade flows, and banks in a relatively strong position.
  - Vietnam was "the regional top-performing economy in 2020."
  - Severe outbreak in April 2021 (delta) led to progressively more stringent containment measures starting in May 2021; disruptions concentrated in Southern provinces that account for the lion’s share of industrial production.
- Health and vaccination
  - More than 77 percent of the population is now fully vaccinated.
  - Around 37.8 million booster shots have been administered as of April 24, 2022.
  - Vietnam relied on a diverse portfolio of vaccines, led by Pfizer-BioNTech.
- Growth and high-frequency indicators
  - Real GDP grew by 2.6 percent on the year (2021).
  - GDP: historical contraction of 6.3 percent y/y in Q3 2021; rebound since Q4 2021.
  - High-frequency indicators point to stronger momentum going into 2022: rising retail sales, industrial production, and firm entry.
- Labor market
  - Labor force participation and employment gradually recovering after declines to their lowest levels in a decade.
  - As of mid-December 2021, 2.2 million people (4 percent of the labor force) had left main urban centers and returned to hometowns.
  - Estimated 0.7 percent of GDP in aggregate household income was lost in 2021Q3 alone due to job losses and lower wages/incomes.
- Inflation and supply chains
  - Headline inflation in April 2022 was still below the central bank’s 4 percent target.
  - Core inflation remains low; limited pass-through from producer prices, a wide output gap, and relatively stable food and administered prices explain subdued inflation.
  - Recent 50 percent reduction in the environmental protection tax (taxes account for 40 percent of the price at the pump) through end-year has limited pass-through of fuel prices to end-user prices.
- External sector and reserves
  - Current account balance narrowed to a deficit of 1 percent of GDP in 2021, from a surplus of 4.4 percent of GDP in 2020.
  - Gross FX reserves increased by USD 14.3 billion, of which around USD 1.6 billion are due to the SDR allocation.
  - The real effective exchange rate appreciated slightly; external position in 2021 assessed stronger than implied by medium-term fundamentals and desired policies.
- Macroeconomic policy response (summary)
  - Monetary: SBV moved toward 6-month forward purchase contracts in 2021; exchange rate flexibility increased; interbank rates ticked up from historic lows of 2020; accommodative policies remain with abundant liquidity.
  - Financial: SBV extended loan forbearance until June 2022; banks reduced or exempted interest rate payments for 2.3 million clients (outstanding loans accounted for 34 percent of total loans); restructured loans comprised around 2.8 percent of the total loan book as of end-2021.
  - Fiscal: Budgetary outlays for health, social assistance, and liquidity measures increased in 2020-21; execution hamstrung by capacity constraints and weaknesses in the social protection system.

### Outlook and risks (staff projections and scenario risks)
- Staff baseline projections
  - Growth: 6.0 percent in 2022 and 7.2 percent in 2023 (assumes continued vaccine effectiveness, abated supply disruptions, normalization of activity in 2022).
  - Headline inflation projected at 3.9 percent by end-2022; core inflation projected at 2.3 percent by end-2022.
  - Current account surplus expected to increase modestly to around 1 percent in 2022-23.
  - Staff estimates output loss due to scarring could be around 3 percent of GDP in the medium term.
- External downside risks
  - Intensification of geopolitical tensions, a more significant slowdown in China, outbreaks of new lethal/highly contagious COVID-19 variants, and faster-than-expected tightening of monetary policy in advanced economies.
  - Upside: benefits from recently ratified free trade agreements and favorable reconfigurations of global supply chains.
- Domestic downside risks
  - Macro-financial vulnerabilities related to real estate and corporate bond markets; a surge in food and core inflation; weak execution of the PRD; climate change.
- Authorities’ views
  - Growth forecast for 2022: range of 6 to 6.5 percent.
  - Expect near-term inflation rise driven by fuel prices and supply chain disruptions but remain within the authorities’ 4 percent target.
  - Concern about spillovers from geopolitical tensions and a China slowdown; called for building additional external buffers.

### Risk Assessment Matrix — selected entries and policy implications
- Climate change
  - Likelihood: High; Time Horizon: ST, MT; Impact: High.
  - Quantified impacts: climate change could impact more than 12 percent of the population by 2100, and reduce GDP by 10 percent by 2050.
  - Policy responses: address mitigation and adaptation, lower fossil fuel intensity, tax fossil fuels, invest in climate-resilient infrastructure.
- Other high-likelihood/high-impact risks: Russia’s invasion of Ukraine, rising and volatile food and energy prices, outbreaks of lethal COVID-19 variants, domestic frothiness in asset prices.
- Policy responses emphasized across risks: targeted policy support, greater exchange rate flexibility, accelerate structural reforms, strengthen macroprudential frameworks, and enhance fiscal and social protection measures.

### Key external and macro numbers (selected)
- Current account balance (percent of GDP): 2021 -1.0; 2022 0.7; 2023 1.3.
- Gross international reserves (in billions of U.S. dollars): 2019 78.5; 2020 95.2; 2021 109.4; 2022 125.5; 2023 146.6.
- Real GDP (percent change): 2018 7.2; 2019 7.2; 2020 2.9; 2021 2.6; 2022 6.0; 2023 7.2.

### Authorities’ recommended consultation cadence
- It is recommended that the next Article IV consultation be held on the standard 12-month cycle.

---

### Fiscal policy — PRD assessment, near-term stance, and recommendations
- PRD and composition
  - National Assembly approved a support package for 2022-23 estimated at 4.1 percent of GDP (around USD 15 billion).
  - PRD envisages temporary tax relief, liquidity support for firms, spending on healthcare, education, and infrastructure; large investment spending (1.4 percent of GDP) on social, transport, green, and digital infrastructure.
- Near-term fiscal outlook and financing
  - Headline fiscal deficit projected to widen to 4.7 percent of GDP in 2022—a 2.4 percentage point increase in the cyclically adjusted primary balance.
  - Staff projection assumes only partial implementation of planned capital spending; higher deficits expected mostly financed through domestic debt issuance.
  - Public debt projected to remain around 40.5 percent of GDP over the medium-term.
- Fiscal policy guidance (findings and recommendations)
  - Maintain temporary, targeted support while facilitating economic transformation.
  - Prefer targeted support to vulnerable but viable firms rather than blanket measures.
  - Consider targeted interest rate subsidy eligibility and steer tax deferrals (1.6 percent of GDP) to vulnerable viable firms.
  - Strengthen social safety nets: automaticity in benefit scale-up and coverage extension to informal workers.
  - Revenue mobilization measures: reduce exemptions, rationalize preferential regimes for FDI firms, broaden VAT base, raise environmental tax and excise duties, introduce a unified property tax with a land registry, and differentiate stamp duties by investor and housing type.
  - Strengthen fiscal frameworks: prudent debt anchor introduced at 55 percent of GDP in 2021; statutory debt ceiling revised from 65 to 60 percent of GDP; refine escape clauses and corrective mechanisms; set numerical ceilings only on public FX external debt; manage private external debt risks through macroprudential measures.
  - Pension reforms: recent increase in retirement age welcome; further parametric reforms needed.
- Agility and scenarios
  - If recovery faster than expected: rebuild buffers by saving revenue windfall and possibly under-executing the budget.
  - If downside risks materialize: pursue a more expeditious fiscal response and greater flexibility to reallocate funds within the recovery package.
- Key fiscal statistics and PRD amounts (as presented)
  - Headline fiscal deficit projected: 4.7 percent of GDP in 2022.
  - Cyclically Adjusted PB: increase by 2.4 percentage points.
  - Public debt projected: around 40.5 percent of GDP.
  - PRD package line items (as presented in source):
    - Tax 700.8%
    - Reduce taxes (including standard VAT by 2ppts)640.8%
    - VAT, CIT, PIT and land rental deferrals 60.1%
    - Spending 2773.3%
    - Health: medical infrastructure, training, import vaccines 600.7%
    - Investment capital (traffic, IT, digital, green)113.551.4%
    - Interest rate support (2%/year) via commercial banks400.5%
    - VBSP (preferential credit policy & sovereign guarantees)43.40.5%
    - Modernization of social security facilities 3.150.0%
    - Rent for workers6.60.1%
    - Support to EBFs10.30.1%
    - Total package3474.1%
  - Consolidated State Budgetary Operations (selected figures)
    - Total revenue and grants 15.5 18.6 14.9 16.7
    - Tax revenue 12.2 14.1 11.8 12.6
      - of which: VAT 3.9 4.5 3.8 3.9
    - Expenditure 20.1 22.1 19.3 21.3
    - Expense 14.5 16.1 13.3 15.2
    - Net acquisition of non-financial assets 5.6 6.0 5.6 6.1
    - Net lending (+)/borrowing (-) -4.6 -3.5 -4.4 -4.7
    - Net incurrence of financial liabilities 2.0 4.6
    - Net acquisition of financial assets 1.4 0.1
    - Memo: Primary Balance -1.1 -3.5; Cyclically Adjusted PB (% potential GDP) -1.5 -3.9; Public and publicly guaranteed debt 39.7 40.5

---

### Monetary and exchange rate policy — stance, risks, and recommendations
- Monetary policy stance and operations
  - Monetary policy should be data dependent, forward looking, and increasingly vigilant of rising inflationary pressures.
  - SBV expects monetary policy to stay supportive of macroeconomic stability through 2022, given gradual inflation increase projections.
  - Operational FX change: SBV replaced spot interventions with 6-month forward purchase contracts in 2021Q2; introduced 3-month forward selling contracts in early 2022 after a short period of spot purchases.
- Key indicators and metrics (as presented)
  - Credit-to-GDP ratio: around 125 percent.
  - SBV VND/USD buying rate appreciation: about 2 percent over the year.
- Policy recommendations
  - If sustained inflation pressures emerge, SBV should tighten monetary policy stance and clearly communicate underlying drivers.
  - Tighten macroprudential policies if abundant liquidity leads to increased risk taking and frothy asset valuations.
  - Continue modernization: develop SBV’s forecasting and analytical capacity with IMF FPAS TA.
  - Recommend gradual relaxation of credit growth ceilings and short-term deposit and lending-rate caps while strengthening macroprudential toolkit.
  - Adopt tools for mopping market liquidity (including a deposit facility) and allow greater two-way exchange rate flexibility.

---

### Financial sector conditions, vulnerabilities, and policy guidance
- Asset quality and credit
  - Impaired loan ratios would have been around 6.3 percent at end-2021 if not for forbearance on loan classification.
  - Credit expanded 13.5 percent y/y at end-2021, largely channeled to real estate, manufacturing, and trade.
  - Property and corporate bond market risks rising: record-high corporate bond issuances and equity and property market valuations; price pressure points in land sales, high-end housing in major cities, and mega-developments in coastal areas.
  - Household debt stood at around 50 percent of GDP at end-2020; 25 percent of household debt was housing-related (mostly mortgages).
- Forbearance and provisioning
  - Recommendation: unwind relaxation of loan classification and provisioning rules; regulatory forbearance not extended beyond June 2022.
  - Circular 03/2021 required banks to set aside 30 percent of required provisions by end-2021, 60 percent by end-2022, and 100 percent by end-2023 for restructured loans.
- Supervision and macroprudential measures
  - Intensified supervision warranted for banks with riskier profiles, especially SOCBs where restructured loans increased and capital positions are weaker.
  - SBV should closely monitor Basel II adoption and consider raising foreign ownership limits and reducing state ownership of SOCBs to facilitate capital raising.
  - Macroprudential toolkit recommendations: consider countercyclical capital buffer, capital conservation buffer, limits on LTV and DSTI ratios, and adjust risk weights to address property sector vulnerabilities.
- Capital markets and digital finance
  - Corporate bond market growing rapidly; private placements dominate.
  - Need to encourage public issuance, develop a credit rating agency, strengthen disclosure requirements, and enforce securities legislation.
  - Fintech growth rapid; Vietnam performs poorly by traditional financial inclusion measures; pilot cashless mobile payment solution underway.
  - Care needed to ensure consumer/investor protection, AML/CFT compliance, and financial stability.

---

### Labor market — Annex I: impacts, dynamics, and policy-relevant measures
- Overall impacts and timeline
  - At the peak of the crisis, 28.2 million workers were affected through job losses, leave without pay, and reduced working hours and incomes.
  - Employment shrank mainly in services; average worker earned 12.6 percent less in 2021Q3 than a year ago.
  - Industrial jobs in the South fell 70 percent y/y in September 2021.
  - By December 2021, roughly 2.2 million workers had left the cities.
- Demographics and skills
  - Youth and prime-age groups accounted for roughly half of total job destruction at end-2021.
  - Workers without certificates or expertise registered the largest drop in employment; medium-skill (vocational training) workers saw employment gains.
  - Underemployment remains elevated, particularly in the service sector.
- Informal sector and migration
  - Roughly half the labor force works in the informal sector.
  - Pre-pandemic worker flows: Southern region 50 percent, Northern roughly 30 percent, Central roughly 20 percent; 10 percent of mobility was across regions.
- Policy-relevant mitigations
  - Strengthen active labor market policies, reskilling, vocational training, housing support, childcare facilities, and job search assistance.
  - Vocational training can compensate for human capital losses and improve job matching.

---

### Digitalization and social protection — Annex VII I (findings and simulation results)
- Social protection coverage and digital access
  - In 2019, only 26.5 percent of the labor force was covered by social insurance.
  - 53 percent of households have at least one member that is an informal worker.
  - Among households with at least one informal worker: 60 percent do not have access to financial services; 28 percent are not eligible to receive any social security payments; 76 percent have access to the internet; a larger number have access to mobile phones.
- Micro-simulation of income shocks and transfers (ε shock severities: 0.25, 0.5, 1)
  - Under baseline ε = 0.5, pandemic reduces average household income by approximately 17 percent per year.
  - Relative impacts on average household income (percent, relative to 2018 baseline):
    - ε = 0.25 | ε = 0.5 | ε = 1
    - No transfers: -6.83, -16.92, -37.09
    - UI transfers: -3.90, -11.05, -25.36
    - Digital payments: -1.07, -5.41, -14.06
  - Under ε = 0.5: UI benefits for formal workers increase average income by about 6 percent (relative to the pandemic-reduced base); digital payments for informal workers with digital access increase average income by another 6 percent.
  - Digital payments cut the impact of the COVID-19 shock by about half compared to current benefits.
- Policy recommendations
  - Strengthen digital payment systems, link digital IDs with bank/mobile money accounts, build a unified beneficiary registry, expand e-KYC and mobile money adoption, and automate payment/registration to close coverage and delivery gaps.
- Steps underway
  - 2015 resolution 36A/NQ-CP on e-government; Decision No 714/QD-TTg on national population database elements; pilot nationwide mobile money project under PM 2021 Decision 316-TTg with transaction limits at VND 10 mn per month.

---

### Fintech and crypto — Annex XI (developments, risks, and supervision)
- Sector growth and composition
  - Number of Fintech companies grew by 67 percent in the past 4 years.
  - Leading segments: digital payments, peer-to-peer lending, and the crypto asset sector.
  - Combined transaction value in digital payments, personal finance, alternative financing, and alternative lending increased from USD 12 billion in 2019 to 18 billion in 2021.
  - Vietnam’s e-commerce market value in 2020 reached almost USD 12 billion—2.5 percent of GDP.
- Adoption and enabling factors
  - 37 percent of the population is 24-year-old or younger; mobile phone penetration among adults is 80 percent.
  - Only 30 percent of the population had access to bank services in 2017; ratio of bank branches per capita was 4 per 100,000 adults in 2020.
- Crypto adoption and concerns
  - Online survey in 2020 ranked Vietnam second for crypto adoption with 21 percent of respondents using or owning crypto assets (survey caveat: internet bias).
  - Lack of clear legislation on crypto asset ownership and trading is a regulatory gap.
- Supervisory guidance and regulatory developments
  - SBV Directive 02/2022 called for cooperation to enable access to databases for KYC, use of cloud computing, big data, machine learning, biometric authentication, upgrades to interbank payment and credit information systems, and incident reporting requirements.
  - Examination of legislation to propose a regulatory sandbox for fintech solutions in the banking sector.
- Risks and regulatory gaps
  - Consumer protection, AML/CFT, and financial integrity risks.
  - Online payments regulated as Intermediate Payment Services, but other activities (crypto, P2P) lack comprehensive legislation.

---

### Climate mitigation options — Annex XIII (ETS simulations and implications)
- Emissions context and commitments
  - Vietnam’s GHG emissions represent 0.7 percent of global emissions; coal-dependent energy sector is the bulk of emissions.
  - Prime Minister announced intention to achieve net-zero emissions by 2050; pledged to end all investment in new coal power generation and phase out coal power by the 2040s.
  - 2020 NDC targets: reduce GHG emissions by 9 percent unconditionally and 27 percent conditionally by 2030 relative to BAU (2014 base year).
- ETS design and illustrative scenarios
  - Pilot ETS expected to start by 2025 and become fully operational by 2027; illustrative coverage: power and industry sectors covering around 70 percent of total CO2 emissions.
  - ETS introduced in 2025 with starting price $5/tCO2 rising to $25, $50, $75/tCO2 in 2030.
- Emissions reductions (2030 relative to model-based BAU)
  - ETS $25/tCO2: reduce emissions by 7 percent below BAU.
  - ETS $50/tCO2: reduce emissions by 11 percent below BAU.
  - ETS $75/tCO2: reduce emissions by 15 percent below BAU.
- Fiscal revenues and macro effects (2030)
  - ETS reaching $25/tCO2: raise revenues of 1.1 percent of GDP in 2030.
  - ETS reaching $50/tCO2: raise revenues of 1.7 percent of GDP in 2030.
  - ETS reaching $75/tCO2: raise revenues of 2.2 percent of GDP in 2030.
  - Revenue recycling in simulations: half to new public investments, a quarter to current spending, a quarter to cash transfers.
  - Simulations suggest net GDP growth gains of about 0.33 percentage points above BAU in 2035 under ETS $75/tCO2 scenario (primarily from increased public investments with higher multipliers).
- Policy implications
  - An ETS alone insufficient for net-zero by 2050; additional sectoral policies needed (renewable deployment, transport decarbonization, pricing reforms).
  - Carbon pricing introduction should be timed to avoid undermining post-pandemic recovery.

---

### Public and external debt sustainability — Annex VII (baseline, stress tests, and scenarios)
- PPG debt and baseline projections
  - PPG debt estimated at 39.7 percent of GDP in 2021.
  - Under staff baseline, PPG debt increases to 40.5 percent of GDP in 2022 and stabilizes around 40.6 percent of GDP by 2027.
  - Staff assesses debt sustainability risk as low to moderate.
- Baseline macro assumptions (selection)
  - Real GDP growth: 2.6 percent in 2021; projected 6.0 percent in 2022; potential 6.7 percent over medium term.
  - Primary deficit: 3.5 percent of GDP in 2022; declines to around 2.1 percent of GDP in 2027 (debt-stabilizing primary balance is 2.5 percent of GDP).
- Alternative and stress scenarios (selected outcomes)
  - Constant primary balance scenario: PPG debt could increase to around 44 percent of GDP over the medium-term.
  - Contingent liability shock (10 percent of banking sector assets): PPG debt about 54 percent of GDP by 2027.
  - Real interest rate shock (750 bps each year): PPG debt around 44 percent of GDP in 2027.
  - Combined macro-fiscal shock (2022): PPG debt about 49 percent of GDP by 2027.
- Stochastic outcomes
  - Negative-case: PPG debt could reach about 49 percent of GDP with 10 percent likelihood by 2027.
  - Positive-case: debt-to-GDP could fall to 27 percent with 10 percent probability in 2027.
- External debt and vulnerabilities
  - Total external debt-to-GDP: 36.4 percent in 2021.
  - Under baseline, external debt projected to reach 35.5 percent of GDP in 2022 and stabilize around 33.0 percent over medium-term.
  - External debt vulnerable to real depreciation and current account shocks; gross external financing needs remain manageable below key thresholds.

---

### Staff appraisal — priorities and recommended policy mix
- Macroeconomic assessment
  - Vietnam managed transition to living with COVID-19 on the back of an impressive vaccination drive.
  - Recovery uneven; outlook highly uncertain and contingent on geopolitical developments, China slowdown, global pandemic trajectory, and domestic financial vulnerabilities.
  - Inflation expected to rise close to SBV’s target amid commodity price pressures and supply chain disruptions.
- Recommended policy mix and priorities
  - Policymaking should be agile; size and composition of support adjusted proactively to risks.
  - With output below potential and available fiscal space, policy mix should remain supportive but elevated inflation precludes additional monetary stimulus.
  - Fiscal policy should be the first line of defense against downside growth risks; provide temporary, targeted support and improve execution.
  - Unwind loan restructuring and regulatory forbearance; strengthen supervision, provisioning, and capital buffers.
  - Strengthen insolvency and institutional frameworks to facilitate bad debt resolution.
  - Deepen capital markets, harness digital transformation, and address AML/CFT framework shortcomings.
  - Revenue mobilization critical over medium-term to rebuild buffers, boost climate resilience, and achieve the SDGs.
- Structural transition priorities
  - Tackle pervasive economic dualism, boost productivity, combat corruption, improve governance, strengthen policy and data frameworks.
  - Climate policies need clear mapping into budgeted actions and financing sources.

*Source: 1vnmea2022001 — IMF staff report excerpts and annexes.*

### 1. COVID-19 Developments _____________________________________________________________________________ 24

### 1. COVID-19 Developments

### Context and recent developments
- Vietnam entered the pandemic with robust growth, price stability, low public debt ratios, strong FDI and trade flows, and banks in a relatively strong position.
- Successful containment measures and supportive policies made Vietnam "the regional top-performing economy in 2020."
- A severe outbreak in April 2021 (delta) prompted progressively more stringent containment measures starting in May 2021 and large disruptions concentrated in Southern provinces that account for the lion’s share of industrial production.

### Health and vaccination
- More than 77 percent of the population is now fully vaccinated.
- Around 37.8 million booster shots have been administered as of April 24, 2022.
- Vietnam relied on a diverse portfolio of vaccines, led by Pfizer-BioNTech.

### Growth and high-frequency indicators
- GDP tracked mobility closely: rose strongly in 2021H1, recorded a historical contraction of 6.3 percent y/y in Q3, and rebounded since Q4.
- Real GDP grew by 2.6 percent on the year (2021), slower than in 2020 and regional peers.
- Government spending only partially offset the pandemic’s adverse impact on private consumption; net exports were weaker.
- High-frequency indicators point to stronger momentum going into 2022, with rising retail sales, industrial production, and firm entry.

### Labor market
- Labor force participation and employment have been gradually recovering after declining to their lowest levels in a decade.
- Informal, young, and low-skilled workers were hardest hit, potentially fueling inequality.
- Migrant workers' departures in 2021: as of mid-December, 2.2 million people (4 percent of the labor force) had left main urban centers and returned to hometowns.
- Underemployment remains high, particularly in the services sector.
- An estimated 0.7 percent of GDP in aggregate household income was lost in 2021Q3 alone due to job losses and lower wages/incomes.

### Inflation and supply chain disruptions
- Consumer price inflation is edging up but remains subdued despite the surge in fuel and producer prices.
- Headline inflation in April 2022 was still below the central bank’s 4 percent target.
- Core inflation remains low; limited pass-through from producer prices, a wide output gap, and relatively stable food and administered prices explain subdued inflation.
- Upstream inputs captured by PPI account for a relatively small share of materials purchased by producers of final consumption goods.
- Recent 50 percent reduction in the environmental protection tax (taxes account for 40 percent of the price at the pump) through end-year has limited pass-through of fuel prices to end-user prices.

### External sector
- Current account balance narrowed to a deficit of 1 percent of GDP in 2021, from a surplus of 4.4 percent of GDP in 2020.
- FDI inflows remained broadly resilient; other net capital inflows increased (higher portfolio investments and short-term external borrowing by financial institutions).
- Gross FX reserves increased by USD 14.3 billion, of which around USD 1.6 billion are due to the SDR allocation.
- The real effective exchange rate appreciated slightly; the external position in 2021 is assessed to be stronger than implied by medium-term fundamentals and desired policies (Annex III).

### Macroeconomic policy response
- Monetary policy: SBV moved away from spot FX interventions toward 6-month forward purchase contracts in 2021 to delay domestic liquidity injections and reserve accumulation; exchange rate flexibility was facilitated; interbank rates ticked up from historic lows of 2020; accommodative monetary policies remain in place with abundant liquidity.
- Financial policy: SBV extended loan forbearance until June 2022 and encouraged banks to waive or reduce interest rates and fees and limit dividend payouts; banks reduced or exempted interest rate payments for 2.3 million clients (outstanding loans accounted for 34 percent of total loans); SOCBs applied rate cuts to 80-100 percent of total loans; private banks to 26 percent on average; restructured loans comprised around 2.8 percent of the total loan book as of end-2021.
- Fiscal policy: Budgetary outlays for health, social assistance, and liquidity measures increased in 2020-21; tax deferrals and cuts in administrative charges benefitted firms; surplus in unemployment insurance fund was used to temporarily raise benefits; execution was hamstrung by capacity constraints and weaknesses in the social protection system.

### Financial sector conditions and risks
- Impaired loan ratios would have been around 6.3 percent at end-2021 if not for forbearance on loan classification.
- Asset quality deteriorated in 2021; thin capital buffers in some systemically important SOCBs and varied provisioning coverage ratios among banks raise pronounced asset quality concerns for some banks.
- Credit expanded faster than output: 13.5 percent y/y at end-2021, largely channeled to real estate, manufacturing, and trade.
- Property and corporate bond market risks are rising: record-high corporate bond issuances and equity and property market valuations; price pressure points in land sales, high-end housing in major cities, and mega-developments in coastal areas.
- Banks face direct exposure to real estate in loan portfolios and indirect exposure through holding corporate bonds issued by real estate companies.
- Household debt stood at around 50 percent of GDP at end-2020; 25 percent of household debt was housing-related (mostly mortgages).

### Program for Recovery and Development (PRD) and policy agenda
- National Assembly approved a support package for 2022-23 estimated at 4.1 percent of GDP (around USD 15 billion).
- Package includes near-term fiscal measures to boost demand, stepped-up spending on health, digital, and physical infrastructure, and credit support measures including interest rate subsidies for household businesses and firms.
- Possible extension of loan forbearance and other regulatory measures as needed.
- Broad reform agenda expected to cover climate change, digital transformation, innovation, financial inclusion, business climate, education, and the labor market.

### Outlook and risks
- Staff projects growth of 6.0 percent in 2022 and 7.2 percent in 2023 (assumes continued vaccine effectiveness, abated supply disruptions, normalization of activity in 2022).
- Headline inflation projected at 3.9 percent by end-2022; core inflation projected at 2.3 percent by end-2022.
- Current account surplus expected to increase modestly to around 1 percent in 2022-23.
- Financial inflows expected to strengthen as the economy reopens.
- Economic scarring: potential growth expected to recover in 2023-24; investments and PRD reforms critical to limit scarring and boost productivity.
- Staff estimates the output loss due to scarring could be around 3 percent of GDP in the medium term.

*Source: 1vnmea2022001 - 1. COVID-19 Developments*

### 13.      The outlook is uncertain, and risks are tilted to the downside (Annex VI).

### 1vnmea2022001 - 13.      The outlook is uncertain, and risks are tilted to the downside (Annex VI)

### Outlook and Risks
- External risks
  - Intensification of geopolitical tensions could adversely affect economic activity and inflation through weaker external demand, higher commodity prices, and extended global supply chain disruptions.
  - A more significant slowdown in China or outbreaks of new lethal and highly contagious COVID-19 variants are important downside risks to growth.
  - Faster-than-expected tightening of monetary policy in advanced economies could create exchange rate pressure and complicate monetary policy.
  - Upside: benefits from recently ratified free trade agreements and favorable reconfigurations of global supply chains.
- Domestic risks
  - Macro-financial vulnerabilities related to the real estate and corporate bond markets: borrower vulnerability to rising interest rates, funding problems in the leveraged real estate sector, or a sharp correction in real estate prices could amplify balance sheet vulnerabilities.
  - A surge in food and core inflation could de-anchor inflation expectations and compress households’ real incomes and spending.
  - Weak execution of the PRD could stymie the recovery, while full implementation provides an upside.
  - Climate change poses a serious threat to longer-term growth prospects.

### Authorities’ Views
- The authorities agreed with staff’s assessment and emphasized that the outlook remains uncertain.
- Growth forecast for 2022: range of 6 to 6.5 percent.
- Expected near-term inflation rise driven by fuel prices and supply chain disruptions, but expected to remain within the authorities’ 4 percent target.
- Concerned about spillovers from geopolitical tensions and a China slowdown.
- Agreed broadly with staff’s assessment of Vietnam’s external position but noted vulnerability due to a large FDI sector and rising private external debt; called for building additional external buffers.

### Policy Discussion — priorities and scenarios
- Broad agreement on priorities: entrench the recovery, preserve financial stability, and promote inclusive growth.
- Policymaking guidance
  - Policymaking should be agile; size and composition of policy support proactively adjusted to pace of recovery and clearly communicated to reduce uncertainty.
  - Timing and sequencing of policy normalization should be balanced against heightened downside risks and emerging banking system strains.
  - Once recovery is firmly established: mobilize domestic revenue and shore-up banking system resilience.
- Fiscal and monetary policy mix
  - With economic slack persisting and available fiscal space, the policy mix should remain accommodative, with fiscal policy the first line of defense against downside growth risks given rising inflationary pressures.
  - More targeted fiscal measures could alleviate trade-offs monetary policy may face if stagflationary pressures materialize.
  - Greater vigilance to contain systemic financial risks, particularly from the real estate sector, while avoiding disorderly tightening of financial conditions.
- Structural transition
  - Tackle pervasive economic dualism, boost productivity, combat corruption, improve governance, and strengthen policy and data frameworks.
  - Climate change policies need clear mapping of ambitions into actions and a more integrated strategy.

### A. Fiscal Policy — findings and recommendations
- PRD assessment
  - PRD prioritizes health, economic recovery, and medium-term growth prospects; spending transparency, accountability and efficiency, and steadfast implementation are key.
  - The package envisages temporary tax relief, liquidity support for firms, spending on healthcare education, and infrastructure investment.
  - Markedly high investment spending on social, transport, green, and digital infrastructure (1.4 percent of GDP) provides an important offset to pandemic hysteresis, but low efficiency and weak execution could undermine its multiplier effect.
- Near-term fiscal outlook
  - Headline fiscal deficit projected to widen to 4.7 percent of GDP in 2022—a 2.4 percentage point increase in the cyclically adjusted primary balance.
  - Staff projection assumes only partial implementation of planned capital spending, consistent with historical execution rates, and is more conservative than authorities’ estimates.
  - Higher deficits expected to be mostly financed through domestic debt issuance.
  - Public debt projected to remain around 40.5 percent of GDP over the medium-term.
- Fiscal policy stance
  - Fiscal policy should strike a balance between temporary, targeted support and facilitating economic transformation.
  - Balancing broad-based support and targeted social assistance:
    - Temporary reduction of the VAT top rate on select products may support domestic consumption but could be regressive and difficult to reverse.
    - The temporary cut in the environmental protection tax (0.3 percent of GDP) can limit the rise in domestic oil prices, but is a second-best option to targeted cash transfers.
    - Low income households would benefit from greater automaticity in benefit scale-up and coverage extension of social safety nets to informal workers.
  - Targeting vulnerable but viable firms:
    - Tax deferrals (1.6 percent of GDP) could help cushion firms, but support should be increasingly steered to the most vulnerable yet viable firms.
    - Interest rate subsidy in the PRD (0.5 percent of GDP) may lower borrowing costs; limiting eligibility to distressed but viable firms and using targeted benefits for hard-hit SMEs is preferable to blanket measures.
  - Facilitating labor reallocation and reintegration:
    - Spending on housing support, childcare facilities, vocational training and job search assistance in the PRD (0.6 percent of GDP) is welcome to bolster labor market recovery.
    - Strengthen active labor market policies, reskilling and training.
- Agility and scenarios
  - If the recovery is faster than expected: rebuild buffers by saving revenue windfall and possibly under-executing the budget; a less accommodative fiscal stance would help contain inflationary pressures.
  - If downside risks materialize: pursue a more expeditious fiscal response and greater flexibility to (re)allocate funds within the recovery package.
- Longer-term spending priorities
  - Promote inclusive growth, achieve SDGs, boost climate resilience, and strengthen social safety nets.
  - Climate vulnerability: in the absence of appropriate policy responses, 10-15 percent of the country’s GDP could be lost by 2050.
  - Integration of adaptation plans with the budgetary process is essential.
  - Strengthen social safety nets: create a single registry of beneficiaries, link digital IDs with socio-economic databases, expand electronic/mobile payments for transfers.
- Revenue mobilization
  - Revenue intake declining and low compared to peers; reverse trend by phasing out pandemic-related tax measures and implementing staff’s tax policy recommendations.
  - Measures: reduce exemptions, rationalize preferential regimes for FDI firms, broaden VAT base, raise environmental tax and excise duties.
  - Introduce a unified property tax with a land registry and differentiated stamp duties by investor and housing type.
  - Continue reforms in tax collection and compliance (large tax-payer unit, compliance risk management).
- Strengthening fiscal frameworks
  - Refine public debt anchor: prudent anchor introduced at 55 percent of GDP in 2021 and statutory debt ceiling revised from 65 to 60 percent of GDP; further refine escape clauses and corrective mechanisms.
  - Upgrade external-debt framework: set numerical ceilings only on public (not private) FX external debt; consider residency criterion for external debt; manage private external debt risks through macroprudential measures.
  - Strengthen public financial management: reduce data lags on final budgetary accounts; limit spending and revenue carryforwards; merge extrabudgetary funds with the budget; improve public investment management in line with 2018 PIMA recommendations.
  - Pension system reforms needed to address unfunded liabilities and improve coverage, adequacy, sustainability, and fairness; recent increase in retirement age welcome but further parametric reforms needed.

- Key fiscal statistics and PRD amounts as presented
  - Headline fiscal deficit projected: 4.7 percent of GDP in 2022.
  - Cyclically Adjusted PB: increase by 2.4 percentage points.
  - Public debt projected: around 40.5 percent of GDP.
  - PRD package line items (as presented):
    - Tax 700.8%
    - Reduce taxes (including standard VAT by 2ppts)640.8%
    - VAT, CIT, PIT and land rental deferrals 60.1%
    - Spending 2773.3%
    - Health: medical infrastructure, training, import vaccines 600.7%
    - Investment capital (traffic, IT, digital, green)113.551.4%
    - Interest rate support (2%/year) via commercial banks400.5%
    - VBSP (preferential credit policy & sovereign guarantees)43.40.5%
    - Modernization of social security facilities 3.150.0%
    - Rent for workers6.60.1%
    - Support to EBFs10.30.1%
    - Total package3474.1%
  - Consolidated State Budgetary Operations (selected figures)
    - Total revenue and grants 15.5 18.6 14.9 16.7
    - Tax revenue 12.2 14.1 11.8 12.6
      - of which: VAT 3.9 4.5 3.8 3.9
    - Expenditure 20.1 22.1 19.3 21.3
    - Expense 14.5 16.1 13.3 15.2
    - Net acquisition of non-financial assets 5.6 6.0 5.6 6.1
    - Net lending (+)/borrowing (-) -4.6 -3.5 -4.4 -4.7
    - Net incurrence of financial liabilities 2.0 4.6
    - Net acquisition of financial assets 1.4 0.1
    - Memo: Primary Balance -1.1 -3.5; Cyclically Adjusted PB (% potential GDP) -1.5 -3.9; Public and publicly guaranteed debt 39.7 40.5

### B. Monetary and Exchange Rate Policy — findings and recommendations
- Monetary policy stance
  - Monetary policy should be data dependent, forward looking, and increasingly vigilant of rising inflationary pressures.
  - Baseline: SBV expects monetary policy to stay supportive of macroeconomic stability through 2022, based on projections of a gradual inflation increase.
  - This stance is appropriate given still-significant economic slack, low core inflation, and downside risks to growth.
  - With the economy rebounding, additional stimulus in train, and global financial conditions tightening, capital flows and inflation dynamics should be closely monitored, and vigilance of the financial system strengthened.
- Risks and responses
  - If sustained inflation pressures emerge, SBV should tighten monetary policy stance and clearly communicate underlying drivers.
  - Tighten macroprudential policies if abundant liquidity results in increased risk taking by banks and frothy asset valuations, posing risks to financial stability.
- Policy path and financial stability
  - Nominal monetary aggregates and credit growth have outpaced nominal GDP growth significantly since the pandemic onset.
  - Credit-to-GDP ratios around 125 percent coupled with high borrower leverage could pose asset quality risks.
  - Clear communication about policy path, including regular assessments of credit growth targets, would guide markets and enhance policy effectiveness.
- Exchange rate flexibility and FX policy
  - Greater flexibility will allow the exchange rate to serve as a shock absorber.
  - Appreciation of SBV’s VND/USD buying rate by about 2 percent over the year and the use of FX forward contracts are seen as moves toward greater two-way exchange rate flexibility.
  - FX reserves are broadly adequate at the current juncture.
  - If monetary surprises from advanced economies disrupt capital inflows and intensify exchange rate depreciation pressures, monetary policy tightening along with FX interventions could be warranted to counter disorderly market conditions.
  - Operational changes: SBV replaced FX spot interventions with 6-month forward purchase contracts in 2021Q2 and introduced 3-month forward selling contracts in early 2022 after a short period of spot purchases.
- Monetary policy framework modernization
  - Continue progress developing SBV’s forecasting and analytical capacity with IMF FPAS TA to strengthen monetary policy transmission.
  - Recommend gradual relaxation of credit growth ceilings (aggregate and bank-by-bank) and short-term deposit and lending-rate caps for priority sectors to strengthen market-based pricing, while strengthening the macroprudential toolkit.
  - Adopt tools for mopping market liquidity (including a deposit facility) and allow greater two-way exchange rate flexibility.

- Key monetary and financial statistics and indicators
  - Credit-to-GDP ratio: around 125 percent.
  - SBV VND/USD buying rate appreciation: about 2 percent over the year.
  - Operational FX change: replaced spot with 6-month forward purchase contracts in 2021Q2; introduced 3-month forward selling contracts in early 2022.

*Source: 1vnmea2022001 - 13. The outlook is uncertain, and risks are tilted to the downside (Annex VI).*

### 28.      The SBV stressed the need to closely monitor inflationary pressures and to

### 1vnmea2022001 - 28.      The SBV stressed the need to closely monitor inflationary pressures and to

### Monetary policy and inflation
- The SBV stressed the need to closely monitor inflationary pressures and to increasingly focus on their price stability objective.
- The SBV agreed that rising inflationary risks from external factors require vigilance, and that monetary policy should be agile to contain inflation and ensure macroeconomic stability.
- Monetary policy recommendations and orientation:
  - Monetary policy should be data dependent, forward-looking, and increasingly vigilant of inflationary risks.
  - The SBV should stand ready to tighten its monetary policy stance in the face of sustained inflation pressures, and clearly communicate the underlying drivers to avoid de-anchoring inflation expectations.
  - Continued efforts to modernize the monetary policy framework and allow greater two-way exchange rate flexibility will help strengthen the conventional transmission mechanism of interest rate policies.
  - The SBV noted that a move towards more exchange rate flexibility is desirable in the medium and long term, but emphasized that adjustments and changes in the management framework must be carefully and prudently considered and implemented in a gradual manner.

### Financial sector policies — findings and recommendations
- Forbearance and provisioning
  - Relaxation of loan classification and provisioning rules should be unwound.
  - Regulatory forbearance on loan classification should not be extended beyond June 2022.
  - The SBV should consider accelerating provisioning for restructured loans ahead of schedule.
  - Circular 03/2021 by the SBV required banks to begin provisioning for restructured loans that would have been downgraded had it not been for the classification forbearance. Banks had to set aside 30 percent of the required provisions by end-2021 and raise this proportion to 60 percent by end-2022 and 100 percent by end-2023.
- Banking system resilience and supervision
  - Given the level of impaired loans and increased exposure and lending concentration of banks to certain sectors and borrower groups, supervisors should carefully assess the adequacy of banks’ capitalization to absorb potential losses and—if necessary—require banks to submit credible restoration plans.
  - Focus should be on both overall levels of NPLs and sectoral breakdowns, including restructured loans, provisions, and impact on bank profitability and capital without forbearance.
  - Intensified supervision is warranted for banks with riskier profiles, especially SOCBs where restructured loans increased and capital positions are weaker.
  - The SBV should closely monitor banks’ plans for Basel II adoption, as this is key to enhance loss-absorbing capacity and align reporting and provisioning of NPLs with international standards.
  - To facilitate capital raising, consideration should be given to increase foreign ownership limits and reduce state ownership of SOCBs.
- Macroprudential framework
  - A strengthened macroprudential framework will help safeguard financial stability.
  - Recent expansions include adoption of sectoral concentration limits and more careful review of lending to riskier market segments (e.g., selected corporate bonds, real estate, and securities markets).
  - The SBV should continue developing its macroprudential policy, and improve the institutional framework and data quality, as per IMF TA.
  - Consideration should be given to introducing a countercyclical capital buffer or a capital conservation buffer, setting limits on the loan-to-value and debt-service-to-income ratios, and adjusting risk weights, including to address any emerging vulnerabilities in the property sector.
- Capital markets and digital finance
  - The corporate bond market is growing rapidly, but private placements dominate public issuances.
  - Policies to encourage public issuance, develop a credit rating agency, and strengthen disclosure requirements for private placements would enhance transparency and strengthen investor confidence.
  - Securities legislation and regulations should be appropriately enforced to strengthen credibility.
  - Efforts to harness the digital transformation in the financial sector in an inclusive manner are welcome and should be coupled with appropriate legislation.
  - Vietnam performs poorly relative to its peers by traditional measures of financial inclusion, with a significant unbanked population for whom a cashless mobile payment solution is currently being piloted.
  - Fintech firms are growing rapidly in areas such as digital banking and digital payments as well as peer-to-peer lending, with newly-introduced eKYC solutions also facilitating access to bank accounts.
  - While fintech’s economic footprint remains small, care should be taken to ensure that financial, operational, and market integrity, consumer and investor protection, and financial stability are not impaired.

### Macro-structural policies and structural reform priorities
- Productivity, innovation, and firm formalization
  - Vietnam’s development strategy requires an upgrade to meet the authorities’ aspirations of sustained, inclusive, and green growth.
  - Pervasive economic dualism across firms, sectors, and workers held back productivity and hindered efficient allocation of resources; the pandemic exacerbated these trends.
  - The PRD’s reforms on labor, training, innovation, and business climate are steps in the right direction; medium-term growth prospects hinge critically on decisive reform implementation.
  - Policies to create a level playing field for finance and land access, simplify licensing and permit requirements, and adjust regulations that inhibit expansion of SMEs and young firms would foster firm formalization, technology diffusion, and narrow productivity gaps.
  - Strengthening adoption of digital technologies (especially by SMEs) could foster future productivity gains.
- Labor market and skills
  - Improvements in the business climate should be complemented by efforts to improve the quality of the labor force and reduce skill mismatches.
  - University-level and vocational-technical skills are under-supplied; few firms provide formal training.
  - In the near-term, active labor market policies should facilitate labor reallocation toward expanding sectors and facilitate upskilling and reskilling, particularly in digital skills.
- Equity, housing, and social policy
  - Policies that better balance growth and equity objectives can more effectively support the recovery and promote long-term prospects.
  - In addition to better targeting fiscal and credit support to vulnerable groups, options include improving the progressivity of the tax system (e.g., by introducing a property tax), stepping up public social spending, and policies to improve housing affordability (including by reducing supply bottlenecks).
- Green transition and climate policy
  - Efforts to green the economy are welcome and should be supported by robust carbon pricing.
  - Despite increased use of renewables, coal remains the mainstay of the power sector and is the largest contributor to rising greenhouse gas emissions.
  - Vietnam recently pledged to achieve carbon neutrality by 2050.
  - The planned pilot of an emissions trading system in 2025 is welcome, but additional fiscal and regulatory tools will be needed.
- Governance, AML/CFT, and data
  - Efforts to improve governance by strengthening the anti-corruption framework and enforcement continue, but corruption remains a serious and complex challenge.
  - Recent amendments mandate creation of databases on asset and income control and bank accounts; close to 1.3 million people have declared their assets and income to date.
  - The recent Mutual Evaluation of Vietnam will inform prioritization of policies to strengthen the AML/CFT framework.
  - Priority data improvements include improving compilation and accuracy of budget estimates, timeliness of final budget accounts, publication of a property price index (with help from IMF TA), and compilation of an international investment position and external debt statistics (with IMF TA).

### Authorities’ views
- The authorities shared staff’s views on mounting financial sector risks and the need to effectively address them as priority.
- The SBV welcomed proposals to accelerate provisioning as the recovery is firming up.
- The SBV agreed on mounting risks in selected market segments such as real estate and corporate bonds, and the need to strengthen market surveillance, banking supervision, and the general legal and institutional framework to tackle nonperforming assets effectively.
- To deal with the current stock of impaired assets, the authorities prolonged Resolution 42—which provides temporary extraordinary powers to banks and the Vietnam Asset Management Company—until end-2023.
- The authorities acknowledged the need to build-up capital buffers in weak banks, further develop the macroprudential framework, and strengthen capital markets, and highlighted continuous progress in promoting financial inclusion while developing the regulatory framework for Fintech.
- Structural reform measures noted by authorities include investments in innovation and digitalization, efforts to improve labor skills and resolve skill mismatches, the Labor Code implemented in 2021 to reduce worker informality, expected firm formalization with revision of the Enterprise Law currently under consideration, simplification of administrative procedures including land management, revisions to the AML/CFT law with IMF TA, higher public investment in renewable energy under the PRD to catalyze private investment in green energy, and an update to nationally determined contributions envisaged to incorporate newly-announced climate commitments.

### Staff appraisal and policy priorities
- Macroeconomic assessment
  - Vietnam has successfully managed the transition to living with COVID-19 on the back of an impressive vaccination drive.
  - Growth is expected to strengthen this year as the economy reopens and the PRD spurs infrastructure investment.
  - Inflation is expected to rise close to the SBV’s target amid commodity price pressures and continued supply chain disruptions.
  - The recovery has been uneven, and the outlook remains highly uncertain, contingent on geopolitical developments, the slowdown in China, the global trajectory of the pandemic, and rising domestic financial market vulnerabilities.
- Recommended policy mix and priorities
  - Policymaking should be agile, and the size and composition of policy support proactively adjusted if risks materialize.
  - With output below potential and available fiscal space, the policy mix should remain supportive, but elevated inflation pressures preclude additional monetary stimulus.
  - Fiscal policy should be nimble and serve as the first line of defense against downside growth risks; authorities should flexibly calibrate the fiscal stance to the pace of the recovery while improving execution.
  - Fiscal policy should provide temporary and targeted support for an inclusive recovery and facilitate economic transformation; social assistance should be strengthened by improving coverage and delivery.
  - Over the medium-term, revenue mobilization is critical to rebuild fiscal buffers, boost climate resilience, and achieve the SDGs.
  - Loan restructuring and regulatory forbearance should be unwound, and financial stability risks closely monitored; ample liquidity and rapid credit growth need to be closely monitored to dampen macro-financial risks.
  - Strengthened supervision together with timely efforts to address problem loans and bolster regulatory and supervisory frameworks will help support proper risk-pricing, contain excessive household and corporate leverage, and address emerging financial stability risks.
  - The insolvency and institutional framework should be strengthened to facilitate bad debt resolution.
  - Raising capital in weaker banks and enlarging the macroprudential toolkit to contend with rising real estate risks will help the system weather future shocks.
  - Efforts to deepen capital markets and harness the digital transformation in the financial sector should be coupled with efforts to bolster legal, regulatory, and supervisory frameworks.
  - Shortcomings in the AML/CFT framework should be swiftly addressed.
- External sector assessment
  - The external position is stronger than warranted by economic fundamentals and desired policy settings; this assessment is subject to uncertainty given measurement issues, which could be even more significant in a pandemic year.

*Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1vnmea2022001.pdf*

### 49.      Decisive structural reforms are needed to mitigate pandemic scars and support

### Decisive structural reforms are needed to mitigate pandemic scars and support inclusive growth

### Structural reform priorities
- Simplify complex licensing and permit requirements.
- Strengthen anti-corruption frameworks.
- Encourage firm formalization.
- Foster adoption of digital technologies.
- Upgrade labor skills and reduce skill mismatches to boost productivity.
- Continue efforts to reduce data gaps.

### Inclusivity and social policy
- Improve the progressivity of the tax system.
- Step up social spending.
- Ensure housing affordability to allow for a more inclusive society.

### Green transition and fiscal integration
- Back efforts to green the economy with concrete actions.
- Better integrate ambitious plans with yearly and medium-term budgetary processes.
- Clearly identify financing sources for green initiatives.
- Introduce an emissions trading system.
- Focus on cleaner energy sources to set Vietnam’s long-term growth model on a greener footing.

*Source: IMF content unit 1vnmea2022001 — chapter text.*

### 51.      It is recommended that the next Article IV consultation be held on the standard 12-

### 1vnmea2022001 - 51. It is recommended that the next Article IV consultation be held on the standard 12-month cycle.

### COVID-19 developments and public-health implications
- It is recommended that the next Article IV consultation be held on the standard 12-month cycle.
- Vietnam experienced two large COVID-19 waves in 2021Q3 (delta variant) and in 2022Q1 (omicron variant).
- Delta wave prompted reintroduction of lockdowns; omicron wave did not, with significantly different impacts on mobility and economic activity.
- Opening up was made possible by ramped-up vaccine procurement and a mass vaccination campaign.
- The live-with-COVID strategy did not translate into higher hospitalizations and deaths (charts display Total Cases per million people across ASEAN peers; Policy Stringency Index; Google Mobility Index; Vaccine Supply by manufacturer: Oxford-AstraZeneca 36%, Sinopharm 33%, Pfizer-BioNTech 20%, Moderna 5%, Abdala (Cuba) 4%, Others 2%; Total Vaccinations by country comparisons).

### Recent economic developments and near-term recovery
- After a severe contraction in 2021-Q3, signs of economic recovery are visible.
- Key activity indicators:
  - Purchasing Manufacturing Index (0-100) time series shown Jan-19 to Mar-22.
  - New firm entry trending up (Entry and Exit of Firms, number of enterprises (3mma), in thousands).
  - Index of Industrial Production (IIP, 3mma, y/y percent change) recovered from negative to positive in 2022Q1.
  - Retail Sales of Trade Goods and Services (nominal, y/y) show recovery particularly in industry; services picking up more gradually.
- Main drivers to growth, by activity (2019Q1–2022Q1): Industry and Construction led recovery; Services gradually picking up; Private consumption still lagging the overall recovery.
- Expenditure-side drivers (2019Q1–2022Q1): Net exports and investment displayed strong variation; private consumption recovery weaker.

### Inflation, wages, and global supply-chain pressures
- Headline and core inflation have been subdued so far, attributed to muted food and administered prices and economic slack.
- Producer prices are edging up, reflecting high shipping costs and high commodity prices.
- Labor market indicators:
  - Average Monthly Wage (VND) and Number of Employed time series show lower average wages and employment relative to pre-pandemic levels.
- Commodity Price Inflation (y/y): All Commodities, Fuel, Nonfuel series show elevated volatility.
- Global Container Freight Rate rose sharply (US dollars), contributing to producer-price pressures.
- Headline CPI (y/y) and Core inflation (y/y) shown with series Jan-19–Mar-22.
- Inflation non-core components (Raw Food, Fuel, Administered Prices) tracked separately.

### External sector: trade, FDI, reserves, and capital flows
- Trade balance narrowed sharply in 2021; low-skilled manufacturing exports experienced the sharpest slowdown.
- Service trade remained sluggish.
- FDI disbursements remained broadly unchanged in level terms.
- Portfolio investments and other short-term flows increased.
- International reserves continued to increase before flattening recently.
- Key figures from Table 2 (2021–2023 projections and recent history):
  - Current account balance (in percent of GDP): 2018 1.9; 2019 3.7; 2020 4.4; 2021 -1.0; 2022 0.7; 2023 1.3 (Table 1 and Table 2 memorandum).
  - Trade balance (in bil USD): 2017 10.8; 2018 16.5; 2019 21.2; 2020 30.7; 2021 17.7; 2022 27.2; 2023 34.4.
  - Exports f.o.b. (in bil USD): 2018 243.7; 2019 264.2; 2020 282.6; 2021 336.3; 2022 379.5; 2023 423.0.
  - Imports f.o.b. (in bil USD): 2018 227.2; 2019 243.0; 2020 251.9; 2021 318.6; 2022 352.3; 2023 388.6.
  - Gross international reserves (in billions of U.S. dollars): 2019 78.5; 2020 95.2; 2021 109.4; 2022 125.5; 2023 146.6 (Table 2; Table 3 projections extend reserves to 229.0 by 2027).
  - Total external debt (in percent of GDP): 2018 36.5; 2019 37.3; 2020 36.4; 2021 36.1; 2022 35.3; 2023 34.8.

### Monetary sector and liquidity
- Monetary policy stance remains accommodative with greater two-way exchange-rate flexibility.
- Policy interest rates (monthly averages) shown series; official exchange rate (VND/USD) ranged around 22,792–23,300 in shown series.
- Lending and deposit rates have fallen; credit growth picked up strongly while deposit growth declined.
- Credit growth concentrated in trade, other activities (including real estate), and industry.
- Abundant liquidity translated into buoyant stock valuations and rising gold premium (VNINDEX and Gold Premium series).
- Monetary aggregates and credit (Table 5 highlights):
  - Total liquidity (M2, in trillions of dong): 2017 8,195; 2018 9,212; 2019 10,574; 2020 12,111; 2021 13,402; 2022 14,919; 2023 16,857 (proj).
  - Credit to the economy (in percent, of GDP) projection: 2021 116.7; 2022 125.6; 2023 130.8; 2027 132.2.
  - Credit growth (y/y percent change): 2019 12.8; 2020 11.6; 2021 13.5; 2022 14.6; 2023 14.3.

### Financial sector soundness
- Bank profitability increased in 2021, driven by strong credit growth and net interest margins.
- Capital adequacy remains weak, especially in state-owned commercial banks:
  - Capital Adequacy Ratios (In Percent): system and peers plotted; regional comparison shows Vietnam relatively lower compared to ASEAN peers (chart of Indonesia, Thailand, Malaysia, Philippines, Vietnam, as of 2021Q2).
- Problem loans have increased; impaired loans series (On balance NPLs, Other impaired loans, Restructured loans) increased 2016–2021 (2021 data is staff estimate).
- Large firms remained financially healthy by interest-coverage metrics, but corporate debt tripled its footprint (Size of Corporate Bond Market as percent of GDP rose 2017–2021).
- Impaired Loans (In Percent of Total Gross Loans) series and Interest Coverage Ratio of Large Firms (EBIT-to-Interest Expense Ratio) plotted across periods.

### Fiscal sector, public debt, and policy priorities
- Fiscal stance was expansionary in 2020–21, contributing to a modest uptick in PPG debt.
- Key fiscal figures (Table 1 and Table 4b):
  - Real GDP (percent change): 2018 7.2; 2019 7.2; 2020 2.9; 2021 2.6; 2022 6.0; 2023 7.2 (Table 1).
  - CPI (period average): 2018 3.5; 2019 2.8; 2020 3.2; 2021 1.9; 2022 3.8; 2023 3.7.
  - Gross national saving (percent of GDP): 2018 33.8; 2019 35.5; 2020 36.5; 2021 32.3; 2022 36.1; 2023 37.0.
  - Gross investment (percent of GDP): 2018 31.9; 2019 31.8; 2020 32.1; 2021 33.4; 2022 35.4; 2023 35.7.
  - Revenue and grants (percent of GDP): 2018 19.5; 2019 19.6; 2020 18.5; 2021 18.6; 2022 16.7; 2023 16.8.
  - Expenditure (percent of GDP): 2018 20.6; 2019 20.0; 2020 22.4; 2021 22.1; 2022 21.3; 2023 21.4.
  - Net lending (+)/borrowing (-) (percent of GDP): 2018 -1.0; 2019 -0.4; 2020 -3.9; 2021 -3.5; 2022 -4.7; 2023 -4.7 (Table 1).
  - Public and publicly guaranteed debt (end of period, percent of GDP): 2018 43.7; 2019 41.3; 2020 41.7; 2021 39.7; 2022 40.5; 2023 40.8.
- Fiscal policy recommendations and priorities (stated in figures and captions):
  - Tax revenues should be enhanced.
  - Reforms are needed to improve investment efficiency.
  - Expand the coverage of social protection systems.
  - These measures are noted particularly to finance infrastructure needs and to address modest uptick in PPG debt.

### Projections and medium-term outlook (selected numbers preserved)
- Table 3 medium-term projections (2018–2027, selected series):
  - Real GDP (percent change): 2022 6.0; 2023 7.2; 2024 7.0; 2025 6.9; 2026 6.8; 2027 6.7.
  - CPI (period average): 2022 3.8; 2023 3.7; 2024–2027 3.5 (each year).
  - Gross international official reserves (in billions of U.S. dollars): 2022 125.5; 2023 146.6; 2024 168.3; 2025 189.3; 2026 208.7; 2027 229.0.
  - Public and publicly guaranteed debt (end of period, percent of GDP): 2022 40.5; 2023 40.8; 2024 40.9; 2025 40.9; 2026 40.8; 2027 40.6.
  - Current account balance (percent of GDP): 2022 0.7; 2023 1.3; 2024 1.0; 2025 0.6; 2026 0.1; 2027 0.0.
  - Nominal GDP (in billions of U.S. dollars) projections: 2022 408.4; 2023 462.4; 2024 514.4; 2025 569.7; 2026 628.1; 2027 688.3.

### Key policy considerations summarized
- Maintain accommodative but flexible monetary stance while monitoring inflationary pressures from producer prices, commodity prices, and shipping costs.
- Strengthen capital adequacy and nonperforming loan resolution efforts, with attention to state-owned commercial banks where capital adequacy remains weak.
- Enhance tax revenue mobilization to finance infrastructure and expand social protection coverage while improving public investment efficiency.
- Monitor external sector dynamics: trade slowdown in low-skill manufacturing, sluggish services exports, and the evolving composition of capital flows.
- Preserve reserve buffers and manage exchange-rate flexibility to absorb external shocks while supporting recovery.

*Source: IMF staff report content for Vietnam (figures, tables, and text excerpts provided in the supplied content).*

### Annex I.  COVID-19 Impact  on the Labor Market

### Annex I. COVID-19 Impact on the Labor Market

### Overview and timeline
- Partial recovery began since October 2021, but structural issues remain.
- After signs of a partial recovery in early 2021, the labor market was severely affected by the delta wave.
- At the peak of the crisis, 28.2 million workers were affected through a combination of job losses, leave without pay, and reduced working hours and incomes.
- Employment shrank, driven mainly by the service sector and, to a lesser extent, manufacturing and construction.
- In real terms, the average worker earned 12.6 percent less in 2021Q3 than a year ago, setting back the income recovery.
- Stringent lockdowns in 2021Q3 resulted in the largest employment losses in a decade.
- Labor market conditions improved since 2021Q4 as the economy reopened, with average quarterly wage growth back to 2020 levels in 2022Q1.

### Demographic impacts
- Age:
  - Youth employment was severely impaired, reflecting weak activity in contact-intensive sectors.
  - Employment of prime age workers suffered the largest losses across all age groups during Q3 and only partly recovered in Q4.
  - At end-2021, youth and prime-age groups accounted for roughly half of total job destruction.
  - The elderly group (60+) experienced moderate increases in employment throughout the year (positive growth for the 60+ cohort reflects a high ratio of elderly people working in agriculture and the Labor Code coming into effect in 2021, entailing a gradual increase in the retirement age).
- Gender:
  - Female employment fared relatively well compared to male, mainly due to differences in the distribution of labor across genders and disparate growth rates across economic sectors.
- Skills:
  - Workers without certificates or expertise (the majority of the labor force) registered the largest drop in employment.
  - Workers with vocational training (medium-skill workers) were the only skill-group with actual employment gains throughout the year.
  - In earnings, high-skill workers saw an increase in the wage premium, while medium-skill workers experienced a decline.
  - There was a drop in average wages in 2021H2 with substantial heterogeneity across skill groups.

### Regional and sectoral effects
- Regional structure:
  - Vietnam is described as three main economic regions: North, Central, and South.
  - Northern and Southern regions each accounted for around 45 percent of net sales of enterprises as of 2019; all three regions are comparable in labor force size.
- Delta wave and regional impacts:
  - The delta wave hit the South much harder than other regions.
  - Industrial jobs plummeted 70 percent y/y in September 2021 in the South, compared with broadly unchanged levels in other regions.
  - Labor employment index by regions showed a strong bounce back of employment starting in October, although recovery speed varied by provinces.

### Migration, mobility, and informal sector
- Pre-pandemic mobility:
  - Prior to the pandemic, the Southern region accounted for 50 percent of worker flows, the Northern region roughly 30 percent, and the Central region roughly 20 percent; most flows were within regions and only 10 percent involved movement across regions.
- Large-scale outflows:
  - Faced with strict lockdowns and resulting job losses, many workers, especially in the South, returned to their hometowns.
  - By December 2021, roughly 2.2 million workers had left the cities.
  - A majority of these returnees were self-employed and informal workers suffering job and income losses, with limited access to social safety nets and unable to meet high urban living costs.
- Informal sector:
  - Roughly half the labor force works in the informal sector.
  - In contrast to “normal” crises, the non-farm informal sector failed to function as a shock absorber during this crisis, triggering a reverse flow of workers into agriculture.

### Business dynamism, underemployment, and policy-relevant labor issues
- Business formation and recovery:
  - After a sharp decline in firm entry in 2021Q3, business formation bounced back strongly since 2021Q4, creating momentum for labor market recovery.
  - Impediments to worker mobility (transportation issues, difficulties (re)settling in cities, uncertainty) appear to have eased significantly by 2022Q1.
- Underemployment and mismatches:
  - Underemployment remains elevated, particularly in the service sector.
  - Skill mismatches and human capital losses during unemployment and out-of-the-labor-force spells are concerns for job matching and productivity.
- Suggested mitigations (policy-relevant measures noted in the text):
  - Vocational training could compensate for human capital losses during unemployment and out-of-the-labor-force spans, help workers build new skills, and foster better job matching with firms.
  - Over the longer term, reducing labor skill mismatches and increasing human capital and technology access would boost labor productivity.

### Key statistics and exact figures highlighted
- 28.2 million workers affected at peak.
- Average worker earned 12.6 percent less in 2021Q3 (y/y).
- Average quarterly wage growth back to 2020 levels in 2022Q1.
- Industrial jobs in the South fell 70 percent y/y in September 2021.
- By December 2021, roughly 2.2 million workers had left the cities.
- Southern region accounted for 50 percent of worker flows pre-pandemic; Northern roughly 30 percent; Central roughly 20 percent; 10 percent of mobility was across regions.
- Roughly half the labor force works in the informal sector.

*Source: Annex I. COVID-19 Impact on the Labor Market (1vnmea2022001).*

### 1.6 billion SDR allocation, compared to USD 23.3

### 1.6 billion SDR allocation, compared to USD 23.3

### External position and reserves
- GIR are at   USD 1 09.4 billion, equivalent to 107 percent of ARA metric.
- Reserve accumulation is expected to continue in 2022 on account of a higher trade surplus and stronger financial inflows.
- Reserve accumulation has been slower than in the past amidst greater two-way exchange rate flexibility.

### Current account assessment
- Vietnam’s external position in 2021 is assessed to be stronger than warranted by fundamentals and desirable policies.
- Based on the current account (CA) approach:
  - Overall CA gap was 2.5   percent of GDP in 2021.
  - Equivalent to a   4.2 percent of REER undervaluation.
- Assessment incorporates adjustments on cyclical factors and the norm to reflect Vietnam’s population and economic structure.
- A less expansionary fiscal stance relative to other countries and the pace of reserve accumulation contributed to the misalignment.
- The estimated current account gap is subject to large uncertainty owing to measurement issues (see IMF CR 21/42).

### Savings, investment, and balance-sheet dynamics
- Private savings rate declined from 35   to 30   percent of GDP.
- Firms used retained earnings or drew down bank deposits to maintain business operations.
- Households reduced savings, including withdrawing contributions to the Vietnamese social security fund, to smooth consumption.
- Gross Capital Formation and Gross National Savings trends presented in the source indicate narrowing imbalances.

### Fiscal and monetary policy developments and recommendations
- Fiscal actions since 2020 Article IV Consultations:
  - Vaccination rollout accelerated and policy support extended in 2021, including social protection and liquidity measures for firms.
  - Fiscal stance remained moderately expansionary; the recovery program for 2022-23 envisages larger fiscal stimulus.
  - Half of the capital assigned in the recovery program will be used for health-care establishments, social security facilities, training centers, and public investment in infrastructure (transport, power, digital, IT and green infrastructure).
  - Large Taxpayer Office became fully operational in October 2021 and started to administer 125 large corporations since early January 2022.
  - Mandatory implementation of e-invoices by businesses since July 2022.
  - A prudent debt anchor of 55  percent of GDP was prescribed in the Medium term National Financial, Public Debt and Repayment Plan for 2021-25.
  - Treasury modernization program underway focusing on budget execution, active cash management, internal audit, re-designing of the Charter Accounts, financial reporting, and information systems.
- Monetary policy:
  - Monetary policy continued to provide abundant liquidity, with interbank rates near historical lows.
  - Introduction of forward contracts to undertake FX interventions and appreciation of the SBV’s buying rate allowed for additional exchange rate flexibility.
  - Modernization of the monetary policy framework is ongoing; FPAS Phase I completed and Phase II launched in early 2022.

### Financial sector and structural policy actions
- Banking sector:
  - SBV closely monitoring risks; normalization of regulatory forbearance postponed due to resurgence of COVID-19 in 2021.
  - Adoption of Basel II is continuing; steps to help raise SOCBs’ capital via retained earnings.
  - Macroprudential measures introduced to limit risks from real estate and consumer loans and reduce maturity mismatches.
  - Reviewing AML/CFT framework to address gaps identified in early 2022 mutual evaluation.
- Structural policies:
  - A new law revising 9 economic laws approved in early 2022 to remove administrative bottlenecks and enhance the business environment.
  - Government promoting e-government, reducing regulations and licensing requirements, and introducing digital public services.
  - Decree on asset and income approved in late 2020; National Database project on asset and income control expected to be approved and operationalized in 2022.
  - Work on updating/upgrading Resolution 42 (debt collection procedures) is ongoing.

### Impact of COVID-19 on Vietnamese firms (survey evidence)
- Data source: nationally-representative Vietnamese General Statistics Office surveys (April 2020 and September 2020).
- Pandemic impact:
  - Sales and employment dropped by close to 60 and 50 percent, respectively, in the first 4 months of 2020 compared to the same period in 2019.
  - Economic activity picked up by September 2020, but travel-related service industries and low-tech manufacturing saw a weaker rebound.
- Heterogeneity of impact:
  - Firms with weaker pre-pandemic balance sheets (contact-intensive sectors and smaller private firms) were more severely impacted than large SOEs and FDI firms.
  - Revenue shortfalls for private and smaller firms in 2020 were almost twice as large as for other firms.
- Firm adjustments:
  - Extensive and intensive margin adjustments: suspending operations, layoffs, reduced hours, rotated leave, input and market diversification, boost in e-commerce.
  - SMEs increased use of e-commerce through digital platforms; large firms invested in equipment, software, and digital solutions.
- Policy support take-up and targeting:
  - Initial take-up rates of policy support in 2020 were around 17 percent (on average).
  - By September 2021, more firms reported having received some government support compared to 2020.
  - Most support consisted of tax deferrals and corporate income tax and turnover tax reductions.
  - Among firms that did not benefit, most were ineligible; small firms cited cumbersome procedures and lack of information.
  - Support went disproportionately to hardest-hit sectors and larger firms; size bias most pronounced for credit policies.
  - Controlling for size and industry, marginal probability of receiving support is not significantly associated with changes in sales and employment during COVID-19, nor with pre-pandemic productivity — suggesting support was not necessarily targeted to the hardest-hit yet viable firms.
  - According to the SBV, credit to SMEs increased by 12 percent in 2021 compared to 2020.
- Survey participation:
  - Over 126,000 firms participated in April 2020 and 162,000 firms in September 2020, accounting for nearly 20 percent of total formal enterprises in the country.

### Risks, likelihoods, time horizons, impacts, and policy responses
- Russia’s invasion of Ukraine leads to escalation of sanctions and deglobalization.
  - Likelihood: High. Time horizon: ST, MT. Impact: High.
  - Effects: Higher commodity prices, extended supply chain disruptions, tighter financial conditions, lower global demand, and less trade.
  - Policy responses: Provide targeted policy support; allow greater exchange rate flexibility; accelerate structural reforms and improve business environment; diversify sourcing of intermediate goods.
- Abrupt growth slowdown in China.
  - Likelihood: Medium. Time horizon: ST. Impact: Medium.
  - Effects: Lower exports, especially agricultural products and tourism.
  - Policy responses: Allow greater exchange rate flexibility; facilitate reallocation through structural reforms; diversify sourcing of intermediate goods.
- Rising and volatile food and energy prices.
  - Likelihood: High. Time horizon: ST/MT. Impact: High.
  - Effects: Higher inflation and lower domestic and external demand.
  - Policy responses: Provide targeted policy support; allow greater exchange rate flexibility; accelerate structural reforms and improve business environment.
- De-anchoring of inflation expectations in the U.S.
  - Likelihood: Medium. Time horizon: ST, MT. Impact: High/Medium.
  - Effects: Prompting central banks to tighten abruptly, sharply tightening global financial conditions; lower capital inflows; increase inflationary pressure; complicate monetary policies.
  - Policy responses: Allow greater exchange rate flexibility; tighten monetary policy when economic situation allows.
- Outbreaks of lethal and highly contagious COVID-19 variants.
  - Likelihood: High. Time horizon: ST, MT. Impact: High.
  - Effects: Renewed lockdowns, extended supply chain disruptions, corporate distress, job losses, financial stress, health crisis, deeper economic scarring and rising poverty.
  - Policy responses: Secure healthcare financing and expand fiscal support for social protection and public investment; maintain abundant liquidity and support viable businesses; facilitate reallocation through structural reforms; facilitate banks’ capital restoration plans.
- Domestic: Frothiness in asset price valuations.
  - Likelihood: High. Time horizon: ST, MT. Impact: Medium.
  - Effects: Re-alignment of valuations leads to negative wealth effects and/or financial stability risks.
  - Policy responses: Tighten macroprudential and supervisory measures; strengthen supervision and regulation of bond market; encourage public issuance; develop land registry and strengthen title management; introduce differentiated stamp duties, taxes on rental income, and potentially a property tax.
- Domestic: Slow and inconsistent policy implementation.
  - Likelihood: Medium. Time horizon: ST, MT. Impact: Medium.
  - Effects: Hampers labor reallocation, fuels supply disruptions; weak stimulus slows recovery.
  - Policy responses: Enhance policy coordination; reduce regulatory and other barriers; clearly communicate harmonized policies and consistent application nationally.
- Domestic: Debt overhang and liquidity constraints.
  - Likelihood: Medium. Time horizon: ST, MT. Impact: Medium.
  - Effects: Businesses and households deplete buffers, propagating balance sheet stress; slows recovery and threatens financial stability.
  - Policy responses: Target support to viable firms and vulnerable households; closely monitor asset quality, enhance provisioning, and rebuild capital buffers.

*VIETNAM INTERNATIONAL MONETARY FUND*

### Annex  VI.  Risk  Assessment  Matrix

### Annex VI. Risk Assessment Matrix

### Domestic Risks — Climate change
- Risk: Climate change.
- Likelihood of risk: High
- Time Horizon: ST, MT
- Impact if realized: High
- Downs ide (as presented): Vietnam is amongst the most vulnerable yet least ready/able to adapt countries.
- Quantified impacts:
  - Climate change could impact more than 12 percent of the population by 2100, and reduce GDP by 10 percent by 2050.
- Policy response recommendations:
  - Address both climate mitigation and adaptation.
  - Lower the intensity of fossil fuels.
  - Provide stronger incentives through taxation of fossil fuels.
  - Invest in climate resilient infrastructure.
  - Improve capacity to adapt technological change.

### Risk Assessment Matrix (RAM) notes and legend
- “L” =Low ; “M” =Medium; “H” =High.
- Purpose: The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Likelihood definitions (staff’s subjective assessment):
  - “low” is meant to indicate a probability below 10 percent,
  - “medium” a probability between 10 and 30 percent,
  - “high” a probability between 30 and 50 percent.
- Additional context: The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

*Annex VI. Risk Assessment Matrix, INTERNATIONAL MONETARY FUND*

### Annex VII. Public and External Debt Sustainability Analysis

### Annex VII. Public and External Debt Sustainability Analysis

### Overview
- Vietnam’s public and publicly guaranteed (PPG) debt is estimated at 39.7 percent of GDP in 2021.
- Under staff’s baseline projections, PPG debt would increase to 40.5 percent of GDP in 2022 before stabilizing at 40.6 percent of GDP over the medium-term.
- Staff assesses the debt sustainability risk as low to moderate.

### Coverage and DSA Framework
- Framework used: market access countries (MAC DSA) risk-based approach including:
  - realism of baseline assumptions and projected fiscal adjustment;
  - analysis of risks associated with the debt profile;
  - macro-fiscal risks;
  - stochastic debt projection considering past macro-fiscal volatility;
  - standardized summary of risks in a heat map.
- Debt coverage: public domestic and external debt, central and local government, debt guaranteed by the government for state owned enterprises (SOEs) and specialized financial institutions (SFIs).
- Debt guarantees were around 4 percent of GDP in 2021 and are assumed almost constant as a ratio to GDP over the medium-term.
- Vietnam Social Security (VSS) public debt is currently not included; cross-debt holdings of about 10 percent of GDP. Inclusion of VSS positions markedly improves medium-to long-term profile, but rapid aging would deplete VSS assets, adding rapidly to public debt in the early 2030s.

### Macro-fiscal Assumptions and Realism
- Baseline macro assumptions:
  - real GDP growth: 2.6 percent in 2021; projected 6.0 percent in 2022; stabilizing at potential 6.7 percent over the medium term.
  - primary deficit: 3.5 percent of GDP in 2022; declines to around 2.1 percent of GDP in 2027 (debt-stabilizing primary balance is 2.5 percent of GDP).
- Realism checks:
  - median forecast errors for real GDP growth, primary balance and inflation during 2011–19 are small (around -0.4 percent), suggesting no evidence of systematic projection bias.
  - maximum projected 3-year adjustment in CAPB as a percent of GDP is realistic given experiences of other MACs.

### Public Debt Sustainability: Baseline Projections and Key Statistics
- Baseline projections:
  - PPG debt-to-GDP ratio projected to increase by around 1 percentage point to 40.5 percent of GDP in 2022.
  - PPG debt projected at about 40.6 percent of GDP by 2027.
  - Projected comfortably below the government’s statutory ceiling of 60 percent of GDP and below authorities’ prudent debt anchor of 55 percent of GDP.
- Debt composition and dynamics:
  - automatic debt dynamics from the interest rate-growth differential partially compensate for the primary deficit.
  - Vietnam’s shortest maturities of bonds are at 5 years, limiting rollover risks.
  - share of foreign currency-denominated debt projected to decrease from 38 percent of total debt in 2021 to about 26 percent in 2027.
- Figure 1 selected baseline indicators (as of February 14, 2022):
  - Nominal gross state debt: 42.7 (2020), 41.7 (2021), 39.7 (2022), 40.5 (2023), 40.8 (2024), 40.9 (2025), 40.9 (2026), 40.8 (2027), 40.6 (projection last).
  - Of which: guarantees: 7.7 (2020), 4.6 (2021), 3.9 (2022), 3.4 (2023), 3.2 (2024), 3.1 (2025), 3.1 (2026), 3.1 (2027), 3.1 (projection last).
  - State gross financing needs: 5.6 (2020), 7.0 (2021), 6.5 (2022), 6.9 (2023), 6.4 (2024), 6.8 (2025), 5.6 (2026), 5.1 (2027), 4.9 (projection last).
  - Real GDP growth: 6.5 (2020), 2.9 (2021), 2.6 (2022), 6.0 (2023), 7.2 (2024), 7.0 (2025), 6.9 (2026), 6.8 (2027), 6.7 (potential).
  - Primary deficit (identified debt-creating flow): 1.9 (2020), 2.6 (2021), 1.1 (2022), 3.5 (2023), 3.6 (2024), 3.3 (2025), 2.9 (2026), 2.6 (2027), 2.1 (projection last).
  - Automatic debt dynamics (cumulative): -2.3 (2020), -0.3 (2021), 0.4 (2022), -2.6 (2023), -3.3 (2024), -3.2 (2025), -3.0 (2026), -2.8 (2027), -2.5 (projection last).
  - Interest rate/growth differential (cumulative): -2.7 (2020), -0.3 (2021), 0.6 (2022), -2.4 (2023), -3.5 (2024), -3.3 (2025), -3.2 (2026), -2.9 (2027), -2.7 (projection last).

### Alternative Scenarios
- Constant primary balance scenario:
  - if the deficit remains at its 2022 level, PPG debt could increase to around 44 percent of GDP over the medium-term.
- Historical scenario:
  - setting real GDP growth, primary balance and real interest rates at their historical average shows a gradual decrease of PPG debt to about 40 percent in 2027.
- Contingent liability shock:
  - a standard contingent liability shock representing 10 percent of banking sector assets puts PPG debt at about 54 percent of GDP by 2027.

### Macro-Fiscal Stress Tests
- Vietnam is more vulnerable to real interest rate and combined shocks.
- Real interest rate shock:
  - an unlikely scenario increasing the effective interest rate by around 750 basis points in every year over the projection horizon compared to the baseline would raise PPG debt to around 44 percent of GDP in 2027.
  - footnote: using historical average instead of maximum would result in a shock of 210 bps instead of 750 bps, and a milder debt build-up.
- Combined macro-fiscal shock (2022):
  - incorporating the largest effect of individual shocks on all relevant variables would increase PPG debt to about 49 percent of GDP by 2027.
  - remains below the statutory ceiling of 60 percent of GDP but close to the authorities’ prudent debt anchor of 55 percent of GDP.

### Stochastic Simulations and Heat Map
- Stochastic outcomes:
  - in a negative-case scenario, PPG debt could reach about 49 percent of GDP with 10 percent likelihood by 2027.
  - in a positive-case combination of shocks, debt-to-GDP could fall to 27 percent with a 10 percent probability in 2027.
- Heat map assessment:
  - shows low risk of debt distress.
  - debt-to-GDP and GFN-to-GDP ratios remain below MAC DSA thresholds of 70 and 15 percent, respectively, under both baseline and almost all stress scenarios.
  - highlighted risks: possible vulnerabilities in external financing requirements, largely reflecting COVID-19 related pressures.

### External Debt Sustainability
- Key levels and projections:
  - total external debt-to-GDP ratio: 36.4 percent in 2021.
  - under baseline, external debt would reach 35.6 percent of GDP in 2022 before stabilizing around 33.0 percent of GDP over the medium-term.
  - external debt-to-exports ratio and gross external financing needs remain manageable at below 50 and 12 percent, respectively.
- Vulnerabilities:
  - external debt is vulnerable to real depreciation and current account shocks.
  - growth and interest rate shocks have only limited impact on external debt dynamics.
  - observed long-term real appreciation of the currency is an upside risk.
- Table 1 highlights (External Debt Sustainability Framework, 2017–2027):
  - Baseline external debt: 39.0 (2017), 36.3 (2018), 37.4 (2019), 36.6 (2020), 36.4 (2021), 35.5 (2022), 34.6 (2023), 34.1 (2024), 34.0 (2025), 33.3 (2026), 33.0 (2027).
  - Change in external debt: 3.9 (2017), -2.7 (2018), 1.1 (2019), -0.8 (2020), -0.2 (2021), -0.8 (2022), -1.0 (2023), -0.5 (2024), -0.1 (2025), -0.6 (2026), -0.3 (2027).
  - External debt-to-exports ratio (in percent): 47.3 (2017), 42.5 (2018), 43.2 (2019), 43.3 (2020), 39.2 (2021), 37.7 (2022), 37.1 (2023), 36.9 (2024), 37.0 (2025), 36.5 (2026), 35.9 (2027).
  - Gross external financing need (in billions of US dollars): 25.0 (2017), 30.9 (2018), 20.9 (2019), 25.8 (2020), 43.3 (2021), 45.6 (2022), 46.9 (2023), 45.6 (2024), 31.7 (2025), 31.8 (2026), 77.0 (2027).
  - Baseline key macro assumptions (selection):
    - Real GDP growth: 6.9 (2017), 7.2 (2018), 7.2 (2019), 2.9 (2020), 2.6 (2021), 5.8 (2022), 1.7 (2023), 6.0 (2024), 7.2 (2025), 7.0 (2026), 6.9 (2027), 6.8 (long-run), 6.7 (potential).
    - Nominal external interest rate (in percent): 2.4 (2017), 2.9 (2018), 2.4 (2019), 2.3 (2020), 2.3 (2021), 2.4 (2022), 0.3 (2023), 2.4 (2024), 2.4 (2025), 2.4 (2026), 2.5 (2027).

*Source: IMF staff (Annex VII. Public and External Debt Sustainability Analysis).*

### Annex VII I. Digitalization  and Social Protection in Vietnam

### Annex VII I. Digitalization and Social Protection in Vietnam

### Coverage and delivery challenges in Vietnam’s social protection system
- Prior to the pandemic, coverage of social protection programs was low compared to peers across labor market support measures, social assistance (cash transfers), and social insurance; in 2019, only 26.5 percent of the labor force was covered by social insurance.
- Classification of beneficiaries was piecemeal, and coverage particularly low in existing emergency support programs.
- Vietnam has well developed programs for the extreme poor but relatively little assistance to other vulnerable groups, such as informal urban workers.
- Delivery relied on manual, time-consuming registration and inefficient payment procedures, limiting rapid scale-up in emergencies.
- Millions of informal workers were left out of existing safety nets due to strict eligibility criteria and lack of verifiable data on the informal sector.

### Digital access among informal workers (VHLSS data and implications)
- 53 percent of households have at least one member that is an informal worker.
- Informal jobs are concentrated in the services sector: 55 percent.
- Among households with at least one informal worker:
  - 60 percent do not have access to financial services.
  - 28 percent are not eligible to receive any social security payments (as all adults work informally).
  - 76 percent of households have access to the internet.
  - An even larger number have access to mobile phones.
- These digital access figures support the feasibility of implementing digital government payment systems.

### Micro-simulation of COVID-19 income shocks and digital social protection
- The COVID-19 recession is modeled as an exogenous income shock primarily affecting workers in the service sector, with informal workers disproportionately hurt because they typically lack unemployment benefits.
- Household income model (as presented):
  II_h(ε) = II_h(0) × [1 − II_h^ii ε − (1 − θ) II_h^ff ε]
  - II_h(0): household h’s initial income (pre-COVID)
  - II_h^ii: share of adults working informally in the service sector
  - II_h^ff: share of adults with formal jobs in the service sector
  - θ: share of income that workers receive from unemployment benefits (equal to 0.6 in Vietnam’s case)
  - ε: size of the income shock
- Three shock severities simulated: ε ∈ {0.25, 0.5, 1}.
- Four scenarios compared:
  - (i) pre-COVID (data);
  - (ii) COVID-19 shock and no transfers;
  - (iii) COVID-19 shock and existing transfers (unemployment insurance (UI) only to formal workers);
  - (iv) COVID-19 shock and digital payments (payments to informal workers with digital access).

### Key simulation findings and statistics
- Under the baseline scenario (ε = 0.5), the pandemic reduces average household income by approximately 17 percent per year.
- Relative impacts on average household income (percent, relative to 2018 baseline):
  - ε = 0.25 | ε = 0.5 | ε = 1
  - No transfers: -6.83, -16.92, -37.09
  - UI transfers: -3.90, -11.05, -25.36
  - Digital payments: -1.07, -5.41, -14.06
- Under ε = 0.5:
  - UI benefits for formal workers increase average income by about 6 percent (relative to the pandemic-reduced base).
  - Digital payments for informal workers with digital access increase average income by another 6 percent.
  - Digital payments cut the impact of the COVID-19 shock by about half compared to current benefits.
- Table results show gains from digital payments are larger under more severe shocks.

### Policy implications and recommendations
- Strengthening digital payment systems can substantially improve timeliness and targeting of social assistance in crises, especially for informal workers with digital access.
- Linking digital IDs with bank and/or mobile money accounts could:
  - Culminate in a unified and comprehensive beneficiary database securely available to relevant ministries and agencies.
  - Facilitate greater financial inclusion.
  - Allow for speedy and targeted delivery of social protection programs in case of need.
- Vietnam has initiated steps toward digitalization:
  - 2015 resolution 36A/NQ-CP on e-government.
  - 2017 Directive 16/CT-TTg on strengthening access to the fourth industrial revolution.
  - Decision No 714/QD-TTg on building national population database elements (Department of Public Security issuing fully digitized foundational IDs).
  - Pilot nationwide mobile money project under PM 2021 Decision 316-TTg, with transaction limits at VND 10 mn (around $430) per month, including procedures to facilitate e-KYC to support digital payments and reach rural and unbanked populations.
- The 2022-23 Program for Recovery and Development includes planned investments in IT and digital infrastructure that provide an opportunity to automate social protection processing.
- Priority actions: integrate digital IDs, expand e-KYC and mobile money adoption, build a unified beneficiary registry, and automate payment and registration processes to close coverage and delivery gaps and better reach informal workers.

*Prepared by Amr Hosny and Alexandre Sollaci. Source: Annex VII I. Digitalization and Social Protection in Vietnam (IMF).*

### Annex XI. Development of the Fintech and Crypto Sectors

### Annex XI. Development of the Fintech and Crypto Sectors

### Fintech sector growth and composition
- The number of Fintech companies has grown by 67 percent in the past 4 years.
- Leading fintech segments in Vietnam: digital payments, peer-to-peer (P2P) lending, and the crypto asset sector.
- Digital payments (digital commerce payments, digital remittances, and mobile POS payments) have trended upward in both total transaction value and number of users.
- Vietnam’s e-commerce market value in 2020 reached almost USD 12 billion—2.5 percent of GDP (World Bank, 2021).
- Combined transaction value in digital payments, personal finance, alternative financing, and alternative lending increased from USD 12 billion in 2019 to 18 billion in 2021.

### Enabling factors for fintech expansion
- Demographics and connectivity:
  - 37 percent of the population is 24-year-old or younger.
  - Mobile phone penetration among adults is 80 percent.
  - Internet access is described as cheaper than in most peers (competitive internet connectivity).
- Financial inclusion context:
  - Only 30 percent of the population had access to bank services in 2017 (second lowest rate globally).
  - Ratio of bank branches per capita was 4 per 100,000 adults in 2020.
- Regulatory and infrastructure support:
  - Authorities have introduced a regulatory sandbox and granted e-wallet licenses.
  - Lack of legacy infrastructure (e.g., credit card payment networks) and efficient IT networks have facilitated leapfrogging to new fintech technologies.
  - The government’s mobile money pilot scheme, launched by Decision 316 in March 2021, targets unbanked customers.

### Crypto asset adoption and concerns
- As of 2020, an online survey ranked Vietnam second for adoption of crypto assets, with 21 percent of respondents stating that they used or owned crypto assets in 2020.
- Survey caveat: possible bias toward households with internet connections (two thirds of households), which are more likely to hold crypto assets.
- The lack of clear legislation on crypto asset ownership and trading is identified as an issue needing authorities’ attention.

### COVID-19 effects on fintech adoption
- The COVID-19 crisis accelerated adoption of fintech solutions, especially online payments.
- Historically high cash use gave way to significant growth in e-commerce and e-wallet payments during the pandemic.
- It is estimated that 53 percent of the population has shopped online using social networking platforms (e.g., Facebook, Zalo) or e-commerce platforms (e.g., Lazada, Shopee, Tiki).
- Lockdowns induced many store owners to adopt internet sales channels and mobile wallets.

### Supervisory guidance and regulatory developments
- The State Bank of Vietnam (SBV) is promoting increased understanding of digitalization, its advantages and risks, and strengthened cybersecurity in credit institutions and the banking sector.
- SBV Directive 02/2022 called for:
  - Greater cooperation between the private sector, SBV-related entities, and ministries to enable access to databases for enhanced Know Your Customer verification.
  - Use of technologies such as cloud computing, big data analysis, machine learning, and biometric authentication for new banking products and risk management.
  - Upgrades to interbank payment, credit information, and clearing systems.
  - Requirement for credit institutions to report incidents, cybersecurity threats, or suspicious transactions to authorities.
  - Examination of existing legislation to propose a regulatory sandbox for fintech solutions in the banking sector.

### Risks and regulatory gaps
- Rapid fintech development presents risks, notably:
  - Consumer protection issues, including fraud on decentralized finance platforms.
  - AML/CFT issues and threats to financial integrity.
- Regulatory coverage:
  - Online payments are regulated as Intermediate Payment Services.
  - Other fintech activities, especially crypto activities and P2P lending activities, lack clear and comprehensive legislation.

*Prepared by Antoine Arnoud; Annex XI, "Development of the Fintech and Crypto Sectors."*

### Annex XIII  . Evaluating Options for Climate Mitigation in Vietnam

### Annex XIII. Evaluating Options for Climate Mitigation in Vietnam

### Emissions profile and recent trends
- Vietnam’s GHG emissions have been steadily increasing; the coal-dependent energy sector represents the bulk of total emissions, followed by agriculture and industrial processes.
- Vietnam’s GHG emissions represent 0.7 percent of global emissions.
- Carbon intensity (ratio of emissions to GDP) is relatively high due to energy-intensive manufacturing.

### National commitments and baselines
- At COP26 (2021) the Prime Minister announced the intention to achieve net-zero emissions by 2050 and committed to end all investment in new coal power generation, scale up clean power generation, phase out coal power by the 2040s, and increase deployment of green technologies.
- Vietnam submitted an updated Nationally Determined Contribution (NDC) in 2020:
  - The updated 2020 NDC targets the reduction of GHG emissions compared to the business as usual (BAU) scenario by 2030 in the energy, agriculture, land use, land-use change and forestry, waste and industrial processes sectors by 9 percent unconditionally (with domestic resources) and 27 percent conditionally (with international support).
- The 2020 NDC targets are based on a BAU that uses 2014 as base year and optimistic growth assumptions; staff analysis indicates these targets are likely to be overachieved without additional climate action:
  - Staff estimates using IMF/WB Carbon Pricing Assessment Tool (CPAT) update the baseline using 2018 actual GHG emissions and updated growth projections (incorporating COVID-19 impacts), producing a more dampened BAU.
  - The Climate Action Tracker (CAT) suggests a Paris Agreement fair share target of 350 MtCO2e by 2030 would ensure real progress for Vietnam.

### ETS mandate, timetable, and scope
- The 2020 revised Law on Environmental Protection mandates ministries to design a domestic emissions trading system (ETS) and a crediting mechanism covering a cap, allowance allocation, and domestic and international offsets.
- A pilot ETS is expected to start by 2025 and to become fully operational by 2027.
- Illustrative simulations assume the ETS targets the power and industry sectors and covers around 70 percent of the country’s total CO2 emissions.

### CPAT simulations: ETS design and emissions outcomes
- CPAT methodology: reduced form energy-macro model projecting emissions and macro-fiscal outcomes under BAU and carbon pricing options.
- ETS introduction assumptions:
  - Introduced in 2025 with a starting price of $5/tCO2 that is gradually increased thereafter.
  - Carbon price scenarios that reach $25, $50, and $75/tCO2 in 2030.
- Emissions reductions in 2030 relative to model-based BAU:
  - ETS reaching $25/tCO2 in 2030: reduce emissions by 7 percent below BAU.
  - ETS reaching $50/tCO2 in 2030: reduce emissions by 11 percent below BAU.
  - ETS reaching $75/tCO2 in 2030: reduce emissions by 15 percent below BAU.
- Illustrative carbon tax (broader coverage) outcomes (scenarios not shown in figures in source):
  - Carbon tax starting at $5/tCO2 and rising to $25, $50, and $75/tCO2 in 2030 would reduce emissions by 8 percent, 13 percent, and 17 percent below BAU in 2030, respectively.

### Fiscal revenues and macroeconomic effects from ETS (illustrative)
- Revenue generation (2030) under ETS price paths:
  - ETS reaching $25/tCO2 in 2030: raise revenues of 1.1 percent of GDP in 2030.
  - ETS reaching $50/tCO2 in 2030: raise revenues of 1.7 percent of GDP in 2030.
  - ETS reaching $75/tCO2 in 2030: raise revenues of 2.2 percent of GDP in 2030.
- Revenue recycling assumption in simulations:
  - Revenues are fully recycled: half goes to new public investments, a quarter to current spending, and a quarter to cash transfers.
- Growth impacts:
  - Carbon pricing can have an initial short-term negative impact on GDP due to higher input prices.
  - Simulations suggest net GDP growth gains of about 0.33 percentage points above the BAU baseline in 2035 (primarily from increased public investments with higher multipliers) under the ETS $75/tCO2 scenario.
  - Higher medium-term GDP (from recycled revenues) implies slightly higher emissions, but the additional change in emissions is minimal in the Vietnam simulation.
- Revenue composition by fuel (illustrative for ETS $75/tCO2): revenues accrue from coal, natural gas, non-road oil, gasoline, diesel, LPG & kerosene, and net totals (figures shown in source).

### Policy implications, complementarities, and limitations
- An ETS alone is unlikely to deliver a credible path to net-zero by 2050; additional sectoral policies are needed:
  - Vietnam has sectoral strategies on renewable energy, deforestation, transport, and construction material, and legislation including the law on energy efficiency and the law on environment protection, but translation into annual-budgeted actions is currently missing.
  - Proposed investments in green technologies will take time to affect emissions as energy and transportation demand—and electricity demand—are projected to continue increasing rapidly in the next two decades.
- Practical considerations:
  - With current lack of market pricing for many fossil fuels, some end-user prices will not be affected by carbon pricing measures without additional reforms.
  - Potential acceptability constraints on carbon pricing point to an important role for sectoral instruments (renewable energy deployment, transport decarbonization) alongside carbon pricing.
- Timing considerations:
  - Introduction of an ETS should be carefully timed to avoid undermining post-pandemic recovery given initial costs.

*Source: Annex XIII. Evaluating Options for Climate Mitigation in Vietnam (staff calculations using IMF/WB Carbon Pricing Assessment Tool and related analysis).*

### Introduction

### 1vnmea2022001 - Introduction

### Introduction
- Authorities thank the IMF mission team led by Ms. Era Dabla-Norris for candid and constructive policy dialogues during the 2022 Article IV consultation.
- Authorities broadly concur with staff’s assessment and policy recommendations.
- Policy priorities: ensuring macroeconomic stability, containing inflationary pressures, and enhancing social security and safety net.
- Fiscal policy and monetary policy to remain proactive and agile in response to macroeconomic developments.

### Recent Macroeconomic Developments and Outlook
- Vietnam’s economy:
  - Grew at 2.58 percent in 2021.
  - Inflation at 1.84 percent in 2021 (authorities’ target: 4 percent).
  - NPLs at 1.53 percent in Q1 2022.
  - Unemployment rate at 3.22 percent (pandemic-affected labor market).
  - Underemployment rate at 3.1 percent in Q4 2021.
- Vaccination campaign and reopening:
  - Nearly 100 percent of population aged 18 and above received one vaccine shot, 80.4 percent two doses, and 59.3 percent with boosters as of May 18, 2022.
  - Economy fully opened since mid-March 2022; pre-departure Covid tests no longer required for travelers to Vietnam from May 15, 2022.
- 2022 outlook and support package:
  - Authorities forecast growth of 6-6.5 percent in 2022 and inflation to remain below the 4 percent target.
  - Economic growth reached 5.03 percent in Q1 2022; inflation contained at 1.92 percent.
  - Program for Socio-economic Recovery and Development (PRD) for 2022-23: VND 347 trillion (around USD 15 billion or 4% of GDP).
  - PRD includes five groups of support measures: investments in health care and disease prevention, physical and digital infrastructure, and credit support for enterprises and household businesses.
- Risks and upside:
  - Risks: geopolitical tensions, global supply chain disruptions, higher fuel prices, advanced countries’ tightening of monetary policy.
  - Upside: effective PRD implementation, continued strong FDI inflows, trade diversification via FTAs (CPTPP, RCEP, EVFTA, UKVFTA etc.) and Strategy for Imports and Exports of Goods until 2030.

### Fiscal Policy
- 2021 fiscal outcomes:
  - Budget disbursement for public investment projects: 94.94 percent of plan assigned by the Prime Minister.
  - Fiscal deficit: 3.41 percent (below 4 percent target).
  - Public debt: about 43.1 percent of GDP.
  - External debt: expected to be 38.4 percent of GDP.
  - Government-guarantee loans: decreased from 10.3 percent of GDP in 2016 to 3.8 percent of GDP in 2021.
- 2022 fiscal stance and PRD financing:
  - PRD fiscal package: around USD 12 billion (accounting for 83 percent of total PRD package).
  - Revenue-side measures include exemption, reduction, payment extension of taxes, fees, and land rent.
  - Expenditure priorities: Covid-19 prevention and control, social security and safety net, infrastructure investment.
  - Authorities intend to increase budget deficit to 4.7 percent of GDP to implement the PRD for 2022-23.
  - Public debt target: about 45-46 percent of GDP.
  - External debt target: about 40-41 percent of GDP.
- Medium-term fiscal framework:
  - Revenue mobilization target: reach around 16 percent of GDP.
  - Proportion of revenue from taxes and fees expected: about 13-14 percent of GDP by 2025.
  - Reduce recurrent expenditure proportion to about 62-63 percent of total budget expenditure by 2025.
  - Increase human and infrastructure development investment expenditure proportion to about 28 percent by 2025.
- Medium-term public investment framework:
  - Total investment fund envisaged at about 32-34 percent of GDP in 2021-2025.
  - Average disbursement rate of public investment funds: over 90% of the plan assigned by the National Assembly.
  - Public investment targeted to key sectors, large national projects, regional and inter-regional connection projects.

### Monetary and Exchange Rate Policies
- Monetary policy stance:
  - Remained accommodative in 2021-22.
  - Policy rate sharply cut three times in 2020; SBV kept policy rate at low level in 2021.
  - SBV provided ample liquidity and tapped monetary toolkits to ensure money market stability.
  - Interest rate subsidy policy under PRD: reduce borrowing costs by 2 percent (around USD 1.8 billion) for firms, cooperatives, and household businesses (Government Decree No. 31/2022/ND-CP and SBV Circular No. 03/2022/TT-NHNN dated May 20, 2022).
- Credit and capital markets:
  - Credit extension grew at 13.61 percent in 2021 (or 125 percent of GDP).
  - Capital market capitalization equivalent to 122.8 percent of GDP.
  - Authorities maintain credit growth ceiling to match absorptive capacity and contain inflationary pressures; plan to cease administrative credit measure when conditions allow.
- Exchange rate management:
  - SBV manages the exchange rate to control inflation and stabilize the macro-economy without creating unfair trade advantages.
  - Gross foreign reserves: equivalent to 3.6 months of imports in 2021 (below 6-month standard).
  - Foreign exchange reserves expected to fluctuate around the balance at end 2021 in 2022.
  - SBV improved two-way exchange rate flexibility and introduced FX derivatives such as forward contracts for FXI.

### Financial Sector Policies
- Pandemic-era banking measures:
  - Policies on debt payment rescheduling, exemption and reduction of interest and fees, and debt category retention to support borrowers.
  - SBV supervises banks to avoid moral hazard and ensure policy compliance, including provisioning requirements.
- Banking system resilience:
  - SBV prepared Plan on restructuring of the banking system associated with NPLs resolution for 2021-25 (following 2016-20 plan).
  - SBV monitored banks’ Basel II adoption plans to promote reporting and provisioning aligned with international standards.
- Risk monitoring and sector exposures:
  - Credit extension to real estate sector decreased from 26.76 percent in 2018 to 15.37 percent in 2021.
  - Total loans to real estate businesses (including developers): 6.9 percent of total outstanding loans as of end 2021.
  - Banks’ investment in corporate bonds: accounted for 2.95 percent of total outstanding loans as of Q1 2022.
  - SBV strictly controlled banks’ exposure to corporate bonds and real estate through prudential regulations and inspection.
- Macroprudential and regulatory improvements:
  - SBV improving legal and regulatory framework and macroprudential toolkit to mitigate systemic risks and enhance monitoring and warning of systemic risks.
  - Authorities value Fund TA on Financial Sector Stability Review (FSSR) to identify macro-financial vulnerabilities and evaluate gaps.

### Structural Reform
- Climate and green finance:
  - Authorities drafting National Action Plan on green growth for 2021-2030 and National Strategy on Climate Change to 2050; draft goal includes reducing greenhouse gas emissions to “net zero” by 2050.
  - Outstanding loans for green sector: average annual growth rate of more than 25 percent in the period 2017- (text truncated).
  - According to National Progress Report by the Sustainable Banking and Finance Network (SBFN), Vietnam ranked in the second group of countries with significant progress in sustainable development in 2020-21.
- AML/CFT and legal reforms:
  - Progress in collection, handling, and transfer of suspicious transaction information.
  - Vietnam's Multilateral Assessment Report approved with 4 upgraded contents at the APG Special Plenary Conference in 2021.
  - Authorities revising the AML Law; expected submission to the National Assembly for approval in October 2022.
- Digital transformation and financial inclusion:
  - National Digital Transformation Program to 2025 with orientation to 2030 supports digital transformation of firms (more than 16,000 firms supported).
  - Unique citizen ID database system operational since July 01, 2021 and integrated with health care and social insurance systems.
  - Proportion of adults owning at least one bank account: nearly 70 percent of population as of end 2021.
  - e-KYC introduced March 2021: nearly 3.5 million accounts opened using e-KYC at end 2021.
  - SBV licensed 46 e-wallet providers; total number of activated e-wallets about 35.45 million wallets at end 2021.
  - Mobile money service introduced on pilot basis for two years since 2021 to target rural and remote areas.
  - Vietnam’s banking sector assessed as the fastest growing in providing digital banking services in the region (McKinsey's Personal Financial Services (PFS) Survey, Asia-Pacific, September 2021).
  - Report "e-Conomy SEA 2021" assessed Vietnam's digital economy valued 21 billion USD in 2021, accounting for more than 5 percent of GDP, and expected to reach 57 billion USD in 2025.

### Conclusion
- Authorities committed to strengthening macroeconomic policy to support economic recovery while enhancing economic resilience.
- Short-term focus: remain vigilant to rising inflationary risks and respond agilely to contain inflation and ensure macroeconomic stability.
- Medium-term commitment: adhere to fiscal targets and calibrate fiscal policy in sync with macroeconomic developments.
- Ongoing monitoring and supervision of the financial sector to mitigate macro-financial risks, including from real estate and corporate bonds.
- Acceleration of structural reforms to meet higher development needs of the economy.

*Source: 1vnmea2022001 - Introduction*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1vnmea2022001.pdf_