## Credit, Economic Growth, and Financial Risks

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### Context and Recent Developments
- Growth and shocks:
  - Economic growth outpaced most peers over the last two decades but has become more volatile since the pandemic.
  - Economy hit by global interest rate hikes, weakened external demand, financial sector disruptions following the failure of the fifth largest bank in late 2022, and turbulence in the real estate and corporate bond markets.
  - Growth rebounded in H2 2023; in the first half of 2024, economic growth rose to 6.4 percent, supported by robust exports, increased tourism, and resilient FDI.
- External and exchange developments:
  - Trade collapsed in 2023 after surging in 2022: exports and imports as a share of GDP fell by more than 9 and 12 percentage points, respectively.
  - Current account reached a historical surplus of 5.8 percent of GDP in 2023.
  - The Vietnamese dong has been depreciating against the US dollar since mid-2023 amid falling domestic interest rates and a widening gap with US rates.
- Policy stance and inflation:
  - SBV loosened monetary policy from early 2023, injected significant liquidity, and took over Sai Gon Commercial Bank (SCB), leading interbank rates close to zero.
  - As FX depreciation pressures increased in early 2024, SBV reduced interbank liquidity and conducted FX interventions (FXI).
  - Headline inflation accelerated to 4.3 percent y/y in June 2024 driven by food prices; core inflation remains low.
  - Fiscal balance shifted from a surplus of 0.7 percent of GDP in 2022 to a 2.5 percent of GDP deficit in 2023.
  - Public wages increased by 21 percent in July 2023; public investment jump driven by disbursements under the COVID-related Program of Recovery and Development (PRD).
  - Public debt remained stable at 34½ percent of GDP in 2023.

### Credit and Financial Vulnerabilities (Box 1 findings)
- Credit levels and growth:
  - Credit reached almost 130 percent of GDP in 2023.
  - Credit growth surged in late 2023 (13.7 percent in 2023), decelerating slightly in early 2024.
- Non-performing loans and credit quality:
  - Total NPLs, including restructured loans and those held by Vietnam Asset Management Company (VAMC), reached 7.9 percent of total loans in March 2024.
  - On-balance sheet NPLs rose from 2.4 percent at end-2022 to 5.7 percent (March 2024).
  - Excluding banks under SBV control (especially SCB), NPLs reached around 3 percent.
- Corporate sector vulnerabilities:
  - High leverage and interconnectedness, notably in real estate.
  - Among listed firms, the share of corporate debt accounted by firms with interest coverage ratios below 1 increased significantly (April 2024 Asia-Pacific Regional Economic Outlook).
  - Weaknesses in debt restructuring processes and insolvency procedures amplify risks.
- Policy actions and limits:
  - Policy actions helped contain risks from the SCB failure, but vulnerabilities remain and require attention.

### Outlook and Risks
- Growth and inflation projections:
  - Growth is projected to reach 6.1 percent in 2024-25 as the output gap closes.
  - Inflation is expected to hover around the 4-4.5 percent target.
  - Current account surplus is expected to decline as import compression subsides.
- Medium-term headwinds:
  - Less favorable demographics and potential declines in potential growth without productivity-boosting reforms (Annex V).
- FDI and trade fragility:
  - FDI-based exports remain a key pillar; Vietnam’s share in global FDI has risen even as global FDI declined since 2020.
  - Rising geoeconomic fragmentation has induced some reallocation of trade and FDI to Vietnam; monitoring enhanced to avoid serving as a connector country for rerouting Chinese goods to the US (Annex VI).
- Elevated downside risks (Annex III):
  - Weaker external demand (US, China), intensification of regional conflicts (e.g., Ukraine, Middle East), and commodity price volatility.
  - Higher-for-longer global interest rates combined with accommodative domestic policy could accelerate depreciation, increase inflation pressures, and weaken consumption.
  - Financial distress could reemerge: rising NPLs, decreasing credit quality, liquidity pressures, and relatively low capital ratios could reduce banks’ capacity to lend.

### Policy Discussion — Monetary and Exchange Rate Policy
- Main tradeoffs:
  - Support recovery while managing inflation risks and restoring banking system health; upgrade monetary and fiscal policy frameworks.
- Key policy guidance and recommendations:
  - Closely monitor inflation risks as recovery gains momentum; avoid policies that incentivize credit growth that can lead to excessive, unproductive credit expansion and fuel inflation and rising NPLs.
  - If inflation pressures intensify, policy rates should be raised swiftly.
  - Allow further exchange rate flexibility and gradually tighten policies as recovery firms up to anchor inflation expectations and reduce the need to sell FX reserves.
  - Accelerate modernization of the monetary policy framework to strengthen policy transmission, reduce credit distortions, and limit the need for FXI. Suggested measures include:
    - Enhancing SBV’s operational independence while retaining government and National Assembly responsibilities in setting policy goals.
    - Streamlining the monetary policy toolkit, improving its consistency, and incorporating forward-looking elements (e.g., establishing an interest rate corridor with a floor rate by introducing a deposit facility, further increasing ER flexibility, and developing a communication strategy).
    - Phasing out deposit and short-term lending rate caps and credit growth ceilings.
    - Strengthening SBV’s legal and institutional framework for risk management, including macroprudential policies (e.g., countercyclical capital buffers, loan-to-value or debt-to-income limits) and strengthening bank supervision.
- SBV’s view:
  - Removing credit ceilings should be done with caution and conditional on alternative safeguards; FXI remains necessary during the transition given FX market shallowness.

### Tackling External Shocks and FX Pressures (Box 2 highlights)
- Role of FX intervention:
  - IMF’s integrated policy framework (IPF) used to weigh benefits of FXI against costs in presence of country-specific frictions and large external shocks; as transition to a more flexible exchange rate and inflation targeting regime proceeds, FXI should be more limited.
  - Vietnam’s structural FX market shallowness manifests in persistently positive UIP premia and large bid-ask spreads.
  - Monetary policy alone may not restore FX market liquidity without tightening too much; FXI can address FX shortages and close premia following large temporary non-fundamental shocks.
  - Proxy FXI data suggest SBV has leaned against large premia and intervened during 2009-2023.
  - ER pass-through to consumer prices is low in normal times but can be sizable following large depreciations; in a large shock, monetary policy alone may be insufficient without severe trade-offs.

### FX Pressures, Reserves, and External Position
- FX pressures and reserves:
  - Vietnam started facing FX pressures in February 2022, intensified by US monetary tightening.
  - After a drawdown of about 20 percent in 2022, FX intervention in 2023 was limited; FX reserves increased by 6 percent (USD 5.6 billion) in 2023 to USD 92.3 billion by 2023 year-end.
  - GIR at end-2023 equals 2.8 times the level of short-term external debt and 3 months of prospective imports.
  - This corresponds to 67 percent of the ARA metric under a fixed exchange rate regime or 113 percent under a floating exchange rate regime.
  - Staff assesses end-2023 reserve levels to be moderately below adequacy as the exchange rate regime moved from stabilized to crawl-like in mid-2023.
- External position and CA gap:
  - Current account surplus increased in 2023 to 5.8 percent of GDP from 0.3 percent in 2022.
  - Based on current account model, the CA gap is estimated at 8.1 percent of GDP.
  - Errors and omissions in the BOP were large (4 percent of GDP in 2023), constraining assessment.

### Fiscal Policy, Stance, and Recommendations
- Near-term stance and projections:
  - Fiscal policy expected to remain supportive in 2024 after large countercyclical stimulus in 2023.
  - Fiscal deficit projected to rise slightly to 2.6 percent of GDP in 2024; in 2025 the deficit is expected to fall as tax revenues recover and expiring tax cuts take effect.
  - Public debt is well below the 60 percent of GDP ceiling and debt risks are assessed as low.
- Key fiscal measures and costs:
  - The 30 percent increase in public wages in 2024 (on the back of a large increase in 2023) has an annual cost estimated at 1.6 percent of GDP over 2024-25.
  - Temporary cuts in the VAT rate (2 percentage points) and environmental protection tax rates on fuel (50 percent) introduced in February and April 2022 respectively have been extended to end-2024.
- Policy guidance and contingency:
  - If inflation surprises significantly on the upside, limiting or reversing fiscal accommodation (e.g., delaying projects or program expansions) would support monetary policy.
  - If downside growth risks materialize, there is ample fiscal space to accelerate investment and support the most vulnerable.
  - Targeted (limited) support with appropriate governance arrangements could be considered to facilitate restructuring real estate developers to safeguard financial stability.
- Structural fiscal reform priorities:
  - Upgrade medium-term fiscal framework and budget process; improve transparency, fiscal risk reporting, and public investment management.
  - Improve social safety nets and long-term pension sustainability.
  - Adopt revenue-enhancing reforms: Tax System Reform Strategy 2021-2030 (reduce exemptions, broaden VAT base, raise environmental tax and excise duties, introduce unified property tax and land registry, revisit personal income tax thresholds).

### Financial Sector: Vulnerabilities, Reforms, and Measures
- Recent resilience and vulnerabilities:
  - Financial system resilience shaken; risks remain elevated.
  - SBV took measures including taking control of SCB in October 2022 and ad-hoc corporate support (forbearance for NPL restructuring and allowing unlisted bond buybacks by underwriting banks).
- Real estate and insolvency priorities:
  - Address bottlenecks limiting new projects and supply; recent changes to land, housing, and real estate business laws should reduce legal uncertainty and improve transaction transparency.
  - Implement new laws effectively, develop a national land registration database, and pursue governance reforms.
  - Enhance debt enforcement and insolvency framework: strengthen collateral enforcement, out-of-court settlement and hybrid restructuring, corporate reorganization, liquidation framework, and institutions handling insolvency.
- Bank balance-sheet and supervision:
  - Amid credit surge in late 2023 and rising NPLs, provisioning levels fell but still average above 50 percent; liquidity tightened.
  - Aggregate loan-to-deposit ratio increased to 94 percent while high quality liquid assets decreased in 2024:Q1 and now cover around 16 percent of deposits.
  - SBV incentivized capital increases through dividend distribution in the form of shares, allowing SOCBs to retain profits and support issuance of Tier-2 capital instruments.
  - Banks need timely loss recognition, faster write-offs, improved NPL workouts and capitalization, while phasing-out forbearance.
  - A strong macroprudential toolkit and more proactive supervision are required to promote sustainable credit growth.
- Legal and resolution framework:
  - New Law on Credit Institutions (LCI) tightens restrictions, increases transparency on bank ownership and related party lending; introduces recovery planning framework and provisions dealing with bank runs; adjusts triggers for early intervention; strengthens SBV’s role as resolution authority.
  - LCI fell short by not introducing legal protection of SBV staff acting in good faith; not providing a framework for consolidated supervision; not remedying gaps in the resolution regime.
  - Prompt resolution of banks under special control would help contain costs and avoid constraining SBV’s ability to achieve mandates.
  - SBV provided significant liquidity to SCB up to Q1 2024, estimated at 5.6 percent of GDP.
  - Planned transfer by SBV of four banks that failed in 2015 to acquiring banks by the end of this year is welcome; resolution of SCB will likely take time and be costly.
- AML/CFT:
  - AML/CFT framework weaknesses remain; APG evaluation found strategic deficiencies leading to FATF enhanced monitoring (“grey list”) in 2023.
  - Reform priorities include aligning legal framework with FATF standards and amending the 2023 AML/CFT law to fully address shortcomings.

### Financial Soundness and Key Indicators (selected figures)
- Regulatory Capital to Risk-Weighted Assets: 2019: 11.8; 2020: 11.1; 2021: 11.3; 2022: 11.5; 2023Q2: 11.4.
- Regulatory Tier 1 Capital to Risk-Weighted Assets: 2019: 9.4; 2020: 9.5; 2021: 9.6; 2022: 10.1; 2023Q2: 10.2.
- Non-performing Loans Net of Provisions to Capital: 2019: 7.5; 2020: 8.0; 2021: 4.3; 2022: 9.1; 2023Q2: 20.6.
- Non-performing Loans to Total Gross Loans (excluding restructured and VAMC loans): 2019: 1.8; 2020: 1.9; 2021: 1.6; 2022: 1.9; 2023Q2: 3.9.
- Return on Assets: 2019: 1.2; 2020: 1.2; 2021: 1.5; 2022: 1.1; 2023Q2: 1.2.
- Return on Equity: 2019: 12.4; 2020: 11.9; 2021: 14.9; 2022: 13.9; 2023Q2: 10.7.

### Monetary and Credit Aggregates (selected figures)
- Total liquidity (M2, in trillions of dong): 2020: 12,111; 2021: 13,402; 2022: 14,227; 2023: 15,999; 2024: 17,829; 2025: 19,262.
- Net foreign assets (in trillions of dong): 2020: 2,642; 2021: 2,737; 2022: 2,361; 2023: 2,783; 2024: 3,240; 2025: 4,005.
- Credit to the economy (in trillions of dong): 2020: 9,293; 2021: 10,548; 2022: 12,024; 2023: 13,669; 2024: 15,427; 2025: 16,893.
- Broad money (M2) growth (end of period, percent change): 2020: 14.5; 2021: 10.7; 2022: 6.2; 2023: 12.5; 2024: 11.4; 2025: 8.0.
- Credit to the economy (percent change, end of period): 2020: 11.6; 2021: 13.5; 2022: 14.0; 2023: 13.7; 2024: 12.9; 2025: 9.5.

### Key Macroeconomic Projections and Indicators (selected)
- Real GDP (percent change): 2020: 2.9; 2021: 2.6; 2022: 8.1; 2023: 5.0; 2024: 6.1; 2025: 6.1.
- Output gap (percent of potential GDP): 2020: -0.4; 2021: -1.9; 2022: 0.0; 2023: -0.6; 2024: -0.3; 2025: -0.2.
- CPI (period average): 2020: 3.2; 2021: 1.8; 2022: 3.2; 2023: 3.3; 2024: 4.1; 2025: 3.5.
- Core inflation (period average): 2020: 2.3; 2021: 0.9; 2022: 2.7; 2023: 4.2; 2024: 3.6; 2025: 3.4.
- Current account balance (prelim., in billions of U.S. dollars): 2020: 15.1; 2021: -8.1; 2022: 1.4; 2023: 25.1; 2024: 14.1; 2025: 13.5.
- Gross international reserves (billions of U.S. dollars): 2020: 95.2; 2021: 109.4; 2022: 86.7; 2023: 92.3; 2024: 84.0; 2025: 97.7.

### Medium-term Growth Prospects and Scenarios
- Historical context:
  - Real GDP and real GDP per capita growth averaged 6.7 and 5.6 percent during 2000-19.
- Growth accounting (2000-19):
  - Average Growth GDP/P = 5.4; K/Y = 2.9; TFP = -0.2; h = 2.0; L/LF = 0.1; LF/P = 0.5.
  - 2023-32 Δ LF/P (e) = -0.2; 2023-32 LF/P change (e) = -0.7.
- Machine learning and analogs:
  - Random forest analysis: demographic dividend was a key driver historically; human capital and openness increasingly important.
  - Vietnam’s Human Capital Index is 0.67 out of 1 in 2018, ranked 48 out of 157 countries.
- DTW-based likely scenario:
  - A likely scenario suggests growth would slow to around 4½-5½ percent.
  - Median forecast and 55th percentile forecast imply growth in 2029 in the range 4.4 to 5.3 percent.
  - Average growth during 2024-29 forecast to be between 4.6 and 5.2 percent.
  - Distribution ranges: 45th–55th percentile between 4 and 5.3 percent; 40th–60th percentile between 3.5 and 5.6 percent.
- Policy implications:
  - To sustain higher growth, Vietnam needs structural reforms to boost productivity, reduce misallocation, improve labor skills, and deepen domestic integration of FDI.

### Geoeconomic Fragmentation, FDI, and Trade Reallocation
- Findings on GEF and trade:
  - Vietnam gained market share in US imports during 2018-2022; the trend accelerated during 2018-2022 and has stabilized since.
  - No clear evidence that Vietnam broadly acted as a one-stop vehicle to repackage China-originated goods for US exports, though sectoral exceptions exist.
  - Domestic value added in Vietnam’s exports to the US increased, especially in strategic sectors.
- FDI composition:
  - FDI inflows have risen and are likely linked to both US and Chinese capital; inflows from US-aligned countries (Japan and South Korea) have declined relative to larger commitments from Mainland China and regions that could front for Chinese capital.
  - New greenfield FDI into strategic sectors was flat during 2017-2022 with an uptick only very recently.
- Risks and data needs:
  - Risks include sudden reversal of FDI, commodity fragmentation, and prohibitive trade policies.
  - More granular ownership and bilateral data are required to fully assess rerouting versus reallocation and implications for domestic value added.

### Data, Statistics, and Governance Priorities
- Data gaps and benefits:
  - Significant gaps remain in external, monetary, and public finance statistics (Annex VIII).
  - Errors and omissions in the BOP were estimated at 4 percent of GDP in 2023.
  - Benefits of addressing gaps: better policy design, risk management, and information for firms and investors.
- Areas for improvement:
  - Accelerate publication lag shortening of final fiscal accounts; adopt GFSM 2014.
  - SBV to produce IIP estimates, address large errors and omissions, and prepare a new FDI survey.
  - Improve monetary statistics, national accounts (include e-commerce and informal economy), and develop real estate price indices; include crypto transactions.
- Institutional and legal reforms:
  - Strengthen AML/CFT to address APG/FATF deficiencies; amend the 2023 AML/CFT law to meet FATF standards.
  - Consider a high-level inter-agency group to oversee and facilitate implementation of key reforms, including addressing AML/CFT weaknesses.

### Debt Sustainability and Fiscal Projections (selected baseline series, percent of GDP)
- Public debt trajectory: 34.4 33.8 33.2 32.6 32.0 31.4 30.9 30.4 30.0 29.6 29.3 (projection series).
- Primary deficit (percent of GDP): 1.6 1.6 1.2 1.1 0.9 0.8 0.7 0.7 0.7 0.7 0.7.
- Gross financing needs (GFN): 4.0 5.6 3.8 3.7 3.4 3.5 3.6 3.9 3.8 3.7 2.8.
- Memo (real GDP growth, percent): 5.0 6.1 6.1 6.0 5.8 5.8 5.6 5.5 5.5 5.5 5.5.
- DSA conclusion: overall risk of sovereign stress is low; medium-term risks assessed as low; long-term risks low to moderate absent reforms for aging and climate spending.

### Staff Appraisal — Key Recommendations (summary)
- Monetary policy:
  - Modernize the monetary policy framework, allow greater exchange rate flexibility, safeguard FX reserve buffers, and replace credit ceilings and forbearance with a sound macroprudential framework.
  - Stand ready to tighten monetary policy promptly if inflation pressures materialize.
- Fiscal policy:
  - Remain nimble; tighten fiscal stance if inflation surprises on the upside; devise a medium-term strategy for gradual wage and pension increases; upgrade medium-term fiscal framework and fiscal transparency.
- Financial sector:
  - Bolster banks’ and corporates’ balance sheets; improve asset quality and capital ratios; phase out loan forbearance; expedite resolution frameworks and insolvency reforms.
- Structural and climate reforms:
  - Implement wide-ranging reforms to raise productivity, address demographic headwinds, deepen capital markets, develop sovereign bond market, and accelerate green agenda implementation.
- Governance and statistics:
  - Improve economic governance, speed anti-corruption institution strengthening, address AML/CFT deficiencies urgently, and enhance statistical production and dissemination across agencies.

*Source: IMF staff report excerpt provided in the content unit.*

### 1. Credit, Economic Growth, and Financial Risks __________________________________________________ 6

### Credit, Economic Growth, and Financial Risks

### Context and Recent Developments
- Economic growth outpaced most peers over the last two decades but has become more volatile since the pandemic; the economy was hit by large external and domestic shocks, including global interest rate hikes, weakened external demand, financial sector disruptions following the failure of the fifth largest bank in late 2022, and turbulence in the real estate and corporate bond markets.
- Trade collapsed in 2023 after surging in 2022: exports and imports as a share of GDP fell by more than 9 and 12 percentage points, respectively; the current account reached a historical surplus of 5.8 percent of GDP.
- The Vietnamese dong has been depreciating against the US dollar since mid-2023 amid falling domestic interest rates and a widening gap with US rates.
- Growth rebounded in H2 2023; in the first half of 2024, economic growth rose to 6.4 percent, supported by robust exports, increased tourism, and resilient FDI.
- Monetary and fiscal policies have been expansionary:
  - SBV loosened monetary policy from early 2023, injected significant liquidity, and took over Sai Gon Commercial Bank (SCB), leading interbank rates close to zero.
  - As FX depreciation pressures increased in early 2024, SBV reduced interbank liquidity and conducted FX interventions (FXI).
  - Headline inflation accelerated to 4.3 percent y/y in June 2024 driven by food prices; core inflation remains low.
  - The fiscal balance shifted from a surplus of 0.7 percent of GDP in 2022 to a 2.5 percent of GDP deficit in 2023, reflecting a large fall in revenues and rising expenditures.
  - Public wages increased by 21 percent in July 2023 and public investment jump was driven by disbursements under the COVID-related Program of Recovery and Development (PRD).
  - Public debt remained stable at 34½ percent of GDP in 2023, benefiting from low interest rates.

### Credit and Financial Vulnerabilities (Box 1 findings)
- Credit expanded rapidly and is high by regional standards: credit reached almost 130 percent of GDP in 2023.
- Credit growth surged in late 2023 (13.7 percent in 2023), decelerating slightly in early 2024; the surge partly reflects banks’ efforts to reach SBV-set credit ceilings for market share.
- Non-performing loans (NPLs) and credit quality:
  - Total NPLs, including restructured loans and those held by Vietnam Asset Management Company (VAMC), reached 7.9 percent of total loans in March 2024.
  - On-balance sheet NPLs rose from 2.4 percent at end-2022 to 5.7 percent (March 2024).
  - Excluding banks under SBV control (especially SCB), NPLs reached around 3 percent.
- Corporate sector vulnerabilities:
  - Corporates, especially in the real estate sector, remain vulnerable given high leverage and interconnectedness.
  - Among listed firms, the share of corporate debt accounted by firms with interest coverage ratios below 1 increased significantly in recent years—the largest increase among peer countries (April 2024 Asia-Pacific Regional Economic Outlook).
  - Risks are amplified by weaknesses in debt restructuring processes and shortcomings in insolvency procedures.
- Policy actions helped contain risks from the SCB failure, but vulnerabilities remain and require attention.

### Outlook and Risks
- Growth and inflation projections:
  - Growth is projected to reach 6.1 percent in 2024-25 as the output gap closes, supported by robust external demand and accommodative policies.
  - Inflation is expected to hover around the 4-4.5 percent target.
  - The current account surplus is expected to decline as import compression subsides.
- Medium-term headwinds: less favorable demographics and potential declines in potential growth without productivity-boosting reforms (Annex V).
- FDI and trade fragility:
  - FDI-based exports remain a key pillar; Vietnam’s share in global FDI has risen in recent years even as global FDI declined since 2020.
  - Rising geoeconomic fragmentation has induced some reallocation of trade and FDI to Vietnam; monitoring has been enhanced to avoid serving as a connector country for rerouting Chinese goods to the US (Annex VI).
  - Additional trade tensions could negatively impact trade and FDI.
- Elevated downside risks (Annex III):
  - Weaker external demand (US, China), intensification of regional conflicts (e.g., Ukraine, Middle East), and commodity price volatility could disrupt recovery.
  - Higher-for-longer global interest rates combined with accommodative domestic policy could accelerate depreciation, increasing inflation pressures and weakening consumption.
  - Financial distress could reemerge: rising NPLs, decreasing credit quality, liquidity pressures, and relatively low capital ratios could reduce banks’ capacity to lend; corporate indebtedness and interconnected lending involving business groups remain risks.

### Authorities' Views
- Authorities broadly agreed with staff’s assessment and are confident economic growth can reach 6-6.5 percent for 2024 while keeping inflation in line with the target.
- They concurred that policy efforts (low interest rates, fiscal expansion, accelerated public investment, increased public wages) boosted domestic activity in late 2023 and continue to support activity in 2024.
- SBV emphasized tradeoffs: managing price stability, supporting demand, and helping firms manage high debt; highlighted FX market shallowness, history of dollarization, and weak interest rate transmission as reasons for FXI during the transition to a new monetary policy framework.
- SBV noted it has flexibly managed the exchange rate and regulated VND liquidity to narrow the VND-USD interest rate gap, limiting pressure on the exchange rate.

### Policy Discussion — Monetary and Exchange Rate Policy
- Main policy tradeoffs: support recovery while managing inflation risks and restoring banking system health; upgrade monetary and fiscal policy frameworks to manage complex environment and promote macro-financial stability.
- Key policy guidance and recommendations:
  - Closely monitor inflation risks as recovery gains momentum; avoid policies that incentivize credit growth that can lead to excessive, unproductive credit expansion and fuel inflation and rising NPLs.
  - If inflation pressures intensify, policy rates should be raised swiftly.
  - Allow further exchange rate flexibility and gradually tighten policies as recovery firms up to anchor inflation expectations and reduce the need to sell FX reserves.
  - Accelerate modernization of the monetary policy framework to strengthen policy transmission, reduce credit distortions, and limit the need for FXI. Suggested measures include:
    - Enhancing SBV’s operational independence while retaining government and National Assembly responsibilities in setting policy goals.
    - Streamlining the monetary policy toolkit, improving its consistency, and incorporating forward-looking elements (e.g., establishing an interest rate corridor with a floor rate by introducing a deposit facility, further increasing ER flexibility, and developing a communication strategy to better anchor inflation expectations).
    - Phasing out deposit and short-term lending rate caps and credit growth ceilings, which have incentivized banks to extend credit to meet quotas and can create distortions and weaken balance sheets.
    - Strengthening SBV’s legal and institutional framework for risk management, including macroprudential policies, to facilitate removal of credit ceilings. This includes introducing an enhanced macroprudential toolkit (e.g., countercyclical capital buffers, loan-to-value or debt-to-income limits) and strengthening bank supervision.
- SBV’s view: removing credit ceilings should be done with caution and conditional on alternative safeguards; FXI remains necessary during the transition given FX market shallowness.

### Tackling External Shocks and FX Pressures (Box 2 highlights)
- The IMF’s integrated policy framework (IPF) provides a lens to weigh benefits of FXI against costs in the presence of country-specific frictions and large external shocks; as transition to a more flexible exchange rate and inflation targeting regime proceeds, FXI should be more limited to increase credibility and deepen FX markets.
- Vietnam’s structural FX market shallowness manifests in persistently positive UIP premia and large bid-ask spreads; large changes in these premia can hamper market liquidity.
- Monetary policy alone may not restore FX market liquidity without tightening too much; FXI can address FX shortages and close premia following large temporary non-fundamental shocks that exacerbate IPF frictions.
- Proxy FXI data suggest SBV has leaned against large premia and intervened during 2009-2023; private sector currency mismatches are assessed as low but lack of granular data masks potential unhedged exposures.
- ER pass-through to consumer prices is low in normal times but can be sizable following large depreciations; in a large shock, inflation expectations may become unanchored and monetary policy alone may be insufficient without severe trade-offs across SBV’s objectives.

_Italic: IMF staff summary of "Credit, Economic Growth, and Financial Risks" (chapter content)._

### 2022. Vietnam started facing FX pressures in February 2022,

### VIETNAM

### FX pressures and reserves
- Vietnam started facing FX pressures in February 2022, intensified by US monetary tightening.
- Reserves steadily declined during Q1-Q3 2022.
- Monetary policy was loose during the first half of 2023.
- When distress in the financial and real estate sectors became more pronounced, around 20 percent of FX reserves had been used.
- The episode illustrates the intertemporal trade-off of using FXI when the duration and size of shocks are uncertain and there are concerns about financial vulnerabilities.

### Fiscal policy: stance, projections, and risks
- Fiscal stance and near-term projections:
  - Fiscal policy is expected to remain supportive in 2024 after a large countercyclical stimulus in 2023.
  - The fiscal deficit is projected to rise slightly to 2.6 percent of GDP in 2024.
  - In 2025, the deficit is expected to fall as tax revenues continue to recover and expiring tax cuts take effect.
  - Public debt is well below the 60 percent of GDP ceiling and debt risks are assessed as low (Annex IX).
- Key fiscal measures and costs:
  - The 30 percent increase in public wages in 2024 (on the back of a large increase in 2023) has an annual cost estimated at 1.6 percent of GDP over 2024-25.
  - Temporary cuts in the VAT rate (2 percentage points) and environmental protection tax rates on fuel (50 percent) introduced in February and April 2022 respectively have been extended to end-2024.
- Policy guidance and contingency:
  - If inflation surprises significantly on the upside, limiting or reversing fiscal accommodation (e.g., delaying projects or program expansions) would support monetary policy and avoid amplifying inflation risks.
  - If downside growth risks materialize, there is ample fiscal space to accelerate investment and support the most vulnerable.
  - Targeted (limited) support—with appropriate governance arrangements—could be considered to facilitate restructuring real estate developers to safeguard financial stability.
- Structural fiscal reform priorities:
  - Upgrade the medium-term fiscal framework and the budget process to address weaknesses in public finances transparency, fiscal risk reporting, and public investment management.
  - Improve social safety nets by increasing adequacy and coverage, ensuring well-targeted, timely, and cost-effective support, and building institutional capacity to respond to large shocks; strengthen long-term pension sustainability as the population ages.
  - Adopt revenue-enhancing reforms: press ahead with the Tax System Reform Strategy 2021-2030, including reducing exemptions and rationalizing preferential regimes, broadening the VAT base, raising environmental tax and excise duties, introducing a unified property tax and a land registry, and revisiting personal income tax thresholds.
- Authorities’ views:
  - Authorities noted fiscal policy is supporting growth while monetary policy is constrained and that there is fiscal space for further support, especially via public investment.
  - They noted weak revenue collection in 2023 due to the real estate downturn and that revenue recovery will be gradual amid weak domestic demand and uncertain external environment.
  - Reforms to several tax laws are being discussed in the National Assembly; new land and real estate related laws will help resolve bottlenecks in implementing public infrastructure.
  - Authorities argued wage and pension rises are needed given low levels and expect potential inflation impact from public wage increases to be contained; administrative prices will be phased in to reduce inflationary pressures.
  - They acknowledged more efforts are needed to improve fiscal statistics in line with international standards and will continue to address them with Fund support.

### Financial sector: vulnerabilities, reforms, and needed measures
- Recent resilience and vulnerabilities:
  - The resilience of the financial system has been shaken by several shocks; risks remain elevated.
  - Banks are vulnerable to highly leveraged firms still affected by Covid, the sharp fall in exports in 2022, and turbulence in real estate.
  - SBV took measures including taking control of SCB in October 2022 and ad-hoc corporate support (forbearance for NPL restructuring and allowing unlisted bond buybacks by underwriting banks).
- Real estate and insolvency priorities:
  - Address bottlenecks in the real estate sector limiting new projects and supply; recent changes to land, housing, and real estate business laws should reduce legal uncertainty and improve transaction transparency (e.g., land valuation based on market prices and updated more regularly).
  - Effective and swift implementation of new laws, development of a national land registration database, and governance reforms are critical to support a real estate rebound.
  - Enhance debt enforcement and insolvency framework: strengthen collateral enforcement, out-of-court settlement and hybrid restructuring mechanisms, corporate reorganization proceedings, effectiveness of the liquidation framework, and institutions handling insolvency cases.
- Bank balance-sheet and supervisory reforms:
  - Amid a credit surge in late 2023 and rising NPLs, provisioning levels fell but still average above 50 percent; liquidity tightened.
  - The aggregate loan-to-deposit ratio increased to 94 percent while high quality liquid assets decreased in 2024:Q1 and now cover around 16 percent of deposits.
  - SBV incentivized capital increases through dividend distribution in the form of shares, allowing state-owned commercial banks to retain profits and supporting issuance of Tier-2 capital instruments.
  - Banks need to improve asset quality via timely loss recognition, faster write-offs, improved NPL workouts and capitalization, while phasing-out forbearance.
  - A strong macroprudential toolkit and more proactive supervision are required to promote sustainable credit growth.
- Legal and resolution framework:
  - The new Law on Credit Institutions (LCI) tightens restrictions and increases transparency on bank ownership and related party lending; introduces recovery planning framework and provisions dealing with bank runs; adjusts triggers for early intervention; and strengthens SBV’s role as resolution authority.
  - The LCI fell short by not introducing legal protection of SBV staff acting in good faith; not providing a framework for consolidated supervision; and not remedying gaps in the resolution regime.
  - Supervisory practices and capacity need updating; SBV and other agencies are working to address 2023 IMF Financial Sector Stability Review recommendations (stress testing framework, risk-based SBV internal audit, strengthening securities supervision and regulation).
  - There has been limited progress in addressing AML/CFT weaknesses.
- Resolution needs and fiscal/monetary interactions:
  - Prompter resolution of banks under special control would help contain costs and avoid constraining SBV’s ability to achieve its mandates.
  - Planned transfer by SBV of four banks that failed in 2015 to acquiring banks by the end of this year is welcome.
  - Resolution of SCB is challenging given uncertainty on the quality and valuation of its loan book.
  - SBV, up to the first quarter of 2024, provided significant liquidity to SCB, estimated at 5.6 percent of GDP, while having to control overall system liquidity.
  - The plan to gradually wind down SCB will likely take time, be costly, and could hamper SBV’s ability to address future shocks.
  - Further reforms to the bank resolution framework, including allowing the sale of parts of failed banks, would facilitate timely restructuring.
- Authorities’ views:
  - Authorities agreed continued vigilance is required as the banking sector recovers after large shocks.
  - SBV issued a Circular allowing extension of loan forbearance to reduce loan repayment pressure and create conditions for businesses and households to access capital; SBV instructed banks to manage credit risk carefully.
  - SBV is preparing for implementation of the 2024 LCI and efforts are made to incorporate lessons from recent bank failures in supervisory practice.
  - Authorities agree on the need to resolve banks under special control expeditiously but noted that in some cases it will take time due to ongoing legal procedures.

### Box: AML/CFT framework weaknesses and reforms
- Risk overview:
  - Vietnam is exposed to a range of money laundering risks and less pronounced terrorist financing risks; main sources of illegal proceeds include corruption, organized crimes, fraud, drug trafficking, tax evasion, and human trafficking.
  - The banking sector is particularly vulnerable due to its dominance in the economy.
- Evaluation status and implications:
  - The AML/CFT framework was evaluated in 2019 by the Asia Pacific Group (APG); strategic deficiencies led to Vietnam being placed under FATF enhanced monitoring (“grey list”) in 2023.
  - Prolonged delays in addressing deficiencies may undermine financial integrity and negatively impact correspondent banking relationships, FDI, and other capital inflows; weak AML/CFT measures also limit tools to tackle corruption and tax evasion.
- Reform priorities:
  - Prioritize implementing the agreed action plan with FATF and APG, starting with aligning the legal framework with FATF standards.
  - A new AML/CFT law was enacted in 2023 but does not sufficiently address shortcomings; amending it to meet FATF standards would improve private sector measures, AML/CFT supervision, identifying ultimate beneficial owners, investigation and conviction of money launderers, and international cooperation.
  - Despite improvements in domestic coordination and the financial intelligence unit, APG found none of the recommendations fully addressed; swift legal reforms are needed to demonstrate political will in cooperation with FATF and APG.

### Structural and climate policies
- Growth prospects and productivity challenge:
  - Sustaining high growth requires improving productivity amid demographic and climate-related headwinds.
  - Vietnam benefited from a young population, but this trend is projected to reverse as the population ages and the share of workers in the total population shrinks.
  - Based on growth patterns of similar countries, Vietnam’s medium-term growth could decline to 4.5-5.5 percent over the decade (Annex V).
  - Despite augmenting human capital, productivity has not followed and Vietnam lags regional peers, due mainly to labor skill mismatches and resource misallocation.
- FDI, domestic integration, and reform priorities:
  - Making the most of FDI while reforming to enhance productivity and competitiveness in the domestic sector is key; FDI firms are not well integrated into the domestic economy, creating a dual economy with few high-productivity (mostly FDI) firms.
  - Reforms needed: improve business environment, labor market functioning, reduce red tape and legal uncertainty, and continue investment in human and physical capital to promote technological diffusion and productivity spillovers.
- Capital markets and insolvency:
  - Strengthen functioning and governance of capital markets to better allocate capital and develop a more productive domestic private sector.
  - Develop a mature sovereign bond market: reduce captive demand distortions (notably from Vietnam Social Security, VSS), diversify investor base, increase liquidity, and establish a reliable yield curve.
  - Development would require gradual broadening of VSS’s investment mandate and better functioning FX and interest rate hedging markets.
  - Enhance transparency, regulation, regulator capacity, and consumer protection to recover retail investor trust in corporate bond market and promote public offerings.
- Climate agenda and implementation:
  - Achieving climate goals requires accelerating implementation of the government’s green agenda.
  - Progress on plans to adopt a pilot carbon market for key sectors (thermal power, steel and cement) in 2025, and to have the carbon market fully operational in 2028, has been slow.
  - Needed actions: develop a green taxonomy to define carbon credits and compliance mechanisms; ensure tax system discourages fossil fuels; build infrastructure to scale up renewable energy and alleviate transmission bottlenecks; enhance comprehensive risk assessments and prioritize resilient infrastructure investments.
  - Most investment is envisaged to be funded by international partners and private sector, including through the Just Energy Transition Partnership and green bond issuances; improving the business environment and strengthening financial market regulations will be key.
- Anti-corruption campaign and governance:
  - Vietnam is undergoing an anti-corruption campaign; while benefits can be significant, near-term uncertainty and delays in investment decisions may affect the investment climate.
  - Strengthening preventive anti-corruption institutions and economic governance would help realize and sustain gains.
  - Creating a high-level inter-agency group (potentially led by the Prime-Minister’s office) to oversee and facilitate implementation of key reforms could speed reforms on: clarifying laws and regulations, strengthening the judiciary and regulatory bodies, improving transparency in economic statistics reporting, and addressing AML/CFT weaknesses.

*Sources: Vietnamese authorities, Haver, IFS, and IMF staff calculations.*

### 29. Greater quality and timely reporting of economic statistics could help improve

### 29. Greater quality and timely reporting of economic statistics could help improve

### Data gaps and benefits
- Significant data gaps remain, including on external and monetary sectors, as well as on public finances (Annex VIII).
- Benefits of addressing gaps:
  - More sharing of information across government agencies would help better design policies and manage risks.
  - Improved dissemination of information to the public would help firms, investors, and households make better decisions.
  - Better data would help address shortcomings with the data provided to the Fund that hamper surveillance (Annex X).
- Progress will require accelerating capacity building and high-level efforts to overcome regulatory barriers to the sharing of information across government agencies and with the public.

### Areas for improvement (specific statistical domains)
- Public finances
  - Accelerate efforts by the Ministry of Finance to shorten the publication lag of final fiscal accounts.
  - Adopt more comprehensive finance statistics closer to international standards.
- External statistics
  - SBV has initiated efforts, with Fund support, including producing an estimate for international investment position, addressing the large errors and omissions in the balance of payments, and preparing a new FDI survey.
- Monetary statistics, national accounts, and other areas
  - Press ahead with efforts to improve monetary statistics.
  - Tackle weaknesses in national accounts (e.g., fully include e-commerce and the informal economy).
  - Develop real estate price indices and include crypto assets transactions.

### Authorities’ views
- The authorities concurred further efforts are needed to sustain high medium-term growth and implement the climate agenda; aging and climate pose important challenges and will require efforts to boost productivity.
- They noted achieving the nation’s ambitious development and climate goals will take time, but reforms are ongoing.
- Authorities stressed the importance of international support to help developing nations like Vietnam to finance the green agenda.
- Capital markets measures:
  - Measures are being taken to strengthen capital markets, including the corporate bond market.
  - The Ministry of Finance has been proactive to develop the government bond market in line with international practices, while recognizing more efforts are needed especially to increase liquidity and diversify the investors’ base in the secondary market.
- Statistical and governance commitments:
  - SBV is committed to significantly upgrade the production and dissemination of external and monetary statistics in line with international standards.
  - MOF is working towards improving its system to better use data available in the Treasury.
  - Authorities welcomed ongoing Fund support on capacity building for improving macro-economic statistics but cautioned that it would take time and resources.
  - Agreed on the importance of stepping up inter-agency collaboration to produce and disseminate better and more timely data.
  - Agreed on the importance of taking preventive measures in combating corruption and strengthening governance; any identified corrupt practices would face consequences.
  - Authorities indicated progress in implementing the APG recommendations on AML/CFT reform and acknowledged the need to speed up reforms.
- For example, the authorities are in the process of setting a national database on asset and income by 2025:Q4.

### Staff appraisal — key findings and policy recommendations
- Recent recovery and risks
  - After large shocks, Vietnam’s economic recovery is gaining impetus thanks to expansionary policies and a rebound in external demand.
  - A challenging global environment, vulnerable corporate balance sheets, and medium-term challenges (aging, climate) pose headwinds.
- Monetary policy
  - Monetary policy must navigate supporting the recovery while remaining vigilant against inflation risks.
  - The current accommodative monetary stance has appropriately supported the recovery; authorities should stand ready to tighten monetary policy if inflation pressures intensify and avoid policies that incentivize excessive credit growth.
  - Priority: accelerate steps to modernize the monetary policy framework, including allowing greater exchange rate flexibility while safeguarding FX reserve buffers to help manage large shocks.
  - Other recommended steps: greater operational autonomy to SBV; replace credit growth ceilings and forbearance measures with a sound macroprudential framework.
- Fiscal policy
  - Fiscal policy has been sustaining the gradual recovery and facilitating private sector deleveraging; it needs to remain nimble given the uncertain outlook.
  - If inflation pressures significantly intensify, a tighter fiscal stance would help SBV anchor inflation expectations.
  - Government should devise a medium-term strategy for gradual wage and pension increases to attract a professional and qualified civil service, while avoiding large annual increases that can fuel price pressures.
  - Upgrade the medium-term fiscal framework: strengthen budget processes, increase fiscal transparency, improve social safety nets, and enhance revenue mobilization.
- External sector
  - The external sector position in 2023 is assessed to be substantially stronger than warranted by fundamentals and desirable policies, but the assessment is constrained by large temporary shocks and data gaps in the BOP (errors and omissions of 4 percent of GDP in 2023; Annex IV).
  - The current account surplus reflected a large import contraction in 2023, even as exports fell, and is expected to unwind over the next years.
  - External imbalances should be addressed through structural policies geared at mitigating precautionary savings (e.g., by improving social safety nets) and enhancing non-FDI related investment.
  - FX reserves are assessed to be moderately below adequacy at end-2023 against the backdrop of efforts by SBV to gradually rebuild its buffers after a large external adverse shock.
- Financial sector resilience
  - Continuing to build resilience of the financial sector remains a priority, including bolstering banks’ and corporates’ balance sheets.
  - Bank asset quality and capital ratios need improvement, while phasing out loan forbearance.
  - The revision of the law on credit institutions is significant, but implementation will be critical; follow-up reforms should strengthen bank supervision policies and practices, ensure appropriate legal protection to SBV staff, introduce a framework for risk-based and consolidated supervision, and monitor connected counterparties.
  - Strengthen the ability to resolve failed banks and reform the insolvency framework to improve financial system functioning and capital markets.
  - The planned compulsory transfer of four banks by the end of this year is welcome; an expedited resolution of SCB would help contain resolution costs and avoid hampering SBV’s ability to conduct monetary policy.
  - Introduce an effective debt enforcement and insolvency framework to deal with overleveraged corporates.
- Structural and climate reforms
  - Wide-ranging structural and climate reforms are critical for high medium-term growth; less favorable demographics and climate change require increased productivity through structural reforms, improved business environment, and investments in human and physical capital.
  - Support development and climate agendas with a regulatory framework to attract private investment to scale up renewable energy.
  - Improve functioning and governance of capital markets; upgrade the government bond market based on market prices to reduce distortions and strengthen monetary policy transmission.
- Governance and anti-corruption
  - Improving economic governance and strengthening anti-corruption frameworks will help achieve developmental goals.
  - Clarify laws and rules, reduce red tape, and promote greater transparency to reduce legal uncertainty and speed public decision-making.
  - Consider creating a high-level inter-agency group to oversee and facilitate implementation of key reforms, including urgently addressing weaknesses in the AML/CFT framework given that Vietnam is behind schedule in implementing the agreed action plan.
- Statistical systems and transparency
  - Move ahead with efforts to improve production and dissemination of economic statistics by removing institutional barriers and adopting a medium-term strategy to improve quality.
  - These efforts require greater cooperation by all key public agencies.
  - Enhanced transparency will help deepen financial markets and help government agencies, businesses, and households take more informed decisions.

*Source: IMF staff report excerpt provided in the content unit.*

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

### 1vnmea2024001-print-pdf - 41. It is recommended that the next Article IV consultation be held on the standard 12-

### Recent economic developments
- Growth recovered in late 2023, driven by a pickup in exports accompanied by imports’ recovery which collapsed early in the year.
- Contributions to growth by economic activity (quarterly, y/y, sample charted): Agriculture, Forestry, and Fishery; Industry and Construction; Services; Others; Total GDP.
- Contributions to growth by expenditure (quarterly, y/y, sample charted): Private Consumption; Investment; Public Consumption; Net Exports; Total GDP.
- Manufacturing confidence recovered in late 2023; Purchasing Manufacturing Index items charted: Overall, New Orders, Employment.
- Industrial production: Electronics (exports largely to the US) has recently been the driving sector; Index of Industrial Production (headline, Wearing Apparel, Electronics) shown (3-month moving average, y/y).
- International visitors: International tourists’ arrivals recovered in 2023 and were back to the pre-pandemic levels in early 2024; chart shows breakdown by China, Asia excl. China, Others and percent of the same month in 2019.
- Real retail sales: Excluding tourism, retail sales remain subdued; chart shows trade, Hotel & Restaurants and Tourism, Others, Total (real retail sales of trade goods and services, 3-month moving average, y/y).

### Prices and wages
- Headline inflation increased recently due to administrative prices (electricity and education) and food prices.
- Core inflation has declined and been stable.
- Global commodity price developments: Commodity prices’ large decline in 2023 is gradually dissipating; Global Commodity Price Inflation (All Commodities, Fuel, Food) charted (y/y).
- Input producer price inflation: Input Producer Price Inflation by Agriculture, Industry, Services (y/y) has been rising and volatile.
- Shipment costs: Despite declining shipment costs from the 2021-22 peak, Baltic Exchange and Freightos Container Index series charted.
- Labor market and wages: Average wages are keeping up with inflation as the labor market remains resilient.
  - Average Monthly Wage (VND) and Number of Employed Persons charted; note: Real wages are nominal wages deflated by the CPI, in constant 2019 prices.

### External sector
- Trade balance strongly rebounded in 2024:H1.
- Export performance: Broad-based uptick in external demand, including in the tech cycle that boosted electronics exports; Export Performance by Commodities (Textile, Telephone and Electronics, Furniture, Raw Materials, Machinery and Autos) charted (3mma, y/y).
- Services exports: Services exports continued to recover as tourist arrivals reached pre-pandemic levels; Main Drivers of Services Exports Growth charted (Transport Services, Travel Services, Other Services, Total Services Exports, percent change vs. previous quarter).
- FDI: FDI commitments and disbursements rose in 2023, bolstered by FDI inflows in the manufacturing sector.
  - FDI Commitments and Disbursements charted (Manufacturing, Wholesales/Retail, Real Estate, Other, Disbursement; In billions of US dollars).
- Financial flows and exchange rate:
  - Portfolio and short-term capital registered large outflows.
  - Exchange rate reached SBV’s five percent target band due to the large interest rate differential and strong US dollar.
  - Interbank and official exchange rate series charted (VND / US$).
- Balance of payments and reserves (from Table 3 and Tables 1–3):
  - Current account balance (prelim.): 2020: 15.1; 2021: -8.1; 2022: 1.4; 2023: 25.1; 2024: 14.1; 2025: 13.5 (in billions of U.S. dollars).
  - Trade balance (in billions of U.S. dollars): 2020: 30.7; 2021: 15.7; 2022: 29.4; 2023: 44.0; 2024: 37.4; 2025: 33.2.
  - Exports, f.o.b. (in billions of U.S. dollars): 2020: 282.6; 2021: 336.2; 2022: 371.7; 2023: 354.7; 2024: 379.6; 2025: 402.7.
  - Imports, f.o.b. (in billions of U.S. dollars): 2020: 251.9; 2021: 320.5; 2022: 342.3; 2023: 310.7; 2024: 342.2; 2025: 369.5.
  - Gross international reserves (billions of U.S. dollars): 2020: 95.2; 2021: 109.4; 2022: 86.7; 2023: 92.3; 2024: 84.0; 2025: 97.7 (Table 1) and alternative projection series in Table 2.

### Monetary sector
- Policy rates were cut in early 2023 to near the bottom during the pandemic.
- Under unchanged low policy rates since 2023, the SBV has issued bills to withdraw VND liquidity against ER pressure.
- Both lending and deposit rates have declined since early 2023 due to the policy rate cuts.
- Since mid-2023, credit and M2 growth has been gradually recovering.
- Credit composition and markets:
  - Credit growth increased in trade and industry sectors but decreased in real estate sector in 2023.
  - Domestic gold premium against global prices has declined after the SBV started to supply gold in the market in April 2024 through the first auction in 11 years.
- Selected monetary and credit figures (from Table 5 and Table 1):
  - Policy interest rates charted (Refinancing, Discount, Overnight interbank).
  - Total liquidity (M2, in trillions of dong): 2020: 12,111; 2021: 13,402; 2022: 14,227; 2023: 15,999; 2024: 17,829; 2025: 19,262.
  - Net foreign assets (in trillions of dong): 2020: 2,642; 2021: 2,737; 2022: 2,361; 2023: 2,783; 2024: 3,240; 2025: 4,005.
  - Credit to the economy (in trillions of dong): 2020: 9,293; 2021: 10,548; 2022: 12,024; 2023: 13,669; 2024: 15,427; 2025: 16,893.
  - Broad money (M2) growth (end of period, percent change): 2020: 14.5; 2021: 10.7; 2022: 6.2; 2023: 12.5; 2024: 11.4; 2025: 8.0.
  - Credit to the economy (percent change, end of period): 2020: 11.6; 2021: 13.5; 2022: 14.0; 2023: 13.7; 2024: 12.9; 2025: 9.5.

### Fiscal sector
- After a surplus in 2022, fiscal policy expanded in 2023.
- Debt dynamics: Public and publicly guaranteed debt declined thanks to relatively low deficits and a positive growth-interest differential.
  - Public and publicly guaranteed debt (end of period, percent of GDP, Table 1): 2020: 41.3; 2021: 39.2; 2022: 34.7; 2023: 34.4; 2024: 33.8; 2025: 33.2.
- Revenue and expenditure trends:
  - General government tax revenue has been on a declining trend and lower than EMDE benchmark.
  - Real estate downturn, imports’ contraction, and supportive tax measures (e.g., tax cuts and exemptions) resulted in lower tax revenue in 2023.
  - Non-tax revenue underperformed in 2023, mainly due to lower land use right assignment resulting from weak real estate activities.
  - Public investment accelerated in 2023.
- Selected fiscal figures (from Table 1 and Table 4b):
  - Net lending (+)/borrowing(-) as percent of GDP (Table 1): 2020: -2.9; 2021: -1.4; 2022: 0.7; 2023: -2.5; 2024: -2.6; 2025: -2.2.
  - Total revenue and grants (percent of GDP, Table 4b): 2020: 18.4; 2021: 18.7; 2022: 19.0; 2023: 17.1; 2024: 17.6; 2025: 18.4.
  - Expenditure (percent of GDP, Table 4b): 2020: 21.3; 2021: 20.1; 2022: 18.3; 2023: 19.5; 2024: 20.2; 2025: 20.7.
  - Primary balance (percent of GDP, Table 4a/4b): 2020: -1.5; 2021: -0.2; 2022: 1.7; 2023: -1.6; 2024: -1.6; 2025: -1.2.

### Financial sector developments
- Bank profitability remained high in 2023, driven by strong credit growth and net interest margins; however, capital adequacy remained weak, especially in SOCBs.
- Liquidity tightened sharply as lending grew faster than deposits.
  - Loan-to-deposit ratio series charted; Loan growth vs Deposit growth shown.
- Non-performing loans and bond risks:
  - NPLs are picking up again since June 2022.
  - Corporate bond market: Bond defaults in real estate exceeded those in other sectors and could rise further as real estate developer-issued bonds form the bulk of upcoming maturities.
  - Corporate Bond Market: Scheduled Maturities charted (Real Estate, Credit Institutions, Others) with quarterly series from 2024Q1 onward in billions of US dollars.
- Key financial soundness indicators (Table 6, in percent):
  - Regulatory Capital to Risk-Weighted Assets: 2019: 11.8; 2020: 11.1; 2021: 11.3; 2022: 11.5; 2023Q2: 11.4.
  - Regulatory Tier 1 Capital to Risk-Weighted Assets: 2019: 9.4; 2020: 9.5; 2021: 9.6; 2022: 10.1; 2023Q2: 10.2.
  - Non-performing Loans Net of Provisions to Capital: 2019: 7.5; 2020: 8.0; 2021: 4.3; 2022: 9.1; 2023Q2: 20.6.
  - Non-performing Loans to Total Gross Loans (excluding restructured and VAMC loans): 2019: 1.8; 2020: 1.9; 2021: 1.6; 2022: 1.9; 2023Q2: 3.9.
  - Return on Assets: 2019: 1.2; 2020: 1.2; 2021: 1.5; 2022: 1.1; 2023Q2: 1.2.
  - Return on Equity: 2019: 12.4; 2020: 11.9; 2021: 14.9; 2022: 13.9; 2023Q2: 10.7.

### Key indicators and projections (selected entries)
- Real GDP (percent change, Table 1): 2020: 2.9; 2021: 2.6; 2022: 8.1; 2023: 5.0; 2024: 6.1; 2025: 6.1.
- Output gap (percent of potential GDP, Table 1): 2020: -0.4; 2021: -1.9; 2022: 0.0; 2023: -0.6; 2024: -0.3; 2025: -0.2.
- CPI (period average, Table 1): 2020: 3.2; 2021: 1.8; 2022: 3.2; 2023: 3.3; 2024: 4.1; 2025: 3.5.
- Core inflation (period average, Table 1): 2020: 2.3; 2021: 0.9; 2022: 2.7; 2023: 4.2; 2024: 3.6; 2025: 3.4.
- Gross national saving (percent of GDP, Table 1): 2020: 36.3; 2021: 30.7; 2022: 32.9; 2023: 37.7; 2024: 35.2; 2025: 35.2.
- Gross investment (percent of GDP, Table 1): 2020: 31.9; 2021: 32.9; 2022: 32.6; 2023: 32.0; 2024: 32.2; 2025: 32.5.
- Current account balance (percent of GDP, Table 2 medium-term): 2024: 2.3; 2025: 1.8; 2026: 1.5; 2027: 1.3.

*Source: Vietnamese authorities; and IMF staff estimates and projections.*

### Annex I. Progress Against IMF Recommendations

### Annex I. Progress Against IMF Recommendations

### Fiscal Policy
- Recommendations:
  - Further fiscal support could be considered, especially if the economic recovery disappoints.
  - Policies could focus on spending to address infrastructure and social needs.
  - Reducing exemptions and rationalizing preferential regimes for FDI firms, broadening the VAT base, and raising environmental tax and excise duties.
  - Revenue mobilization efforts over the medium term are needed to reverse the trend of tax erosion and create space to bolster social spending and address infrastructure gaps.
- Actions Since 2023 Article IV Consultation:
  - Fiscal policy has become more expansionary to support the recovery. The authorities continued tax and land rent deferrals, and tax/fee reductions 2023H2.
  - In 2024, tax reductions have been continued, including a VAT cut (by 2 percent until end-2024) and an environmental tax reduction (by 50 percent).
  - MOF has proposed to amend the laws on VAT, CIT and excise tax. The proposals have been disclosed for public consultation and would be included in the National Assembly’s legislative agenda in 2024. Possible amendments include broadening the VAT tax base, narrowing exemptions from VAT, lowering CIT rates for SMEs, revising some articles of the CIT law in the context of GMT adoption, and raising excise tax on alcohol and beer.
  - Vietnam passed a resolution on adoption of top-up CIT of 15 per cent under the Global Anti-Base Erosion (GloBE) model rules, effective on January 1, 2024.
  - More efforts have been put in place to strengthen tax administration through digital transformation. Tax authorities have enhanced risk-based tax management processes. E-commerce and digital-based tax administration have also improved.

### Monetary Policy
- Recommendations:
  - Monetary policy should be cautious and data dependent given significant underlying risks.
  - Greater exchange rate flexibility to absorb external shocks.
  - Accelerating modernization of the monetary framework.
- Actions Since 2023 Article IV Consultation:
  - Monetary policy was accommodative in most 2023 to support economic growth.
  - FXI since mid-2023 has been limited until Q2 2024, when the SBV resumed its spot interventions following FX pressures, while also allowing depreciation.
  - The modernization of the monetary policy framework is ongoing, with the SBV enhancing its analytical and forecasting capacity through IMF-supported Forecasting and Policy Analysis System (FPAS) technical assistance (TA).

### Financial Sector Policies
- Recommendations:
  - Close monitoring of risks in the banking sector; loan classification and provisioning rules should be normalized.
  - Enhance banking sector resilience.
  - Improving crisis preparedness.
  - Strengthen AML/CFT system.
  - Strengthen domestic capital market.
  - Improving fintech regulation.
- Actions Since 2023 Article IV Consultation:
  - SBV has been closely monitoring risks in the banking sector. Loan classification and provisioning rules have been normalized for loans restructured after January 1, 2023, but new loan forbearance was introduced in April 2023.
  - Adoption of Basel II is continuing. The new Law on Credit Institutions was ratified in early 2024 and came into effect on July 1, 2024. This new law is expected to help enhance system stability through increasing ownership transparency, diversifying shareholder bases and empowering minority shareholders, limiting single exposure credit risks, allowing banks to recover NPLs extended to troubled developers via project sales, and continuing policies to enable NPL resolution.
  - The new Credit Institution Law introduces a new recovery planning framework and provisions dealing with bank runs; adjusts the triggers for early intervention; and strengthens the role of SBV as the resolution authority.
  - A new AML-CFT law was passed and came into effect in March 2023, but it addresses the shortcomings identified only to a limited extent. The SBV also issued the AML Circular to provide specific AML requirements for the banking sector.
  - Credit rating requirement and limits on retail investors came into effect on January 1, 2024. The rule that banks are not allowed to buy back unlisted corporate bonds was resumed on January 1, 2024. All corporate bonds must now be listed on a trading platform which was introduced in the last quarter of 2023.
  - Vietnam has made progress toward digital transformation in both public service and business, especially in the banking and finance sectors. More public services can be provided through the e-government Portal, including tax and customs services.

### Structural Policies
- Recommendations:
  - Making laws and administrative processes clearer, simpler and more transparent to provide greater legal certainty and reduce corruption.
  - Labor market reform and efforts to increase human capital levels and reduce skill mismatches to further improve growth prospects.
  - Addressing data gaps to help enhance transparency and better inform policy making and risk management.
  - Reforms to accelerate climate change mitigation.
- Actions Since 2023 Article IV Consultation:
  - Several important economic laws, including the revised land law, real estate business law, housing law, and law on credit institutions were ratified late last year. These laws will come into effect either mid-this year or early next year to help address difficulties in the real estate sector and improve banking sector resilience.
  - The authorities have developed a plan to have 50,000 engineers serving the semiconductor industry by   2030.
  - MOF has been working on a plan to reduce the lag of final account reporting from 18 months to 12 months. The conversion of state budget data aligned with GFSM 2014 has been slowly continued and Vietnam has published GFS data for 2003-22 on the IMF website. The authorities are working on improving BOP data, especially reducing E&Os. The SBV is working on IIP statistics. IMF TA supports the efforts on BoP and IIP data.
  - Vietnam has committed to reaching net-zero emissions by 2050. The authorities are developing a carbon market framework. 10.3 million forest carbon credits (10.3 million tones of CO2) were sold for the first time through the World Bank.

*Annex I. Progress Against IMF Recommendations (extracted from 1vnmea2024001-print-pdf)*

### 5.8 percent of GDP in 2023. The widening of the current account gap reflects, to a large degree, the

### 5.8 percent of GDP in 2023. The widening of the current account gap reflects, to a large degree, the

### Current account developments and external flows
- The current account surplus increased in 2023 to 5.8 percent of GDP from 0.3 percent in 2022, following a contraction in merchandise imports in 2023H1 and a rebound in services exports.
- Merchandise exports and, to a larger degree, imports contracted sharply in the first half of 2023 amid weak external demand and the aftermath of financial sector distress in 2022Q4.
- Weak domestic demand contributed to the drop in imports by 9.2 percent in 2023.
- Imports, notably those for re-exports, recovered only in 2023Q4 as external demand picked up.
- Tourist arrivals rose to 90 percent of pre-pandemic levels, bolstering services exports.
- Net transfers surged by 130 percent due to higher remittance inflows, contributing to the current account surplus.
- The financial account declined notably in 2023 driven by large short-term capital outflows.
  - Placement of bank deposits and portfolio investment abroad increased sizably compared to previous years owing to the historically large interest rate differential vis-à-vis US rates.
  - Repayment of medium- and long-term loans outweighed new external borrowing.
  - Net FDI inflows increased as FDI inflows kept steady relative to previous years and residents liquidated some FDI abroad.

### FX reserves and adequacy
- FX reserves increased by 6 percent (USD 5.6 billion) in 2023.
- After a drawdown of about 20 percent in 2022, FX intervention in 2023 was limited; gradual accumulation brought the GIR balance to USD 92.3 billion by 2023 year-end.
- GIR at end-2023 equals 2.8 times the level of short-term external debt and 3 months of prospective imports.
- This level corresponds to 67 percent of the Assessing Reserve Adequacy (ARA) metric under a fixed exchange rate regime or 113 percent under a floating exchange rate regime.
- Staff assesses the end-2023 reserve levels to be moderately below adequacy as the exchange rate regime moved from stabilized to crawl-like in mid-2023.
- Despite the large current account surplus, reserve accumulation remained slow amid large short-term outflows.

### External position, CA gap, and exchange rate assessment
- Vietnam’s external position in 2023 is assessed to be substantially stronger than warranted by fundamentals and desirable policies; caution is needed given large shocks and data shortcomings.
- Based on the current account model, the CA gap is estimated at 8.1 percent of GDP.
  - The CA gap captures policy gaps from relatively tight fiscal policy (less expansionary compared to the rest of the world).
  - A sizeable unexplained factor remains (even larger than the policy gap), reflecting weakened conditions from the financial shock and capital outflows, and data gaps in the BOP (large errors and omissions of 4 percent of GDP in 2023) and structural factors (informality, weak social safety nets leading to precautionary saving).
- REER movements in 2023:
  - The REER depreciated (q/q) during 2022Q4-2023Q2 before appreciating in 2023H2; it ended 1 percent weaker relative to the end-2022 level.
  - The EBA CA model implies a REER gap (REER adjustment required to close the CA gap) with an undervaluation of -12.3 percent (applying an elasticity of 0.7).
  - Conversely, the EBA REER models indicate an overvaluation of 12.9-19.5 percent.
  - Staff notes significant uncertainty surrounding the exchange rate assessment.

### Savings, investment, and drivers of external imbalances
- The larger external imbalances reflect mainly a rise in savings, while investment declined slightly.
- The large current account gap reflects to a large degree high savings, which structurally result from weak social safety nets and surged in 2023 due to precautionary motives.
- Private investment growth remained subdued in 2023, in particular non-FDI related investment.
- Policy and structural measures to help close the current account gap include:
  - Enhancing regulatory and legal frameworks.
  - Addressing weaknesses in financial intermediation.
  - Removing administrative burden to stimulate private investment.

### Medium-term growth prospects: overview
- Vietnam experienced high growth over the last two decades: Real GDP and real GDP per capita growth averaged 6.7 and 5.6 percent during 2000-19.
- These rates exceeded averages of EMs globally (4 and 2.8 percent).
- Growth drivers have been changing: the demographic dividend is nearing its end and demographic factors will become headwinds; new emerging drivers include increasing trade openness, FDI, and human capital accumulation.
- Medium-term growth is expected to decline if following patterns of similar countries, underscoring the need for further reforms.

### Growth accounting (2000-19) and demographic outlook
- A semi-endogenous growth (SEG) model decomposes output into contributions from physical capital (K), labor (L), human capital (h), and total factor productivity (A).
- For Vietnam, average growth decomposition (table headings preserved):
  - Average Growth GDP/P = 5.4
  - K/Y = 2.9
  - TFP = -0.2
  - h = 2.0
  - L/LF = 0.1
  - LF/P = 0.5
  - 2023-32 Δ LF/P (e) = -0.2
  - 2023-32 LF/P change (e) = -0.7
- Over the last two decades, much of Vietnam’s growth was accounted for by physical capital deepening and human capital accumulation; aggregate productivity acted as a drag.
- Firm-level analysis suggests increased resource misallocation; once accounted for, within-firm productivity points to small average annual growth.
- Demographic contributions:
  - Demographic factors contributed positively in the past (L/LF and especially LF/P).
  - As population ages, these factors will detract from growth, resulting in a combined change of 0.7 percentage points per year (last column implication).
  - Because demographic factors are hard to reverse, Vietnam needs to focus on alternative growth drivers.

### Machine learning analysis of medium-term growth drivers
- A random forest model was used on a sample of 37 Asia-Pacific countries (1970-2019) to predict average growth in the next five years using 75 predictors grouped into six categories: development level and economic structure, demographics, human capital, macro stability, sociopolitical stability, and global factors and openness.
- Shapley values quantify marginal contributions of predictors to medium-term growth in excess of the sample average.
- Key findings:
  - Demographic dividend was a key driver since the late-1990s and contributed more than half of medium-term growth during the late-2000s.
  - Since the early-2010s demographic factors no longer contributed positively and became a small drag.
  - Human capital and economic openness have increasingly contributed to growth.
  - Vietnam’s Human Capital Index is 0.67 out of 1 in 2018, ranked 48 out of 157 countries and higher than the average of upper middle-income countries.
  - Following WTO accession in 2007, exports rose from about 60 percent of GDP in 2007 to 80 percent in 2019.
  - During the 2000s, growth in working-age population was the top medium-term driver (>0.5 percentage point by itself).
  - During the 2010s, trade openness, WTO accession, human capital accumulation, and FDI became key drivers.
  - Medium-term exchange rate adjustment and broad money growth (financial deepening) have been important drivers; the relationship between 5-year average depreciation and subsequent growth is nonlinear:
    - When 5-year average depreciation is less than 5 percent, more depreciation is associated with higher growth in the next five years.
    - When 5-year average depreciation is more than 5 percent, more depreciation is no longer associated with higher growth.

### Medium-term growth path using similar-country episodes (DTW algorithm)
- The dynamic time warping (DTW) algorithm identifies historical country-periods most similar to Vietnam (2015-19) using variables from the Penn World Table: real GDP growth, GDP per capita, capital-output ratio, consumption-output ratio, labor productivity, and population growth.
- The sample uses over 180 countries; 2015-19 is the reference five-year window to abstract from pandemic effects.
- For each top similar episode, its observed subsequent 6-10 year growth trajectory serves as a reference for forecasting Vietnam’s 2024-29 path.
- Aggregation methods used to construct forecast paths include median, average, weighted average (weights proportional to inverse DTW distances), and percentile calculations.
- Most identified top-10 similar episodes come from countries with higher development levels, including Thailand, China, and Japan.
- Selection of the share of most similar episodes and aggregation method is based on root mean squared errors (RMSE) in the base period 2015-19.

*Source: IMF staff analysis and Vietnam country material (excerpts provided).*

### 11.      If Vietnam were to follow the growth pattern of its peers, a likely scenario is that

### 11.      If Vietnam were to follow the growth pattern of its peers, a likely scenario is that 

### Likely growth scenario from historical analogs (DTW-based forecasts)
- Central forecasts:
  - A likely scenario suggests growth would slow to around 4½-5½ percent.
  - The median forecast using the top 0.5 percent most similar country-periods and the 55th percentile forecast using the top 1 percent most similar country-periods yield the smallest RMSE when compared with the realized growth for the most recent base period of 2015-19.
  - These two versions forecast the growth in 2029 to be in the range of 4.4 to 5.3 percent.
  - The average growth during 2024-29 is forecast to be between 4.6 and 5.2 percent.
- Distribution and uncertainty:
  - The range between 45th and 55th percentile of the growth distribution suggests that growth in five years would be between 4 and 5.3 percent.
  - The range widens to 3.5-5.6 percent when looking at 40th and 60th percentile.
  - The different growth paths and relatively large dispersion indicate a large degree of heterogeneity even among identified similar countries.

### Similar country-periods identified for Vietnam (2015-19) and RMSE evidence
- Top-10 identified similar episodes to Vietnam during 2015-19 (ranked):
  1. Thailand 1989-1993
  2. China 2004-2008
  3. Bulgaria 1973-1977
  4. Thailand 1990-1994
  5. Japan 1960-1964
  6. Bulgaria 1972-1976
  7. China 2003-2007
  8. Bulgaria 1974-1978
  9. Japan 1959-1963
  10. Lao P.D.R. 2012-2016
- RMSE performance (selected):
  - For aggregation settings shown, Median RMSE entries include: 1.47, 0.18, 0.43, 1.05 corresponding to Percent 0.2, 0.5, 1, 2 (table format preserved in source).
  - For 55th Percentile RMSE entries include: 1.70, 0.41, 0.16, 0.70 corresponding to Percent 0.2, 0.5, 1, 2.
  - Under the best-performing settings the implied forecasts are:
    - Forecasted growth in 2029: 4.4 (median) and 5.3 (55th percentile).
    - Average growth during 2024-29: 4.6 (median) and 5.2 (55th percentile).

### Key growth drivers from high-performing historical analogs
- Factors commonly associated with episodes that achieved high growth after being identified as similar to Vietnam during 2015-19:
  - Attract FDI
  - Accumulate human capital
  - Maintain debt sustainability
  - Reduce informality
  - Open the capital account
- Dominant historical driver:
  - The top driver of these historical high-growth similar episodes is the share of working-age population.
  - For Vietnam, the working-age population is no longer the dominant driver, highlighting the need to identify new growth drivers.

### Methodological caveats (DTW approach)
- The DTW methodology provides a spectrum of potential growth trajectories based on historical analogs but several caveats apply:
  - Reliance on long series of high-quality historical data; data quality can deteriorate when searching for similar episodes, introducing measurement errors affecting both identification and subsequent growth inference.
  - The DTW algorithm assumes that similar economic circumstances measured by the six variables considered will lead to similar growth outcomes; this assumption may not hold in a rapidly changing global environment.
  - Variables used are constrained by availability in a global sample with long time series and may not capture the full picture of the economy.
  - The approach may not fully account for idiosyncratic events and/or shocks (e.g., major reforms) that could significantly impact subsequent growth trajectories.

### Policy implications and conclusions (Section D)
- Vietnam will need to adopt further structural reforms to sustain high growth.
- Factors pointing to deceleration:
  - Demographics and economic convergence considerations point to a deceleration of medium-term growth in Vietnam.
- Emerging and continuing growth supports:
  - Human capital accumulation
  - Increasing trade openness
  - Ongoing FDI inflows
- Productivity and misallocation:
  - Compared to peers, there is significant potential to improve productivity in Vietnam by reducing misallocation and removing frictions that prevent labor and capital from flowing to their most productive use.
  - Increasing positive spillovers from FDI firms and reducing the dual economy would boost productivity.
- Historical lessons from peers that enjoyed high growth include:
  - Maintaining debt sustainability
  - Reducing informality
  - Ensuring financing conditions
- Additional considerations:
  - Vietnam will need to manage legacies from Covid and adapt to a more complex global environment.

### Annex (Geoeconomic Fragmentation) — Trade developments (summary of findings)
- Context:
  - Increased geoeconomic fragmentation (GEF) poses risks to export-oriented economies like Vietnam, while also offering potential benefits from trade diversion.
- Stylized mechanisms for Vietnam amid US-China tensions since 2017:
  - Trade rerouting: Vietnam as a one-stop “connector country” allowing China to reroute exports to circumvent US barriers in strategic sectors (e.g., electronics and chemicals).
  - Trade reallocation: Vietnam producing more exports directly to the US as the US shifts away from China.
  - FDI inflows: to facilitate either rerouting or reallocation.
- Aggregate and sectoral patterns (2018-2022 and beyond):
  - Vietnam gained market share in US imports during 2018-2022; the trend accelerated during 2018-2022 and has stabilized since.
  - Sectoral analysis in strategic sectors:
    - US sourcing of strategic inputs from Vietnam accelerated during 2018-2022 and stabilized thereafter; the pace matched the rise in Vietnam’s overall market share in US imports.
    - Vietnam’s market share in strategic sectors has not climbed above its overall market share in US imports despite US tariffs on China’s strategic sectors.
    - China’s share of imports from Vietnam in strategic sectors stabilized since 2020, while China’s imports from Vietnam rose from 2 percent in 2017 to 6 percent in 2023 (almost threefold), suggesting deeper integration of Vietnam into Chinese supply chains.
- China-originated value added and potential rerouting:
  - Since 2016 a gap emerged between China-originated value added embodied in US imports and direct imports from China, widening to about 2.2 percent of US total imports (almost doubled from 2016), consistent with some Chinese value added reaching the US through other countries.
  - This pattern may reflect rerouting to circumvent tariffs, supply chain reconfiguration, and/or China moving up the value chain.
- Evidence on Vietnam as a one-stop trade vehicle:
  - No clear evidence that Vietnam has been broadly used as a one-stop vehicle to repackage China-originated goods for US exports.
  - Vietnam’s backward trade integration with China preceded 2018; the share of China-originated value added in Vietnam’s exports to the US increased faster than ASEAN and OECD emerging-market peers since 2000, but this backward linkage decelerated during 2018-2022, growing slower than peers—suggesting limited evidence of widespread rerouting through Vietnam.
  - Sectoral exceptions: limited evidence of trade rerouting through Vietnam in certain strategic sectors—accelerated backward linkages with China in petroleum, chemical, and non-metallic mineral products since 2021; slower growth than ASEAN peers in electrical and machinery products.
- Evidence of trade reallocation to Vietnam:
  - Vietnam appears to benefit from trade reallocation: the share of domestic value added in Vietnam’s total exports to the US grew at a fast pace in the aftermath of the Global Financial Crisis (not just after 2017), in contrast to relatively flat ASEAN peers and declining OECD peers.
  - In strategic sectors the jump in domestic value added in 2018 was more pronounced (petroleum, chemical and non-metallic mineral, and electrical and machinery products), consistent with the US shifting sourcing from China to Vietnam.
  - The rise in domestic value added raises the question whether gains originate from FDI sectors or domestic sectors.

_Italic: Source: IMF staff calculations and analysis as presented in the content unit._

### 8.      FDI inflows, likely linked to both US and Chinese capital, have risen, reflecting general

### 8.      FDI inflows, likely linked to both US and Chinese capital, have risen, reflecting general

### FDI and trade trends
- FDI inflows to Vietnam have risen and are likely linked to both US and Chinese capital; part of US-originated FDI may be channeled through Singapore.
- FDI inflows from US-aligned countries (Japan and South Korea) have declined relative to larger commitments from Mainland China and regions that could front for Chinese capital (Hong Kong Special Administrative Region, Taiwan Province of China).
- Granular data shows:
  - A flat trend in the value of new greenfield FDI going into strategic sectors during 2017-2022 and an uptick only very recently.
  - Trends observed in Vietnam largely mimic regional peers in both strategic sectors and aggregate allocation of World FDI, weakening the case for Vietnam as a connector country.
- Aggregate and sectoral trade flows:
  - China’s export share to Vietnam and the US import share from Vietnam have increased in lockstep, and so has China’s import share from Vietnam.
  - These trends span strategic sectors, accelerated during 2018-2022, and have ebbed since.
- Content of Vietnamese exports:
  - Domestic value added in Vietnam’s exports to the US has increased—especially in strategic sectors—while China-originated value added has remained flat in all but some strategic sectors since 2017.

### Integrated conclusions from granular analysis
- Combining bilateral trade and FDI flows with input-output linkages, the analysis finds:
  - Aggregate and sectoral trade flows: (see above).
  - Content of exports: (see above).
  - Aggregate and granular FDI flows: Chinese capital (from mainland and potentially from third party countries) and possibly US capital (via third party countries) have gained share in Vietnam’s inward FDI, but FDI inflows have not systematically increased in strategic sectors since 2017, and trends have merely followed FDI inflows to peer countries.
- Overall interpretation:
  - Evidence suggests Vietnam benefits from a reallocation of trade as geopolitically distant countries reconfigure supply chains rather than from trade rerouting to circumvent tariffs, especially in certain strategic sectors.
  - Trade reallocation has likely led to the increasing share of domestic value added in Vietnam’s exports to the US and attracted both US- and Chinese-originated FDI.
  - More granular data is needed to understand how ownership structures linked to FDI inflows affect changes in trade behavior of firms located in Vietnam.

### Domestic benefits and limitations
- Potential benefits of GEF-related (geoeconomic fragmentation) inflows:
  - Boost trade activity in the FDI sector.
  - Translate into value added to the domestic sector via higher employment and wages, technological spillovers, and deepening of domestic firms’ GVC integration.
  - Empirical example: research on the US-China trade tensions in 2018-2019 finds positive labor market effects in districts more exposed to trade diversion (Mayr-Dorn and others, 2023).
- Constraints on benefits:
  - Vietnam’s “dual economy” (disconnect between activity in the domestic and FDI sectors) undermines technological diffusion and productivity spillovers that could boost domestic firm potential.

### Risks and fragmentation exposures
- Fragmentation risks that could harm Vietnam:
  - Disruptive movements from commodities fragmentation, raising import prices and affecting export demand for commodities.
  - Unexpected shifts in prohibitive trade policies.
  - Increased business uncertainty when non-alignment implies policy uncertainty.
  - A sudden reversal of FDI inflows.
  - Overall reduction in external demand from a shrinking global economy.
- Note: Non-aligned countries like Vietnam that maintain open trade relationships may stand to suffer the least from GEF, but Vietnam’s position within global supply chains still renders it vulnerable to the listed shocks.
- Data caveat: FDI from China and other regional countries may include capital of subsidiaries of US and/or European companies that reside in Asia; disentangling this requires granular ownership data.

### Data quality, gaps, and implications for policy
- Vietnam’s data and statistics:
  - Vietnam has made progress (quarterly GDP expenditure components published since 2015; compiled following international standard since 2017; employment data compiled in line with international standard since 2021).
  - Important gaps remain; World Bank Statistical Performance Indicators score: Vietnam 40 out of 100 for 2022 versus lower middle income 51.4 and East Asia Pacific 53.1 out of 100.
  - Vietnam is an Enhance-General Data Dissemination System (e-GDDS) participant; regional peers (Korea, Japan, Thailand, China) are Special Data Dissemination Standard (SDDS) subscribers.
- Benefits of improved statistics:
  - Timely, granular, comprehensive data enhances real-time monitoring, evidence-based policymaking, transparency, and accountability; reduces uncertainty for households, firms, and investors.
  - Examples of problematic data practices and their implications:
    - Large errors and omissions in the balance of payments could be driven by underreported imports, underestimated outward transfers, or unrecorded capital outflows—each implying different policy responses.
    - Large revisions in government final accounts with lengthy delays hinder determination of appropriate fiscal stance and planning.
- Specific fiscal data issues (Box 1 highlights):
  - Annual average upside deviation of revenue projections: 1.8 percent of GDP during 2010-21.
  - Unbudgeted carryover spending (mostly capital expenditure) average upside deviation: 1.1 percent of GDP during 2010-21.
  - Final fiscal accounts published after 18 months of the end of the reporting fiscal year; earlier estimates are subject to major revisions.
  - Example revisions for 2021:
    - Revenue in the final fiscal accounts was 2.5 percent of GDP higher than in the first estimate.
    - Capital expenditure was 0.6 percent of GDP higher in 2021, contributing to an upward revision in the fiscal balance from -3.8 to -1.4 percent of GDP.
  - Discrepancies between above- and below-the-line data became sizable during 2021-22, with estimated 1.2 and 2.3 percent of GDP, respectively, indicating a much tighter fiscal position based on financing data.
- Institutional/statutory points:
  - The 2010 Law on the State Bank assigns SBV responsibilities for monetary and BOP statistics but not for international investment position (IIP); SBV can limit granular BOP and monetary financial statistics dissemination and restrict sharing to a limited set of public institutions.
  - The State Budget Law (2015) defines MOF functions without explicit references to international accounting and statistical standards.
  - The Statistics Law (2015) and related decrees guarantee data sharing and coordination between the GSO and ministries and regulate confidentiality of state statistical information.
- Data recommendation:
  - More granular ownership and bilateral data are required to test hypotheses (for example, whether Chinese-originated FDI has primarily targeted strategic sectors to circumvent tariffs or whether FDI inflows contributed to value added in Vietnam’s exports to China).

*Source: Excerpt from Vietnam country analysis in the provided IMF document.*

### 5.      Vietnam’s statistical legal framework and institutional data sharing arrangements are

### 5.      Vietnam’s statistical legal framework and institutional data sharing arrangements are

### Major deficiencies in legal framework and institutional data sharing
- The statistical legal framework and institutional data sharing arrangements are not adequate to support production and dissemination of macroeconomic and financial data of good quality.
- Improvements would be beneficial for:
  - a clear delineation of responsibility for each area of macroeconomic statistics;
  - an adequate access to current data sources produced by public and private units;
  - the development of new data sources (for instance, the preparation of new surveys) and use of alternative data sources (for instance, the use of big data);
  - a better coordinated intra and inter-institutional data sharing.
- Improved institutional arrangements also include training in the use of appropriate statistical techniques and methodologies.

### Specific weaknesses across statistical domains
- Coverage, classification, and sectorization weaknesses affect several datasets despite broad adherence to internationally accepted methodologies.
- Fiscal statistics:
  - Hampered by classification and sectorization that do not follow international standards.
- External sector statistics:
  - Incomplete coverage of operations in the BOP (in the current account, mainly in goods and services and in the financial accounts, mainly in direct investment, trade credits, and currency and deposits) has generated significant errors and omissions.
  - External assets and liabilities data have not been produced, restricting policy analysis of the external sector.
- Monetary statistics:
  - Lack of granular data makes checking consistency with other macroeconomic datasets difficult.
- National accounts:
  - Slow improvement in methodologies used to prepare supporting information for the rebasing of national accounts and limited coverage of the informal sector have affected data quality.
- Prices and real estate:
  - Sources for the preparation (for instance, buyers and sellers of properties identified on a register of real estate transactions) of the real estate price index are no longer collected after its legislative basis expires.

### Alignment to international statistical standards — recommended and ongoing actions
- Implementation of a comprehensive migration plan to adopt GFSM 2014 methodology and intensification of efforts to reduce the carry-on accounts and clear them at the end of the fiscal year to assist in the reduction of discrepancies between above- and below-the-line in GFS.
- Preparation of standard reporting forms (SRF) of monetary statistics to provide users and compilers with adequate granular data for monetary policy.
- Reduction of errors and omissions in BOP with:
  - relaunching of direct investment survey;
  - improvement in the coverage of goods and services;
  - preparation of the IIP and reserve template.
- Finalization of the 2020 supply and use tables (SUTs) and input-output tables (IOTs) to support the rebasing of the national account.

### New data categories encouraged
- Vietnam is encouraged to collect, compile, and publish new data categories to meet evolving policy and market demands, including:
  - macro-financial indicators;
  - data on foreign exchange intervention;
  - digital trade;
  - climate change related policy;
  - gender disaggregation of the labor force.
- Data production should consider Vietnam’s capacity in terms of technical, financial, and human resources.

### Debt Sustainability Analysis (DSA) — overall assessment and policy implications
- Final assessment: The overall risk of sovereign stress is low.
- Commentary highlights:
  - The public debt continued to fall since 2020 and is projected to further decline.
  - Medium-term risks are assessed as low, reflecting a stable fiscal outlook and low gross financing needs (GFN).
  - Long-term risks are low to moderate as aging-related expenditures on health and social security and climate spending feed into debt dynamics, which will increase debt and GFN without policy actions.
  - Suggested policy responses include revenue mobilization, pension reforms, galvanizing private sector support, strengthening risk-based fiscal frameworks, developing a sovereign debt market, and continuing reforms to strengthen authorities' debt management institutions.

### Selected baseline projections and key statistics (percent of GDP unless indicated otherwise)
- Public debt: 34.4 33.8 33.2 32.6 32.0 31.4 30.9 30.4 30.0 29.6 29.3
- Change in public debt: -0.4 -0.5 -0.6 -0.6 -0.6 -0.6 -0.5 -0.5 -0.4 -0.4 -0.4
- Contribution of identified flows: -0.3 -0.3 -0.5 -0.4 -0.5 -0.5 -0.4 -0.4 -0.3 -0.3 -0.3
- Primary deficit: 1.6 1.6 1.2 1.1 0.9 0.8 0.7 0.7 0.7 0.7 0.7
- Noninterest revenues: 17.1 17.6 18.4 18.9 19.1 19.2 19.2 19.2 19.2 19.2 19.2
- Noninterest expenditures: 18.6 19.2 19.7 20.0 20.1 20.0 19.9 19.9 19.9 19.9 19.9
- Automatic debt dynamics: -1.8 -1.8 -1.7 -1.5 -1.4 -1.3 -1.2 -1.1 -1.0 -1.0 -1.0
- Real interest rate and relative inflation: -0.4 0.1 0.3 0.4 0.4 0.4 0.5 0.5 0.5 0.6 0.6
  - Real interest rate: -0.6 -0.3 0.0 0.1 0.2 0.2 0.3 0.3 0.4 0.4 0.4
  - Relative inflation: 0.2 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
- Real growth rate: -1.7 -2.0 -1.9 -1.9 -1.8 -1.7 -1.7 -1.6 -1.6 -1.6 -1.5
- Real exchange rate: 0.3 ..............................
- Other identified flows: -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Contingent liabilities: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Other transactions: -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Contribution of residual: 0.0 -0.2 -0.2 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
- Gross financing needs (GFN): 4.0 5.6 3.8 3.7 3.4 3.5 3.6 3.9 3.8 3.7 2.8
  - of which: debt service: 2.4 4.0 2.6 2.6 2.5 2.7 2.9 3.2 3.0 3.0 2.1
  - Local currency: 1.8 3.0 1.7 1.9 1.9 2.1 2.4 2.7 2.5 2.5 1.7
  - Foreign currency: 0.6 1.0 0.9 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.4

Memo:
- Real GDP growth (percent): 5.0 6.1 6.1 6.0 5.8 5.8 5.6 5.5 5.5 5.5 5.5
- Inflation (GDP deflator; percent): 1.9 4.0 3.4 3.0 2.8 2.7 2.6 2.6 2.6 2.6 2.6
- Nominal GDP growth (percent): 7.0 10.3 9.7 9.2 8.8 8.6 8.3 8.2 8.2 8.2 8.2
- Effective interest rate (percent): 0.0 3.2 3.3 3.4 3.3 3.4 3.6 3.7 3.8 4.0 4.1

### DSA realism and risk analysis — summary points
- Realism analysis: Past forecasts appear conservative and projections are within norms; primary deficit projected to become the main driver of debt creation as tight fiscal policy loosens.
- Medium-term risk assessment: Medium-term risks assessed as low; baseline projections suggest public debt will remain low and stable and GFNs remain low and stable.
- Long-term risk analysis:
  - Long-term debt is broadly stable and remains relatively low under alternative assumptions.
  - Aging-related pension costs are expected to increase significantly after 2035 in the absence of reforms.
  - Health spending needs rise in the long term; managing these needs depends on revenue mobilization and spending-efficiency reforms.
  - Climate adaptation and mitigation investments increase long-term financing needs; the planned ETS starting 2028 is expected to generate significant revenues (ranging from 1.4 to 6.9 percent of GDP as estimated in the 2023 Article IV Staff Report) that could be used to finance climate adaptation and mitigation efforts.
  - Natural resource exhaustion would negatively affect GFN and public debt in the long run but the sector’s contribution to GDP is small, limiting the public-debt impact.

*Source: IMF staff.*

### Annex X. Data Issues

### Annex X. Data Issues

### FUND RELATIONS (As of June 30, 2024)
- Membership Status: Joined: September 21, 1956.
- General Resources Account
  - Quota: 1,153.10 SDR Million (100.00 percent of Quota)
  - Fund holdings of currency: 1,153.10 SDR Million (100.00 percent)
  - Reserve position in Fund: 0.01 SDR Million (0.00 percent)
- SDR Department
  - Net cumulative allocation: 1,419.99 SDR Million (100.00 percent Allocation)
  - Holdings: 1,402.92 SDR Million (98.80 percent)
- Outstanding Purchases and Loans: None
- Latest Financial Arrangements (In millions of SDRs)
  - ECF (Formally PRGF): Date of Arrangement 04/13/2001 – Expiration Date 04/12/2004 – Amount Approved 290.00 – Amount Drawn 124.20
  - ECF (Formally PRGF): Date of Arrangement 11/11/1994 – Expiration Date 11/10/1997 – Amount Approved 362.40 – Amount Drawn 241.60
  - Stand-By: Date of Arrangement 10/06/1993 – Expiration Date 11/11/1994 – Amount Approved 145.00 – Amount Drawn 108.80
- Projected Payments to Fund (In millions of SDRs; based on existing use of resources and present holdings of SDRs)
  - Charges/interest: 2024: 0.35; 2025: 0.70; 2026: 0.70; 2027: 0.70; 2028: 0.70
  - Total: 2024: 0.35; 2025: 0.70; 2026: 0.70; 2027: 0.70; 2028: 0.70

### Exchange Rate Arrangements and Article VIII Obligations
- De facto exchange rate arrangement: classified as crawl-like.
- De jure exchange rate arrangement: managed floating.
- SBV actions on exchange-rate flexibility:
  - August 2015: widened VND/USD trading band to +/-3 percent from +/-1 percent and devalued central parity by one percent.
  - October 2022: widened trading band to +/-5 percent from +/-3 percent.
  - January 2016: announced daily VND/USD adjustment based on (i) previous day’s weighted average dong/USD exchange rate; (ii) a weighted average of movements in dong exchange rates vis-à-vis seven other important trading partners’ currencies; and (iii) domestic macroeconomic conditions.
- Vietnam has accepted obligations under Article VIII, Section 2(a), 3, and 4 of the IMF’s Articles of Agreement and maintains an exchange system free of multiple currency practices and restrictions on current international transactions, except for exchange restrictions imposed for security reasons (notified pursuant to Executive Board Decision No. 144-(52/51), 8/14/52).

### Article IV Consultations and Technical Assistance
- Article IV Consultations: Vietnam is on a 12-month consultation cycle; previous consultation held in-person during June 14-29, 2023, and concluded by the Executive Board on August 30, 2023.
- Technical Assistance (recent areas): statistics (government finance, external sector, price, and national accounts), reserve management, debt management, tax administration, fiscal risks, liberalization of capital controls on external debt, foreign exchange management, macroeconomic frameworks, and Forecasting and Policy Analysis System (FPAS).
- Notable TA engagements and milestones:
  - IMF-World Bank Financial Sector Assessment Program: 2012–13; Financial Sector Stability Review (FSSR): 2021–23; FSSR finalized in June 2023 and approved by SBV management; FSSR follow-up mission in June 2024.
  - ICD multi-year TA on FPAS started 2019; Phase I completed early 2022; Phase II started April 2022.
  - Fiscal Affairs Department and CDOT TA on tax administration, compliance risk management, Treasury cash management, internal audit, and chart of accounts (2022–2023).
  - MCM multi-year project on strengthening SBV Internal Audit started August 2022.
  - LEG multi-year project to strengthen AML/CFT legal frameworks and risk-based AML supervision started November 2022.
  - STA provided TA on Government Finance Statistics, External Sector Statistics (with CDOT), Prices Statistics and National Accounts; April 2023 TA to help SBV transition to new FSIs compiling format; November 2023 STA/CDOT TA to assist MOF in preparation of GFS aligned to international standards; April 2024 STA/CDOT TA to help SBV in improving FDI and identifying sources of errors and omissions; April 2024 STA TAs for rebasing of national accounts and development of Residential Property Price Indices.
  - ICD/CDOT started a new multi-year TA on macroeconomic frameworks in 2023.

### Resident Representative
- Mr. Jochen Schmittmann is the Resident Representative for Vietnam, Cambodia, and Lao P.D.R., based in Hanoi, since August 2023.

### RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
- World Bank and Asian Development Bank referenced (links in original source).

### Statement by Ms. Yati Kurniati and Ms. Vi Thi Tra Nguyen on Vietnam Executive Board Meeting (August 30, 2024)
- Authorities’ assessment and outlook
  - By June 2024, GDP growth reached 6.93% y.o.y (second highest level during 2020-2024).
  - CPI increased by 1.40% y.t.d and by 4.34% y.o.y.
  - Average CPI level: 4.08% y.o.y.
  - Core inflation: 2.75% with a subsiding trend since the year began.
  - Authorities expect 2024 GDP growth to be within the targeted range of 6-6.5% and inflation at 4-4.5%.
  - Drivers: recovery of industrial and agricultural production, strong service performance, prudent macro-economic policy responses, lagged effects of 2023 incentives and supportive measures, and robust FDI.
- Growth drivers and outlook for 2024–2025
  - Expectations that growth will gear to medium-term potential as global economic recovery continues and central banks lower policy rates in later half of 2024, boosting external demand and orders to exporters.
  - Policy measures from 2023 expected to have lagged positive effects, including lower interest rates, higher public investment, tax cuts, reduced fees and levies.

### Fiscal Policy (Authorities’ Report)
- Total fiscal revenue for first six months of 2024: 1,020.6 trillion dong (60% of 2024 projected revenue) — a 15.7% y.o.y increase.
- Total budget expenditure by June 2024: 803.6 trillion dong (37.9% of the planned budget).
- Total public investment disbursement in first 6 months: 244,4 trillion dong (33.8% of the annual plan) — an increase of 3.5% y.o.y.
- Policy actions and plans:
  - Focus on accelerating public investment and disbursement for nationally prioritized projects.
  - Review implementation of 2021-2025 Public Investment Strategy; prepare inputs for next five-year public investment plan towards 2030.
  - Tax cuts, fee reductions introduced in 2023 to remain in effect until end-2024.
  - Taxation Reform Strategy towards 2030 issued in 2022.
  - Provincial authorities promoting online tax registration and collection.
  - Reviewing 2021-2025 Budget Plan as initial step for 2026-2030 planning; national budget expected to focus on nationally important projects and inter-provincial and international initiatives.

### Monetary Policy (Authorities’ Report)
- SBV policy actions:
  - In 2023, SBV cut policy interest rates 4 times to pre-Covid levels to support business recovery.
  - SBV flexibly regulated policy tools to absorb external shocks, adjusted VND supply, and used foreign exchange intervention to ease exchange rate pressure.
  - VND/USD exchange rates moved flexibly; FX markets stabilized; legitimate demands met; inflation kept within target levels.
  - SBV will continue to allow exchange rate flexibility and stand ready to intervene to stabilize the FX market and contain excessive exchange rate fluctuations.
- Monetary framework reforms:
  - Banking Development Strategy (2018) emphasized strengthening SBV functions, analytical and forecasting capability, accountability, transparency, and gradual move from quantity-based to price-based monetary policy.
  - With IMF technical assistance since 2019, SBV developed Forecasting and Policy Analysis System (FPAS); final phase of public communication scheduled to begin in late 2024.

### Financial Sector (Authorities’ Report)
- Market liquidity: remained stable throughout 2023 and first six months of 2024; banks adhered to SBV regulatory prudential limits, safety ratios, and governance requirements.
- Macroprudential and market reforms:
  - SBV plan to introduce additional macroprudential tools and requirements.
  - Corporate bond market stabilized and bond issuance resumed in latter half of 2023.
  - Prime Minister issued Securities Market Development Strategy towards 2030 (December 2023), including higher requirements for issuance, disclosure, credit rating for corporate bonds.
  - Commitment to stronger supervision of capital markets to protect investors and maintain financial stability.
- Legal and regulatory changes:
  - Law on Land, Law on Housing, and Law on Real Estate Trading came into effect on August 1st, 2024.
  - Newly revised Law on Credit Institutions took effect on July 1st, 2024; introduces stricter requirements for provisioning, governance, management qualification, early intervention capabilities, and guidelines to resolve bank failures; requires banks to develop continuity and resolution plans.
- Banking system restructuring:
  - Continued implementation of 2021-2025 Restructuring Plan to consolidate financial capacity and improve asset quality.
  - Except for banks under SBV’s special control, all other banks meeting Restructuring Plan requirements and SBV regulations.
  - SBV plans merger and acquisition of three banks under special control after consolidation; preparing compulsory merger plan for SCB to submit to the Prime Minister.

### Structural Reforms and Other Policy Developments (Authorities’ Report)
- Statistical system strengthening:
  - Since 2015, SBV received TA to build capacity in compiling International Investment Position (IIP) and conducted pilot IIP projects.
  - Law on Statistics issued in 2021 provides legal framework for collection and composition of key statistical indicators.
  - Statistics Development Strategy for 2021-2030 approved in 2020 to upgrade statistical systems and progress toward SDDS adherence.
  - SBV and other authorities working with STA on CD projects for modern statistical methodologies and compilation.
- AML/CFT reforms:
  - Mutual Evaluation Report by APG in February 2022 prompted decisive measures.
  - Newly revised Law on AML and implementation guidelines issued late 2022 and early 2023.
  - National Risk Assessment Report for 2018-2022 completed; Post-Evaluation National Action Plan issued.
  - Guidelines on Inter-ministerial Cooperation issued; FIU signed memoranda of agreement with ministries, agencies, and foreign FIUs; FIU upgrading technological infrastructure.
- Climate and green finance initiatives:
  - Climate Change Strategy towards 2050 aims for net zero emission by 2050 and measures to channel resources to climate adaptation.
  - Participation in COP and JETP; Prime Minister announced Viet Nam Resource Mobilization Plan to implement JETP (RMP) at COP 28 in December 2023.
  - Work on legal framework for financial infrastructure including carbon market and collaboration with credit institutions to develop green financial products.
- Anti-corruption progress:
  - Over 10 years of National Anti-Corruption Strategy and UNCAC Action Plan implementation, significant improvements achieved.
  - 2023 Corruption Perception Index: 41/100, ranking 80 out of 180 countries (improved from 120th in 2009).
  - 2018 Anti-Corruption Law enacted to prevent, detect, and address corruption; authorities emphasize continued political determination and decisive actions.

*Source: Annex X. Data Issues (staff report content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1vnmea2024001-print-pdf.pdf_