## _cr12165 ## Source details **Canonical URL:** [_cr12165](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12165.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12165.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12165.pdf.json) --- ### INTRODUCTION — stabilization and vulnerabilities - Macroeconomic stabilization underway: "inflation is receding rapidly, activity is slowing, and the current account deficit has declined sharply." - Financial confidence indicators: informal interbank exchange rate moved within the band around the official rate; domestic and foreign investors shifting into dong assets allowed the State Bank of Vietnam (SBV) to increase foreign exchange reserves. - Persisting vulnerabilities: - Problems in a number of small weak banks are being contained but resolving them and broader financial sector weaknesses is slow. - Reform of SOEs is proceeding slowly. - Priority: "Stabilization should remain the highest priority" to build longer-run credibility. ### Stabilization — selected indicators and developments - Output and inflation (Q1 2012 and recent): - GDP fell by almost 8 percent (q/q annualized, seasonally adjusted) in Q1 2012. - Industrial production remained flat (q/q annualized, s.a.) in Q1 2012. - Growth in retail sales slowed to 3¼ percent (q/q annualized s.a.) in Q1 2012 from 13¾ percent in the previous quarter. - Number of enterprises bankrupt or stopped operation increased by 6 percent (y/y) in Q1 2012. - Credit growth for 2011 was 14.3 percent (y/y); turned negative in Q1 2012 (q/q). - Inflation slowed to 10.5 percent (y/y) in April 2012; peaked at 23 percent (y/y) in August 2011. - Balance of payments and reserves: - Current account deficit narrowed sharply in 2011 to 0.5 percent of GDP (staff noted later revision to a surplus of 0.2 billion U.S. dollars for 2011). - REER: appreciated by about 11 percent in real effective terms since March (period not further specified). - Staff macro balance: current account norm of -1.8 percent of GDP, implying a small undervaluation of 0.3 to 0.7 percent; alternative approaches suggest modest overvaluation. - Foreign exchange reserves: rose, fell seasonally in late 2011, and "again risen rapidly" recently; reserves remain low — coverage of prospective imports at end-2011 is 1.3 months. - Fiscal developments: - Net borrowing estimated at 2.6 percent of GDP in 2011, much lower than the budgeted 5 percent of GDP (GFSM 2001 definitions). ### INFLATION DYNAMICS AND REAL INTEREST RATES (Box 1) - Headline inflation: - Peaked at 23 percent (y/y) in August 2011; declined to 10½ percent in April 2012; slowed to 8.3 percent (y/y) in May 2012. - Comparable 2008 episode: rose to 28½ percent in August 2008 then declined rapidly. - Inflation momentum: - Seasonally adjusted inflation (three-month moving average, annualized) fell sharply; during Q1 2012 it fell to under 5 percent from a peak of over 37 percent in mid-2011. - Real interest rate: - Fell into negative territory in Q3 2010; reverted to positive around Q4 2011 and "reached around 10 percent in early 2012." - SBV announced cumulative 400 bps rate cuts in 2012 (context). - Policy implications to rein in inflation further: - (i) limit credit growth by banks; - (ii) quickly and decisively address weak banks; - (iii) strengthen market confidence in the dong. ### MONETARY AND EXCHANGE POLICY — recent actions and staff assessment - SBV actions and market reaction: - SBV announced cumulative 400 bps policy rate cuts in 2012; rates cut on March 13 and April 10 by 100 bps each time; deposit rate ceiling lowered by 100 bps each time. - Market views cuts as justified by faster-than-anticipated decline in inflation and expects further cuts. - Reserves and liquidity operations: - First three months of 2012: gross international reserves rose by $4.3 billion and net international reserves by $4.5 billion. - SBV issued about 45 trillion dong of central bank bills since mid-March to mop up liquidity. - Staff views and guidance: - Cumulative 200 bps cuts to date may be justified given rapidly falling inflation and slowing activity. - Risk: rapid decline in inflation owes much to sharp decline in food prices; core inflation flat — risk of resurgence if policy loosened prematurely and by too much. - Recommendations before further policy rate cuts: - Ensure macroeconomic conditions are consistent with such a move; staff project stable growth for 2012 with no additional monetary action. - Monetary policy should continue to prioritize inflation reduction and confidence rebuilding even if exogenous risks materialize. - Rely increasingly on market-based instruments; phase out credit growth ceilings once inflationary pressures are controlled and weak banks are dealt with. - Eschew administrative measures (e.g., limiting energy price increases). - Further strengthen SBV operational independence. - Quickly rebuild foreign exchange reserves while maintaining FX market stability; high-yield–attracted capital inflows can be destabilizing. - If confidence in the dong erodes and depreciation pressures re-emerge, re-tighten policy rates quickly. - If appreciation pressures mount, accelerate reserve accumulation rather than loosening monetary policy; limit SBV sales of foreign currency to reducing market volatility. - Medium term: simplify monetary policy anchor — target inflation and international reserves and let the exchange rate be market-determined after a lengthy period of exchange rate stability and high credibility. ### AUTHORITIES’ VIEWS — monetary and exchange policy - Objectives: - Fortify macroeconomic stability and reduce inflation to single digits by year-end; interest rate cuts in March and April prompted by slowdown in activity, declining inflation expectations, and weak credit demand. - Given differentiated credit growth limits, SBV argues rate cuts would not likely lead to resurgence of credit-induced inflationary pressures. - Plan to pursue substantial reserve accumulation during the year; increased confidence and capital inflows cited as enabling recent moves. - Exchange rate: - Reiterated commitment to limiting depreciation of the dong and maintaining a stable exchange rate and increasing international reserves. ### FISCAL POLICY — current stance and staff recommendations - Near-term stance and projections: - Staff project an increase in net borrowing by ¾ percent of GDP in 2012, implying a slight loosening from -1 percent of GDP in 2011 and a fiscal impulse of ½ percent of GDP. - Increase in net borrowing stems mainly from a significant increase in current expenditure, projected to increase total spending by about 1 percentage point of GDP. - Staff recommendations: - Contain other current spending to keep a prudent fiscal stance; could reduce the increase in net borrowing in 2012 to around ¼ percent of GDP (and all but eliminate the fiscal impulse). - Fiscal discipline could help mitigate a rise in short-term capital inflows. - Only if downward risks materialize should fiscal policy be loosened beyond staff’s recommendation, broadly in line with current budget plans. - Medium-term public debt trajectory: - Public and publicly guaranteed debt projected to reach 48¼ percent of GDP in 2012 and 42½ percent by 2017. - Achieving this requires limiting net borrowing to an average of around 2 percent of GDP. - Declining oil and trade revenues need compensation by other taxation sources; authorities’ comprehensive tax reform plans are welcome. - Authorities’ views on contingent liabilities: - MoF seeks to build on fiscal consolidation; planned wage and salary increases (~2 percent of GDP) enacted into law. - 2012 budget did not contain provisions for assuming nonperforming loans; budgetary resources would not be used to restructure SOE debt. ### FINANCIAL SECTOR — banking risks, reform, and staff recommendations - Liquidity and NPLs: - After rapid credit growth, tightening conditions and asset price declines put several small joint-stock banks under intense liquidity pressure. - SBV Governor announced aggregate NPL ratio had risen to 3.6 percent in late March (likely higher under international best-practice classification). - Policy measures taken: - Strengthened enforcement of regulations, differentiated credit growth limits, restrictions in the gold market, and SBV commitment to limit depreciation to 2–3 percent during 2012 absent adverse external shocks. - Reinforced deposit rate caps and announced unlimited deposit guarantees to stem runs; merged three small weak banks; provided liquidity support through SOCBs. - Special inspection teams sent to nine banks classified as weak; these banks not allowed to expand credit. Combined assets of these nine banks amount to some 6 percent of total banking sector assets; small weak banks account for approximately 7 percent of banking sector deposits. - Bank restructuring plan (selected provisions): - SOCBs: develop one to two SOCBs to compete regionally; continue equitization with state remaining dominant shareholder; raise capital (including from government) to meet Basel II requirements by 2015; reduce NPL ratio to less than 3 percent (domestic standards); reduce credit-to-deposit ratio below 90 percent by 2015. - Commercial banks: classify into healthy, temporary liquidity shortage, and weak with differentiated measures including voluntary consolidation, SBV refinancing under supervision, special control for weak banks, and options for sale or injection of capital. - Strengthening measures: sale to DATC or private firms, conversion to equity, write-off of bad debts, raise charter capital, reduce credit-to-deposit ratio to at most 85 percent by 2015, increase disclosure, gradual withdrawal of SOEs’ shareholding, limit dominant shareholder control, improve qualifications of managers and board members. - Staff views and recommendations: - Plan is ambitious; imperative to utilize provisions fully (e.g., restrictions on dividend payments, dismissing management, resolution of NPLs through sale to DATC). - Lack of implementation details could lead to ad hoc application; reluctance to close insolvent banks and absence of clear insolvency distinction weakens supervisory tools. - Contain weak banks forcefully; liquidity support only to solvent banks; solvency support must be accompanied by owners bearing first losses. - Restrict executive compensation where appropriate; rapidly recognize and dispose nonperforming assets. - Strengthen regulatory and supervisory framework at every stage, including bank resolution: introduce progressive enforcement measures and a special bank resolution and insolvency regime. - Protect supervisory decisions from court reversal, protect staff from personal liability, strengthen fit and proper criteria. - Align prudential rules (loan classification and provisioning) with international best practices. - Increase supervisory capacity: train staff, enhance onsite supervision, improve data collection and analysis; adequately compensate staff and provide political backing. ### SOE REFORM — performance, risks, and staff recommendations - Evidence: SOEs use capital and labor much less efficiently than the private sector. - Required measures beyond planned equitization/privatization of minority stakes: - Raise standards of accountability. - Improve transparency (better accounting, stronger state oversight). - Strengthen financial discipline (including remittance of profits to the owner). - Donor recommendations (World Bank): divide SOEs into three groups — equitize immediately; restructure first before equitization; remain fully state-owned. - Authorities’ views and actions: - Broad agreement with staff assessment; recognize urgency but note reforms take time due to need to compile comprehensive SOE financial data. - Investments scaled back; some SOEs sold noncore operations. - Broader plan under consideration: substantial reduction in number of SOEs through listing, creation of centralized body to control state holdings, improved corporate governance, publication of aggregated SOE financial indicators. - Risks: - Lack of information on SOEs’ financial position poses threats to the financial system and public fiscal position. - Staff emphasize short-term reduction in inefficient investments and divestments to focus SOEs on core businesses. ### DEBT SUSTAINABILITY — external and public DSA findings and assumptions - External DSA baseline findings: - PV of PPG external debt at end-2010 ~28 percent of GDP; estimated to have declined to 26½ percent of GDP in 2011 — well below the 50 percent threshold. - Other PPG external debt and debt service indicators remain well below thresholds. - Under baseline, PV of PPG external debt to GDP projected to decline over longer term; ratios to exports and revenues expected to decline between 2011–30. - Debt service-to-exports ratio projected to remain relatively flat; debt service-to-revenue ratio projected to increase somewhat due to shift toward more commercial borrowing. - Public DSA baseline findings: - PV of public sector debt at end-2010 estimated at 49½ percent of GDP; nominal debt-to-GDP ratio estimated at 54¼ percent of GDP. - Nominal debt-to-GDP ratio estimated to have declined to 48½ percent at end-2011; projected to decline to 43½ percent by 2016 and well below 35 percent in the longer term. - Debt service-to-revenue ratio declines initially to 12 percent in 2016 before rising to about 18 percent later as concessional financing declines. - Fiscal consolidation: net incurrence of liabilities declined to 2.8 percent of GDP in 2011 from 8.3 and 7.1 percent in 2009 and 2010. - Non-oil primary deficit projected to decline from about 5½ percent of GDP in 2011 to about 3 percent by 2017. - Key macroeconomic assumptions (baseline 2012–31 highlights): - Real GDP growth: about 6 percent for 2012; gradual increase to about 7½ percent by 2017; average about 7½ percent per year during 2017–25 then gradual slowdown. - Inflation: decline from average 18.7 percent in 2011 to 10¾ percent in 2012; 5 percent by 2017 and remain at that level through 2031. - Reserve coverage: about 1.6 months of prospective imports by end-2012; recover to about 3.2 months by end-2017; increase to 5 months by end-2031. - Effective interest rates on foreign borrowing: increase from around 2½ percent in 2010 to 6½ percent by 2031. - Net borrowing by government: decline from 3½ percent of GDP in 2012 to below 2 percent by 2015; remain about 2 percent in long run. - Stress tests and risks: - PV of PPG external debt most sensitive to an export shock; under none of the standard stress tests does PV of PPG external debt to GDP breach thresholds. - Public-sector stress tests highlight fiscal consolidation importance; raising SOCB capital to required minimums estimated at around 2–3 percent of GDP; adequate provisioning for NPLs under IFRS could amount to some 4½ percent of GDP. - A hypothetical broad shock suggesting NPLs could rise by about 23½ percent of GDP could drive debt-to-GDP to about 78½ percent (mechanical illustration, not likelihood). - Debt distress classification: - Staff view: Vietnam remains at a low risk of external debt distress based on external indicators; public DSA suggests overall public-sector debt dynamics not at immediate risk, but continued fiscal consolidation necessary. - Recommendation: SBV and Ministry of Finance should strengthen capacity to assess and monitor contingent liabilities from financial and SOE sectors. ### OUTLOOK, STAFF BASELINE, AND RISKS - Staff baseline (authorities’ policies reflected): - GDP growth: 6 percent in 2012. - Inflation: decline to about 8¼ percent (y/y) by year-end 2012 (10¾ percent on average for 2012), consistent with authorities’ target of y/y inflation below 10 percent. - International reserves: increase from March level to around $19 billion by year-end 2012 (1.6 months of prospective imports). - Current account deficit: would rise modestly. - Recent policy moves and caution: - Cumulative reduction of policy interest rates by 200 bps and a modest fiscal impulse expected to cushion slowdown; further rate cuts could rekindle pressures on prices and exchange rate if implemented prematurely. - Risks: - Exogenous: sharper slowdown in Asian economies or severe European financial turmoil with global spillovers. - Domestic systemic risks: spillover of liquidity problems in weak banks to the wider system could cause credit crunch, loss of confidence in the dong, and renewed inflation. - Larger risk: perception of waning government commitment to stabilization and financial-sector safeguards could lead to loss of market confidence. - Debt sustainability: risk of external debt distress remains low; external debt-to-GDP ratio projected to decline consistently only from 2016 onward (due to large projected ADB disbursements); NPV of external debt remains well below thresholds. - Staff advice: - Prioritize stabilization and credibility: aim for inflation well below original target of below 10 percent, rebuild reserves further, and accept somewhat slower growth. - SBV should err on the side of caution and be prepared to delay rate cuts depending on developments. ### SELECTED ECONOMIC INDICATORS AND PROJECTIONS (highlights) - Real GDP (percent change): 2008: 6.3; 2009: 5.3; 2010: 6.8; 2011: 5.9; 2012: 6.0; 2013: 6.3 (Table 1). - CPI (period average): 2008: 23.1; 2009: 6.7; 2010: 9.2; 2011: 18.7; 2012: 10.8; 2013: 7.4. - Public and publicly guaranteed debt (end of period, percent of GDP): 2008: 42.9; 2009: 51.2; 2010: 54.2; 2011: 48.3; 2012: 48.2; 2013: 46.6. - Gross international reserves (billions of U.S. dollars, end of period): 2008: 23.0; 2009: 14.1; 2010: 12.4; 2011: 13.5; 2012: 19.0; 2013: 25.7. - Credit to the economy (percent change, end of period): 2008: 25.4; 2009: 39.6; 2010: 32.4; 2011: 14.3; 2012: 16.8; 2013: 14.4. - Current account balance (including official transfers, percent of GDP): 2008: -11.9; 2009: -6.6; 2010: -4.1; 2011: 0.2 (revised); 2012: -0.8; 2013: -0.7. - Memorandum: GDP (in billions of U.S. dollars): 2008: 90.3; 2009: 93.2; 2010: 103.6; 2011: 122.7; 2012: 135.8; 2013: 148.8. ### INTERNATIONAL PARTNERSHIPS AND TECHNICAL ASSISTANCE (ANNEXES) - Fund relations (Annex I): - Membership: Joined September 21, 1956; Article VIII. - Quota: 460.70 SDR Million — 100.00 Percent of Quota. - Classification of exchange arrangement: "stabilized." De jure arrangement: floating. - SBV announced an 8.5 percent devaluation of the dong on February 11, 2011, and narrowed trading band from ±3 percent to ±1 percent. - Technical assistance areas: tax policy and administration, public financial management, statistics, banking supervision, and AML/CFT. - Authorities requested an FSAP assessment; resident representative Mr. Sanjay Kalra assumed post on October 16, 2011. - World Bank relations (Annex II): - CPS fully aligned with SEDS 2011–15; CPS pillars: competitiveness, sustainability, and opportunity. - FY10 IBRD operations: US$700 million; FY11 commitments: US$2.348 billion; FY12 planned: US$1.15 billion (US$1.05 billion IDA). - Knowledge program includes Vietnam Development Reports and multiple sectoral analytic products and TA commitments. - IMF–World Bank collaboration: PFM, monetary policy TA, banking supervision TA, joint FSAP preparation, joint DSA preparation since 2005. - Asian Development Bank relations (Annex III): - AsDB approved 114 sovereign loans totaling US10.443 billion (1993–2011). - CPS 2011–15 aligned with SEDP 2011–15; operations focused heavily on infrastructure (roughly two-thirds of lending). - AsDB and IMF staff cooperate on policy dialogue, debt sustainability, and resident-mission coordination. *Italicized source: IMF staff summary based on the Vietnam 2012 Article IV report and accompanying annexes provided in content unit _cr12165.* ### INTRODUCTION __________________________________________________________________________________ 4 ### INTRODUCTION ### Recent developments — stabilization and vulnerabilities - Macroeconomic stabilization is underway: "inflation is receding rapidly, activity is slowing, and the current account deficit has declined sharply." - Financial confidence indicators: the informal interbank exchange rate has moved within the band around the official rate; domestic and foreign investors are shifting into dong assets, allowing the State Bank of Vietnam (SBV) to increase foreign exchange reserves. - Persisting vulnerabilities: - Problems in a number of small weak banks are being contained but resolving them and broader financial sector weaknesses is slow. - Reform of SOEs is proceeding slowly. - Priority: "Stabilization should remain the highest priority" to build longer-run credibility. ### Stabilization—Restoring Confidence (Selected indicators and developments) - Output and inflation: - In Q1 2012, GDP fell by almost 8 percent (q/q annualized, seasonally adjusted), led by construction and mining; industrial production remained flat (q/q annualized, s.a.). - Growth in retail sales slowed to 3¼ percent (q/q annualized s.a.), compared to 13¾ percent in the previous quarter. - Number of enterprises bankrupt or stopped operation increased by 6 percent (y/y) in Q1. - Credit growth for 2011 was 14.3 percent (y/y), undershooting the SBV’s target (of 15–17 percent) and turned negative in Q1 2012 (q/q). - Inflation slowed to 10.5 percent (y/y) in April, despite administered energy price increases. - Balance of payments and exchange rate: - In 2011, the current account deficit narrowed sharply, to 0.5 percent of GDP. - Real effective exchange rate appreciation: "the real effective exchange rate (REER) appreciated by about 11 percent in real effective terms since March." - Staff estimates: the macroeconomic balance approach indicates a current account norm of -1.8 percent of GDP, implying a small undervaluation of 0.3 to 0.7 percent; alternative approaches suggest modest overvaluation. - Foreign exchange reserves rose, then fell seasonally in late 2011, and have "again risen rapidly" more recently; however, reserves remain low. - Reserve adequacy: "At end-2011, coverage of prospective imports is only 1.3 months." - Fiscal developments: - Net borrowing declined sharply in 2011 and is estimated at 2.6 percent of GDP, much lower than the budgeted level of 5 percent of GDP (GFSM 2001 definitions). ### Inflation dynamics and real interest rate (Box 1) - Headline inflation history: - Peaked at 23 percent (y/y) in August 2011, declined to 10½ percent in April 2012. - Comparable 2008 episode: rose to 28½ percent in August 2008 then declined rapidly. - Inflation momentum: - Seasonally adjusted inflation (three-month moving average, annualized) fell sharply; during Q1 2012, it fell to under 5 percent from a peak of over 37 percent in mid-2011. - Real interest rate: - Real interest rate fell into negative territory in Q3 2010; reverted to positive territory around Q4 2011 and "reached around 10 percent in early 2012." - SBV announced cumulative 400 bps rate cuts by end-2012 (noted as context for recent policy moves). - Policy implications to rein in inflation further include: (i) limiting credit growth by banks; (ii) quickly and decisively addressing weak banks; and (iii) strengthening market confidence in the dong. ### Financial sector and banking risks - Liquidity and NPLs: - After rapid credit growth, tightening conditions and asset price declines put several small joint-stock banks under intense liquidity pressure. - SBV Governor announced aggregate nonperforming loans (NPL) ratio had risen to 3.6 percent in late March (likely higher under international best-practice classification). - Policy measures taken: strengthened enforcement of regulations, differentiated credit growth limits, restrictions in the gold market, and an SBV commitment to limit depreciation to a maximum of 2–3 percent during 2012 absent adverse external shocks. ### Outlook and risks — staff baseline and key projections - Staff baseline (authorities’ policies reflected): - GDP would continue to grow at 6 percent in 2012. - Inflation would decline to about 8¼ percent y/y (10¾ percent on average) by year-end, consistent with the authorities’ target of year-on-year inflation below 10 percent. - International reserves would increase further from the March level to around $19 billion by year-end (1.6 months of prospective imports). - Current account deficit would rise modestly. - Recent policy moves and cautionary note: - Recent cumulative reduction of policy interest rates by 200 bps and a modest fiscal impulse are expected to cushion the slowdown; further rate cuts announced could rekindle pressures on prices and the exchange rate if implemented prematurely. - Risks: - Exogenous: sharper-than-anticipated slowdown in Asian economies or severe European financial turmoil with global spillovers. - Domestic systemic risks: spillover of liquidity problems in weak banks to the wider system could cause a credit crunch, loss of confidence in the dong, and renewed inflation. - Larger risk: perception of waning government commitment to stabilization and financial-sector safeguards could lead to loss of market confidence. - Debt sustainability: - Risk of external debt distress remains low. - External debt-to-GDP ratio projected to decline consistently only from 2016 onward (due to large projected ADB disbursements), but NPV of external debt remains well below debt sustainability thresholds. - Public and publicly guaranteed debt set to decline gradually from its peak of 54.2 percent of GDP in 2010. ### Policy theme 1 — Rebuilding stability (overview and background) - Objective: preserve and build on nascent credibility to reduce inflation expectations and reinforce forex market stability. - Tension noted: SBV’s quick succession of rate cuts surprised markets; timing of further cuts is crucial — premature easing risks signaling a shift from low-inflation priority toward growth and could reverse prior stabilization gains. - Monetary policy chronology and instruments: - Policy tightened in H1 2011 with successive rate increases; a premature repo-rate cut in July was followed by a refinancing-rate increase in October. - In February 2012, SBV publicly stated interest rates would not be lowered through Q1. - Administrative measures: SBV requested banks to lower lending rates and allocate credit to specific sectors, imposed differentiated credit growth limits based on bank strength, strengthened enforcement though suspended ceilings on credit-to-deposit ratio, and tightened gold market rules. - SBV announced intention to limit depreciation of the dong to 2–3 percent during 2012 absent adverse external shocks. - Staff recommendation: maintain caution and prioritize stability to preserve credibility and the stabilization gains achieved to date. *Source: Vietnam — 2012 Article IV Report, INTRODUCTION section* ### 13. In March 2012, the SBV announced ### _cr12165 - 13. In March 2012, the SBV announced ### Monetary and exchange policy—recent actions and staff assessment - Events and market reaction - The SBV announced cumulative 400 bps policy rate cuts in the course of 2012. - Rates were cut on March 13 and April 10 by 100 bps each time. - The deposit rate ceiling was lowered by 100 bps each time. - The market views the cuts as justified given a faster-than-anticipated pace of decline in inflation and expects further cuts. - Reserve and liquidity operations - After several months of decline, in the first three months of 2012 gross international reserves rose by $4.3 billion and net international reserves by $4.5 billion. - The SBV issued about 45 trillion dong of central bank bills since mid-March to mop up liquidity. - Staff’s views and guidance - The cumulative 200 bps interest rate cuts to date may be justified given rapidly falling inflation and slowing activity. - Rapid decline in inflation owes much to the sharp decline in food prices; core inflation has been flat, creating a risk of resurgence if policy is loosened prematurely and by too much. - Authorities should build on the rapid decline to achieve lower inflation for 2012, well below their original target of “below 10 percent,” by aiming at greater deceleration in inflation for the remaining months. - Before further cuts in policy rates, ensure macroeconomic conditions are consistent with such a move; staff project stable growth for 2012 with no additional monetary action. - Even if exogenous risks materialize, monetary policy should continue to prioritize inflation reduction and confidence rebuilding. - Monetary policy should increasingly rely on market-based instruments; credit growth ceilings can complement interest rate policy but should be phased out once inflationary pressures are firmly under control and weak banks decisively dealt with. - Administrative measures (e.g., limiting energy price increases) should be eschewed. - SBV operational independence should be further strengthened. - Quickly rebuild foreign exchange reserves while maintaining FX market stability; high-yield–attracted capital inflows can be destabilizing. - If confidence in the dong erodes and depreciation pressures re-emerge, policy rates need to be re-tightened quickly. - If appreciation pressures mount, accelerate reserve accumulation rather than loosening monetary policy; SBV sales of foreign currency should be limited to reducing market volatility. - In the medium term, simplify the anchor for monetary policy: target inflation and international reserves, and let the exchange rate be market-determined; a lengthy period of exchange rate stability and high credibility must precede this shift. ### Authorities’ views on monetary and exchange policy - Priority and objectives - Fortifying macroeconomic stability and reducing inflation to single digits by year-end were stated as paramount and politically supported. - Interest rate cuts in March and April were prompted by slowdown in activity, declining inflation expectations, and weak credit demand. - Given tightly controlled differentiated credit growth limits, SBV argues rate cuts would not likely lead to resurgence of credit-induced inflationary pressures. - Plan to pursue substantial reserve accumulation during the year. - Increased confidence, reflected in capital inflows, was cited as enabling recent policy moves. - Exchange rate - Authorities reiterated commitment to limiting depreciation of the dong and to maintaining a stable exchange rate and increasing international reserves. ### Fiscal policy—current stance and staff recommendations - Near-term stance and projections - Staff projections indicate an increase in net borrowing by ¾ percent of GDP in 2012. - This implies a slight loosening of the fiscal stance from -1 percent of GDP in 2011, resulting in a fiscal impulse of ½ percent of GDP. - The fiscal impulse is projected to help avert a slowdown in output growth. - The increase in net borrowing stems mainly from a significant increase in current expenditure, projected to increase total spending by about 1 percentage point of GDP. - Staff recommendations - Contain other current spending to the extent possible to keep a prudent fiscal stance; doing so could reduce the increase in net borrowing in 2012 to around ¼ percent of GDP (and all but eliminate the fiscal impulse). - Fiscal discipline could help mitigate a rise in short-term capital inflows. - Only if downward risks to the economy materialize should fiscal policy be loosened beyond staff’s recommendation, broadly in line with current budget plans. - Medium-term public debt trajectory and requirements - Public and publicly guaranteed debt is projected to reach 48¼ percent of GDP in 2012, and 42½ percent by 2017. - Achieving this requires limiting net borrowing to an average of around 2 percent of GDP. - Declining oil and trade revenues would need compensation by other taxation sources. - Authorities’ comprehensive tax reform plans are welcome. ### Authorities’ views on fiscal policy and contingent liabilities - MoF stance - Seek to build on fiscal consolidation achieved in the previous year. - Planned wage and salary increases (about 2 percent of GDP) had already been enacted into law. - Will make efforts to constrain non-wage recurrent spending and increase taxpayer compliance to boost revenues. - Higher wages viewed as supporting anti-corruption efforts in revenue administration. - Bank and SOE restructuring fiscal stance - 2012 budget did not contain provisions for assuming nonperforming loans; budgetary resources would not be used to restructure SOE debt. - Authorities view this policy as limiting the need to create fiscal cushions for such contingencies, while broadly agreeing on the need to reduce public debt over the medium term. ### Restructuring the economy—overview - Reforms needed - Key sectors need reform to improve factor allocation and raise productivity growth. - Financial sector: a more forceful approach is needed beyond containing small weak banks; gaps in supervisory and bank resolution frameworks and governance issues in banks must be addressed. - SOE sector: far-reaching restructuring required to improve sustained performance, lower contingent fiscal risks, level the playing field, boost productivity, and enable SOEs to lead where envisaged by the government. ### Tax reform (Box 5)—background and staff recommendations - Ten-year budget plan and revenue composition - Revenues projected to decline from 26.2 percent of GDP in 2011 to 22½ percent of GDP in 2020, led by a drop in oil and trade revenues. - Plan envisages a significant rise in revenues from business taxes (CIT, royalties, and VAT) and, to a lesser extent, PIT. - Government launched a five-year tax reform plan to support this shift: broaden the VAT base, narrow the scope of the lower 5 percent rate, and reduce CIT incentives; improve tax administration. - Risks and staff recommendations - Some planned five-year changes could undermine domestic revenue (e.g., planned CIT rate cut from 25 percent to 22 percent; elimination of the top PIT rate and raising its threshold). - Staff recommend any CIT rate cut be offset by base broadening and that the current PIT threshold be preserved. - Additional revenue options noted: significantly raise nonagricultural land tax (property tax) rates and extend base to include buildings; increase petroleum excises; overhaul natural resource taxation possibly by introducing a resource tax. ### Financial sector reform—background, staff views, and plan features - Background and recent actions - Small weak banks account for approximately 7 percent of banking sector deposits. - SBV reinforced deposit rate caps, announced unlimited deposit guarantees to stem a run, merged three small weak banks (more mergers expected), and provided direct and indirect liquidity support through SOCBs. - Special inspection teams were sent to nine banks classified as weak; these banks are not allowed to expand credit. Combined assets of these nine banks amount to some six percent of total banking sector assets. - Banks will be required to present restructuring and recapitalization plans; SBV may nationalize banks if plans are inadequate. - Measures have strengthened SBV credibility despite improvised character. - Bank restructuring plan (Box 6) — selected provisions - Objectives: develop “modern, safe, sound, and efficient” financial sector compliant with “international banking standards and practices.” - SOCBs: develop one to two SOCBs to compete regionally; continue equitization with state remaining dominant shareholder; raise capital (including from government) to meet Basel II requirements by 2015; reduce NPL ratio to less than 3 percent according to domestic standards; reduce credit-to-deposit ratio below 90 percent by 2015. - Commercial banks: classify into three groups (healthy, temporary liquidity shortage, weak) with differentiated measures including voluntary consolidation, SBV refinancing under supervision, special control for weak banks, and options for sale or injection of capital. - Strengthening measures: sale to DATC or private firms, conversion to equity, write-off of bad debts, raise charter capital, reduce credit-to-deposit ratio to at most 85 percent by 2015, increase disclosure, gradual withdrawal of SOEs’ shareholding, limit dominant shareholder control, improve qualifications of managers and board members. - Staff views and recommendations - The plan is ambitious; imperative to fully utilize its provisions (e.g., restrictions on dividend payments, dismissing management, resolution of NPLs through sale to DATC). - Lack of implementation details could lead to ad hoc application; reluctance to close insolvent banks and absence of clear insolvency distinction weakens supervisory coercive tools. - Measures to contain weak banks are welcome but must be accelerated; merging weak banks is not in itself a solution. - Liquidity support should be extended only to solvent banks; solvency support must be accompanied by conditions including owners bearing first losses. - Executive compensation should be restricted where appropriate. - Nonperforming assets need rapid recognition and disposal. - Regulatory and supervisory framework needs strengthening at every stage, including bank resolution: introduce specific progressive enforcement measures and a special bank resolution and insolvency regime. - Protect supervisory decisions from court reversal, protect staff from personal liability, and strengthen fit and proper criteria for board members and senior managers. - Align prudential rules (loan classification and provisioning) with international best practices. - Increase supervisory capacity: train staff, enhance onsite supervision, improve data collection and analysis; adequately compensate staff and provide political backing to reduce turnover and retain talent. - Authorities’ views on bank reform - SBV agrees with need for forceful action; timetable is tight and authorities are willing to take over banks that do not submit adequate plans or where owners cannot provide capital/attract investors. - No reliable estimate yet of NPL magnitude; DATC capacity will be increased. - Authorities considered that additional resources would not be needed in 2012 and expected much nonperforming real estate assets to be sold over the next two years. ### SOE reform—staff views - Short-term actions and risks - SOE reform is essential to reduce risks to the economy. - Short-term reduction in inefficient investments would help control inflation and improve asset quality at some banks. - Divestments to focus SOEs on core businesses are welcome. - Lack of information on SOEs’ financial position poses a threat to the financial system and public fiscal position. - Authorities’ actions - Investments scaled back; some SOEs have sold part of noncore operations. - Broader plan under consideration: substantial reduction in number of SOEs through listing on the stock market; creation of a centralized body to control state holdings in SOEs; improvement in corporate governance principles; publication of aggregated financial indicators for SOEs. *IMF staff summary based on the Vietnam 2012 Article IV report text provided.* ### 34. Reforming SOEs is also critical for ### _cr12165 - 34. Reforming SOEs is also critical for ### SOE performance and reform recommendations - Evidence indicates SOEs have been using capital and labor inputs much less efficiently than the private sector. - For SOEs to play a productive role, performance needs strengthening on a sustained basis. - Decisive measures beyond planned equitization and/or privatization of minority stakes are required, including measures that: - raise standards of accountability, - improve transparency (including through better accounting and stronger oversight by the state), - strengthen financial discipline (including through the remittance of profits to the owner). - In the recently conducted World Bank survey, "overwhelming majority responded that improving transparency and accelerating equitization were the most effective reform measures." - The World Bank and other donors urge the government to advance reorganization and restructuring of SOEs by dividing them into three groups: - those that should be equitized immediately, - those that need to be restructured first before equitization, - those that should remain fully owned by the state. - Donors are also advocating improvement in corporate governance. *Authorities’ views* - The authorities broadly agreed with staff’s assessment of the SOE sector and the required remedies. - Officials at the Ministry of Finance and the Ministry of Planning and Investment recognized the urgency of reforms and agreed that improved accountability and supervision would have to be part of the reform strategy. - They noted reforms would take time because comprehensive information on financial performance and debts of SOEs needed to be compiled. - They acknowledged that a restructuring of SOE debt was being discussed, but ruled out using budgetary resources. ### Other issues - Data analysis in the financial sector should be improved: - Authorities should compute high-frequency financial soundness indicators, for all banks as well as on an aggregate basis, on a regular (at least quarterly) basis. - This is especially important for the upcoming assessment under the FSAP. - Vietnam’s AML/CFT framework should be enhanced: - In October 2010, Vietnam was identified—alongside other countries—by the Financial Action Task Force (FATF) as having “strategic AML/CFT deficiencies.” - The authorities initiated an action plan to address these deficiencies. - While significant progress has been made, it was not deemed sufficient by the FATF; outstanding issues relate mainly to: - the criminalization of money laundering, - the freezing of terrorist assets, - customer due diligence measures, - international cooperation. - The next FATF review of the progress made is scheduled for June. ### Staff appraisal — macroeconomic stabilization and policy guidance - The authorities made significant strides in stabilizing the economy, but hard-won confidence is still fragile. - Actions taken and outcomes: - tightened monetary and fiscal policy, - restrained investment by both the state and SOEs, - a start has been made to address banking sector vulnerabilities, - SOE reform is being prepared. - As a consequence, inflation and inflation expectations have declined, confidence in the dong has increased, the exchange rate has stabilized, and international reserves have begun to recover. - Monetary policy credibility: - Recent rate cuts in quick succession were justified by rapidly falling inflation and a weak economy, but there is a risk of eroding market confidence and triggering renewed pressure on prices and the exchange rate if further rate cuts are implemented too rapidly and the authorities are perceived as again prioritizing growth. - The authorities should aim for inflation well below their original target of below 10 percent, rebuild international reserves further, and accept somewhat slower economic growth. - The SBV should err on the side of caution, and be prepared to delay rate cuts depending on developments in the course of the year. - Monetary and exchange policy implementation: - Going forward, monetary and exchange policies should rely less on administrative measures. - While credit growth and deposit rate ceilings can be useful in the current situation, strong supervision of the financial sector should ensure banks’ lending decisions remain prudent. - In the gold and foreign exchange markets, administrative measures cannot replace fundamental trust in the domestic currency. - Fiscal policy: - Fiscal policy should support macroeconomic stabilization and build cushions against contingent liabilities. - While further rationalization of public investment is welcome, the planned increase in the wage bill raises current spending significantly. - Staff appreciate the need to compensate for the erosion of real wages due to high inflation, but to keep a prudent fiscal stance and to help contain inflationary pressures, this increase should be partially offset by cuts in other current spending to the extent possible. - Should risks to the outlook materialize, monetary policy would need to continue to focus on reducing inflation, while fiscal policy could be loosened moderately. ### Financial sector restructuring and SOE reform priorities - Financial sector restructuring needs to move forward rapidly: - Market participants expect further steps, and maintenance of confidence depends on quick action by the authorities. - In a first step, small weak banks need to be dealt with forcefully, including by forcing them to recognize NPLs, imposing strict conditions for liquidity support, and closing insolvent banks. - The bank restructuring framework should be strengthened to prevent a recurrence of similar problems. - The legal framework for supervision, as well as its enforcement, need to be strengthened. - SOE reform is critical: - The planned equitization and privatization of a large number of SOEs is welcome. - Oversight, accountability, and financial discipline of the remaining SOEs need to be raised to: - reduce risks to the financial sector and public finances, - lay the foundations for continued strong economic performance in the medium term. *2012 ARTICLE IV REPORT VIETNAM — INTERNATIONAL MONETARY FUND* ### 45. It is recommended that the next ### _cr12165 - 45. It is recommended that the next ### Slowdown - Growth has decelerated; charts indicate declines in: - Industrial production (3mma) - Retail sales (3mma) - GDP growth (Year-on-year percent change) - Stock market declined (Stock Market Performance, Index, January 2008=100). - Fiscal developments: - The fiscal deficit has been reduced (Fiscal Balance, In percent of GDP). - Credit developments: - Credit growth slowed down (Credit to the Economy, Year-on-year percent change). - SBV withdrew credit from banks (SBV Net Credit to Banks, Annual flow, in percent of GDP). - Banks rebuilt their foreign position (Banks' Net Foreign Assets, in billion of US dollars). ### Stabilization and Confidence Building - Inflation and monetary policy: - Headline inflation (y/y; LHS) and 7-day repo rate (LHS) are shown; Credit growth (y/y; RHS) declined. - Competitiveness and exchange rate: - Real Effective Exchange Rates: Vietnam relative to ASEAN-4 and China (Index, April 2008=100). - Exchange Rates (Thousand dong per U.S. dollar): Official rate, Interbank grey rate, Official band. - Exchange rate has stabilized. - Financial market confidence: - Sovereign Bond Spreads: Vietnam, Emerging Asia, Vietnam credit default swaps. - Spreads came down from their peaks. - Reserves and external sector: - International Reserves (Index, January 2008=100) beginning to recover. - Balance of Payments components: E & O, Current account balance, Capital account balance, BOP balance (In percent of GDP). ### Selected Economic Indicators and Projections (Table 1) - Output: - Real GDP (percent change): 2008: 6.3; 2009: 5.3; 2010: 6.8; 2011: 5.9; 2012: 6.0; 2013: 6.3 - Saving and investment (in percent of GDP): - Gross national saving: 2008: 27.8; 2009: 31.6; 2010: 34.9; 2011: 29.3; 2012: 33.5; 2013: 33.1 - Gross investment: 2008: 39.7; 2009: 38.1; 2010: 39.0; 2011: 29.9; 2012: 34.3; 2013: 33.8 - Prices (percent change): - CPI (period average): 2008: 23.1; 2009: 6.7; 2010: 9.2; 2011: 18.7; 2012: 10.8; 2013: 7.4 - CPI (end of period): 2008: 19.9; 2009: 6.5; 2010: 11.7; 2011: 18.1; 2012: 8.2; 2013: 6.0 - General government finances (in percent of GDP): - Revenue and grants: 2008: 28.9; 2009: 27.3; 2010: 27.8; 2011: 27.8; 2012: 27.9; 2013: 27.7 - Expenditure: 2008: 29.4; 2009: 34.5; 2010: 33.1; 2011: 30.3; 2012: 31.3; 2013: 30.3 - Net lending (+)/borrowing(-): 2008: -0.5; 2009: -7.2; 2010: -5.2; 2011: -2.6; 2012: -3.4; 2013: -2.6 - Public and publicly guaranteed debt (end of period): 2008: 42.9; 2009: 51.2; 2010: 54.2; 2011: 48.3; 2012: 48.2; 2013: 46.6 - Money and credit (percent change, end of period): - Broad money (M2): 2008: 20.3; 2009: 29.0; 2010: 33.3; 2011: 12.1; 2012: 21.6; 2013: 18.1 - Credit to the economy: 2008: 25.4; 2009: 39.6; 2010: 32.4; 2011: 14.3; 2012: 16.8; 2013: 14.4 - Balance of payments (in percent of GDP): - Current account balance (including official transfers): 2008: -11.9; 2009: -6.6; 2010: -4.1; 2011: -0.5; 2012: -0.8; 2013: -0.7 - Gross international reserves (in billions of U.S. dollars, end of period): 2008: 23.0; 2009: 14.1; 2010: 12.4; 2011: 13.5; 2012: 19.0; 2013: 25.7 - Exchange rates: - Nominal exchange rate (dong/U.S. dollar, end of period): 2008: 17,483; 2009: 18,479; 2010: 19,498; 2011: 21,034 - Memorandum: - GDP (in trillions of dong at current market prices): 2008: 1,485; 2009: 1,658; 2010: 1,981; 2011: 2,535; 2012: 2,927; 2013: 3,336 - GDP (in billions of U.S. dollars): 2008: 90.3; 2009: 93.2; 2010: 103.6; 2011: 122.7; 2012: 135.8; 2013: 148.8 - Per capita GDP (in U.S. dollars): 2008: 1,048; 2009: 1,068; 2010: 1,174; 2011: 1,374; 2012: 1,502; 2013: 1,627 ### Balance of Payments Details (Table 2) - Current account balance (in billions of U.S. dollars): - 2008: -10.8; 2009: -6.1; 2010: -4.3; 2011: -0.7; 2012: -1.1; 2013: -1.1 - Trade balance (in billions of U.S. dollars): - 2008: -12.8; 2009: -8.3; 2010: -5.1; 2011: -0.4; 2012: -2.4; 2013: -3.0 - Exports and imports (f.o.b., in billions of U.S. dollars): - Exports: 2008: 62.7; 2009: 57.1; 2010: 72.2; 2011: 96.9; 2012: 111.0; 2013: 125.2 - Imports: 2008: 75.5; 2009: 65.4; 2010: 77.3; 2011: 97.4; 2012: 113.4; 2013: 128.3 - Capital and financial account balance (in billions of U.S. dollars): - 2008: 12.3; 2009: 11.3; 2010: 6.9; 2011: 5.4; 2012: 8.0; 2013: 7.8 - Direct investment (net, in billions of U.S. dollars): - 2008: 9.3; 2009: 6.9; 2010: 7.1; 2011: 7.3; 2012: 7.3; 2013: 7.3 - Foreign direct investment in Vietnam: 2008: 9.6; 2009: 7.6; 2010: 8.0; 2011: 8.2; 2012: 8.2; 2013: 8.2 - Overall balance (in billions of U.S. dollars): 2008: 0.5; 2009: -8.2; 2010: -1.1; 2011: 1.1; 2012: 5.5; 2013: 6.7 - Memorandum: - Gross international reserves 2/: 2008: 23.0; 2009: 14.1; 2010: 12.4; 2011: 13.5; 2012: 19.0; 2013: 25.7 - Current account balance (in percent of GDP): 2008: -11.9; 2009: -6.6; 2010: -4.1; 2011: -0.5; 2012: -0.8; 2013: -0.7 - Direct investment (in percent of GDP): 2008: 10.3; 2009: 7.4; 2010: 6.9; 2011: 5.9; 2012: 5.4; 2013: 4.9 ### General Government Budgetary Operations (Table 3) - In trillions of dong (Budget/Proj. columns): - Revenue (2008–2013): 430; 453; 552; 704; 741; 816; 925 - Tax revenue: 363; 373; 477; 615; 681; 736; 834 - Oil revenues: 90; 61; 69; 111; 87; 115; 122 - Expenditure (2008–2013): 437; 572; 655; 769; 917; 917; 1,010 - Net lending(+)/borrowing(-): -8; -119; -103; -65; -176; -101; -86 - In percent of GDP: - Revenue: 28.9; 27.3; 27.8; 27.8; 25.3; 27.9; 27.7 - Expenditure: 29.4; 34.5; 33.1; 30.3; 31.3; 31.3; 30.3 - Net lending(+)/borrowing(-): -0.5; -7.2; -5.2; -2.6; -6.0; -3.4; -2.6 - Public and publicly guaranteed debt: 42.9; 51.2; 54.2; 48.3; ...; 48.2; 46.6 - Memorandum: - Nominal GDP (in trillions of dong): 1,485; 1,658; 1,981; 2,535; 2,927; 2,927; 3,336 ### Government Balance Sheet (Table 4) - Net financial worth (in trillions of dong, selected years): - Opening 2008: -250; 2009: -33; 2010: -22; 2011: -305; 2012: -156; 2013: -21; Projection closing 2017: -980 - Financial assets (in trillions of dong): - 2008 opening: 160; 2009: 28; 2010: 0; 2011: 188; 2012: -18; 2013: 0; 2017 closing: 259 - Domestic: same series as financial assets. - Currency and deposits: 97 (2008 opening), 15 (2009), -4 (2010), 108 (2011), -42 (2012), -1 (2013), 56 (2017 closing) - Loans: 63; 13; 4; 80; 24; 1; 204 (2017 closing) - Liabilities (in trillions of dong): - 2008 opening: 410; 2009: 61; 2010: 22; 2011: 493; 2012: 138; 2013: 21; 2017 closing: 1,239 - Domestic liabilities and Foreign liabilities broken out, including loans: Foreign loans: 277 (2008 opening), 32 (2009), 22 (2010), 331 (2011), 91 (2012), 21 (2013), 849 (2017 closing) - Net financial worth (in percent of GDP): - 2008 opening: -21.9; 2009: -2.2; 2010: -1.5; 2011: -20.5; 2012: -9.4; 2013: -1.3; 2017 closing: -29.4 - Memorandum: Nominal GDP (VND trillions) shown for 2008–2017 (e.g., 2008: 1,144; 2009: 1,485; 2017: 5,176) ### Monetary Survey (Table 5) - Net foreign assets (in trillions of dong): - 2008: 429; 2009: 312; 2010: 267; 2011: 300; 2012: 530; 2013: 792 - State Bank of Vietnam (SBV): 405; 281; 224; 271; 408; 574 - Commercial banks: 243; 143; 291; 222; 18 - Net domestic assets and domestic credit (in trillions of dong): - Net domestic assets: 1,193; 1,780; 2,523; 2,826; 3,272; 3,698 - Domestic credit: 1,401; 2,040; 2,690; 3,063; 3,550; 4,031 - Credit to the economy: - 2008 total: 1,339; 2009: 1,869; 2010: 2,476; 2011: 2,830; 2012: 3,305; 2013: 3,781 - In dong: 1,071; 1,542; 1,990; 2,264 - In foreign currency: 269; 327; 485; 567 - Total liquidity (M2): 1,622; 2,092; 2,789; 3,126; 3,802; 4,490 - Memorandum indicators: - Money multiplier: 4.3; 5.0; 6.3; 6.0; 6.1; 6.2 - Reserve money (year on year percent change): 20.0; 11.4; 4.1; 18.9; 19.2; 17.2 - Liquidity (M2; year on year percent change): 20.3; 29.0; 33.3; 12.1; 21.6; 18.1 - Credit to the economy (Total, in percent of GDP): 90.2; 112.7; 125.0; 114.7; 112.9; 113.3 - Foreign currency deposits/total deposits (in percent): 23.8; 23.7; 21.1; 19.5 ### Medium-Term Projections, 2011–17 (Table 6) - Output: - Real GDP (percent change): 2011: 5.9; 2012: 6.0; 2013: 6.3; 2014: 6.9; 2015: 7.3; 2016: 7.5; 2017: 7.5 - Prices: - CPI (period average): 2011: 18.7; 2012: 10.8; 2013: 7.4; 2014: 5.7; 2015: 5.3; 2016: 5.0; 2017: 5.0 - CPI (end of period): 2011: 18.1; 2012: 8.2; 2013: 6.0; 2014: 5.5; 2015: 5.0; 2016: 5.0; 2017: 5.0 - General government finances (in percent of GDP): - Revenue and grants: 27.8; 27.9; 27.7; 27.3; 27.3; 27.4; 27.3 (2011–2017) - Expenditure: 30.3; 31.3; 30.3; 29.6; 28.9; 29.0; 28.8 - Net lending(+)/borrowing(-): -2.6; -3.4; -2.6; -2.3; -1.6; -1.6; -1.5 - Public and publicly guaranteed debt (end of period): 48.3; 48.2; 46.6; 45.7; 44.6; 43.5; 42.4 - Balance of payments: - Current account balance: -0.5; -0.8; -0.7; -0.9; -1.3; -1.4; -1.6 - Exports f.o.b.: 79.0; 81.7; 84.2; 87.5; 92.0; 96.7; 96.5 - Imports f.o.b.: 79.3; 83.5; 86.2; 89.6; 94.5; 99.2; 99.4 - Gross international official reserves (in billions of U.S. dollars): 2011: 13.5; 2012: 19.0; 2013: 25.7; 2014: 34.5; 2015: 43.1; 2016: 53.9; 2017: 63.7 - Memorandum items: - Nominal GDP (in trillions of dong): 2011: 2,535; 2012: 2,927; 2013: 3,336; 2014: 3,743; 2015: 4,178; 2016: 4,654; 2017: 5,176 - Nominal GDP (in billions of U.S. dollars): 2011: 123; 2012: 136; 2013: 149; 2014: 162; 2015: 176; 2016: 190; 2017: 205 - Per capita GDP (in U.S. dollars): 2011: 1,374; 2012: 1,502; 2013: 1,627; 2014: 1,751; 2015: 1,875; 2016: 2,004; 2017: 2,138 ### Progress Toward the Millennium Development Goals (Table 7) - Goal 1: Eradicate extreme poverty and hunger - Target 1: Halve between 1990 and 2015 the proportion of people living in poverty — Poverty reduced by more than three-quarters between 1990 and 2008 — Status: Already achieved - Target 2: Halve between 2009 and 2015 the proportion who suffer from hunger — Proportion reduced by more than two-thirds between 1993 and 2006 — Status: Already achieved - Goal 2: Achieve universal primary education - Target 3: By 2015, boys and girls to complete a full course of primary schooling — Grade 5 completion rate (gross) is 104 percent for boys and 100 percent for girls — Status: Likely to be achieved - Goal 3: Promote gender equality - Target 4: Eliminate gender gaps in primary and secondary education no later than 2015 — Gender equality at all school levels, except for ethnic minorities — Status: Already achieved - Goal 4: Reduce child mortality - Target 5: Reduce by two-thirds between 1990 and 2015 the under-five mortality rate — Reduced by 64 percent between 1990 and 2009 (down from 53 to 19 per 1000) — Status: Likely to be achieved - Goal 5: Improve maternal health - Target 6: Reduce maternal mortality by three-quarters between 1990 and 2015 — Fell by 78 percent, from 250 per 100,000 births in 1990 to 56 in 2008 — Status: Already achieved - Goal 6: Combat HIV/AIDS and other diseases - Target 7: By 2015, have halted and begun to reverse the spread of HIV/AIDS — Infection rate went up from 0.34 percent in 2001 to 0.44 in 2005, then slowed to 0.4 in 2009 — Status: Likely to be achieved - Target 8: By 2015, have halted and reversed the incidence of malaria and other diseases — Malaria cases severely reduced; with only 27 malaria-related deaths in 2009 — Status: Already achieved - Goal 7: Ensure environmental sustainability - Target 9: Embrace sustainability and reverse the loss of environmental resources — Forest cover up but loss in closed-canopy forest and biodiversity — Status: Uncertain to be achieved - Target 10: Halve by 2015 the share of people without safe drinking water and basic sanitation — Rapid progress on drinking water, much slower on hygienic sanitation — Status: Uncertain to be achieved - Note: Data are as of March 2012. *Prepared by Asia and Pacific Department (In consultation with other Departments).* ### ANNEX I. FUND RELATIONS _____________________________________________________________ 2 ### ANNEX I. FUND RELATIONS ### Membership and Quota Details (As of March 31, 2012) - Joined: September 21, 1956; Article VIII - General Resources Account: - Quota: 460.70 SDR Million — 100.00 Percent of Quota - Fund holdings of currency: 460.70 SDR Million — 100.00 Percent of Quota - Reserve position in Fund: 0.01 SDR Million — 0.00 Percent of Quota - SDR Department: - Net cumulative allocation: 314.79 SDR Million — 100.00 Percent Allocation - Holdings: 268.06 SDR Million — 85.15 Percent Allocation - Outstanding Purchases and Loans: - ECF arrangements: 4.14 SDR Million — 0.90 Percent of Quota ### Latest Financial Arrangements (In millions of SDRs) - ECF — Date of Arrangement: 04/13/2001; Expiration Date: 04/12/2004; Amount Approved: 290.00; Amount Drawn: 124.20 - ECF — 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) - Forthcoming: - 2012 Principal: 4.14 - Charges/interest: 0.06 (2012), 0.07 (2013), 0.07 (2014), 0.07 (2015), 0.07 (2016) - Total: 4.20 (2012), 0.07 (2013), 0.07 (2014), 0.07 (2015), 0.07 (2016) ### Exchange Arrangement - Classification: “stabilized.” - De jure arrangement: floating. - Recent policy actions: - The State Bank of Vietnam (SBV) announced an 8.5 percent devaluation of the dong (VND) on February 11, 2011, and narrowed the trading band from ±3 percent to ±1 percent. - The SBV has indicated that the official rate will be set more flexibly in the future to align with market rates. - External payments regime: - Vietnam maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for those exchange restrictions imposed for security reasons of which Vietnam has notified the IMF pursuant to Executive Board Decision No. 144-(52/51), 8/14/52. ### Article IV Consultations - Consultation cycle: 12-month. - Last Article IV consultation: held in Hanoi during February 24–March 9, 2011, and concluded by the Executive Board on April 29, 2011 (Public Information Notice No. 11/81). ### Technical Assistance (TA) - Areas of TA: tax policy and administration, public financial management, statistics, banking supervision, and AML/CFT. - Resident advisor (December 2008 to January 2012) assisted the authorities in improving banking supervision. - Authorities have informally indicated interest in TA in the areas of General Data Dissemination System. - The authorities have requested an assessment under the IMF-World Bank Financial Sector Assessment Program. ### Resident Representative - Mr. Sanjay Kalra assumed the Resident Representative post for Vietnam and Lao P.D.R., based in Hanoi, on October 16, 2011. --- ### ANNEX II. RELATIONS WITH THE WORLD BANK GROUP ### Partnership and Strategic Alignment (As of March 2012) - World Bank Country Partnership Strategy (CPS) presented to the Board in December 2011. - CPS alignment: fully aligned with Vietnam’s Socio-Economic Development Strategy (SEDS) 2011–15. - CPS timeframe: planned support between FY12 and FY16. - CPS strategic framework: - Three pillars: - (i) strengthening Vietnam's competitiveness in the regional and global economy, - (ii) increasing the sustainability of its development, - (iii) broadening access to opportunity. - Three cross-cutting themes: - (i) strengthening governance, - (ii) supporting gender equity, - (iii) improving resilience to external economic shocks, natural hazards, and climate change. - Underlying CPS theme: supporting Vietnam’s transition to middle-income country (MIC) status and multiple structural transitions (agrarian to urban/industrial; quantity to quality; factor-driven to efficiency-driven). ### Pillar 1 — Competitiveness: Focus Areas and Challenges - Focuses on: - Vietnam’s vulnerability to macroeconomic instability, including structural weaknesses in financial and SOE sector as well as Public Finance Management. - Low quality of key infrastructure services due to inefficiencies in power distribution and transmission, and in the water and transport sectors. - Low-value addition in Vietnamese production. - Weak innovation capacity and low skills base of the Vietnamese labor force. - Governance challenge highlighted: accountability gaps exacerbated by decentralization. ### Pillar 2 — Sustainability: Focus Areas and Governance Issues - Focuses on: - Management of water resource and land. - Conservation of forests and biodiversity. - Pollution control and low connectivity to sanitation systems. - Mitigation and adaptation measures for climate change and disaster risk management. - Governance weaknesses: unclear and conflicting jurisdiction undermining enforcement of environmental regulation; limited access to information undermining accountability. ### Pillar 3 — Opportunity: Social Inclusion and Service Delivery - Focuses on: - Addressing rising inequality (ethnic minorities vs. others; urban vs. rural). - Policy reform and institutional strengthening for social insurance and social safety nets. - Weaknesses in basic public service delivery and access. - Gender equality (a special theme for IDA 16). ### Governance Mainstreaming Approach - Principles: - (i) systematically leveraging the Bank’s lending and analytical activities to support improved governance; - (ii) improving project performance by better understanding and addressing governance risks; - (iii) sustaining the effort and making periodic adjustments if the approach is not working. ### Gender Strategy in the CPS - Four key elements: - (i) support Government in implementing the Law on Gender Equality and the National Strategy on Gender Equality by building gender awareness and capacity within relevant ministries; - (ii) support development of a national gender data system by building on the National Gender Statistical Indicator System; - (iii) apply a gender lens to integrate gender into Bank operations and systematically collect data disaggregated by gender; - (iv) close the knowledge gap through quantitative and qualitative research on gender issues. ### Vulnerability and Resilience Theme - Resilience as a cross-cutting theme due to the global economic crisis and climate risks. - Areas: macroeconomic policy framework and financial sector soundness (Pillar 1), climate change mitigation and adaptation (Pillar 2), social protection and livelihoods (Pillar 3). ### World Bank Group Instruments and Program Scale - Instruments: development policy and investment operations, analytical and advisory activities, IFC equity/loans/TA, Mekong Private Sector Development Facility (MPDF), MIGA activities, donor partnerships and ODA coordination. - FY10: first two IBRD operations totaling US$700 million. - FY10 program: more than US$2.1 billion equivalent for IDA and IBRD combined. - FY11 commitments: US$2.348 billion (US$1.268 billion IDA; US$1.068 billion IBRD). - FY12 (first year of IDA 16): eight planned World Bank operations estimated to reach US$1.15 billion, of which US$1.05 billion will be IDA. - Indicative IDA 16 allocation: about SDR 2.8 billion (equivalent to US$4.2 billion) available to support Vietnam’s economic and social development in FY12–FY14. - Share of DPOs in FY12–FY14 IDA program: currently estimated at about 25 percent (could rise if policy reform momentum increases). - Proposed FY12–FY14 IBRD commitments total: US$770 million (around US$280 million planned for two Development Policy Operations; the balance for investment lending). - Active operations: 49 active IDA/IBRD operations, totaling US$7.9 billion. - IFC commitments: US$1,800 million over FY07–FY11 (including asset management business); IFC and MIGA programs expected to grow. ### Lending Program Composition - Roughly two-thirds dedicated to infrastructure investments. - Infrastructure areas: rural energy, energy transmission and distribution, hydropower, transport, water supply and sanitation, urban upgrading, natural disaster risk management. - Agriculture: agricultural competitiveness, livestock competitiveness, northern mountains poverty reduction, avian and human influenza control, forest sector development. - Human development: health support projects, hospital waste management, school education quality assurance, higher education support. - Other areas: public financial investment, tax administration, financial sector modernization. ### Policy Lending: Transition from PRSCs to EMCCs - PRSCs 1–10 were the centerpiece of policy lending over the last 10 years. - New DPO series: Economic Management and Competitiveness Credits (EMCC), multi-year multi-donor operations starting in FY12 with a five-year horizon. - EMCC focus: reforms to strengthen (i) macroeconomic stability and (ii) institutions for public sector governance and private sector development. - EMCC strategic underpinnings: SEDS 2011–20, Competitiveness Pillar of the CPS, National Competitiveness Report, recent Vietnam Development Reports (VDRs). - EMCC rationale: focused reform agenda under one series of budget support operations. ### Knowledge Program and Analytical Work - Role: strengthen institutional capacity through analytical and advisory services; Vietnam’s MIC status increases emphasis on knowledge and global best practice sharing. - Vietnam Development Reports (VDRs): annual thematic reports (2008 Social Protection; 2009 Business Development; 2010 Modern Institutions; 2011 Natural Resource Management; 2012 Transition to a Market Economy). Next VDR: Skills Development. - Other reports: Infrastructure Finance, Higher Education and Skills for Growth, Country Financial Accountability Assessment, Health Financing, Gender Assessment, Financial Sector Strategy, series on Infrastructure Challenges, High Quality Basic Education, Urbanization Review. - Forthcoming reports: Financial Inclusion and Access to Finance, Poverty Assessment, Agriculture Public Expenditure Review, Poverty and Social Impact Assessment for Climate Change, Poverty in the Central Highlands. - Continued TA: governance, social protection, renewable energy, climate change adaptation, financial sector reform, public financial management reform. ### IMF–World Bank Collaboration in Vietnam - Post-PRGF (since April 2004): close collaboration on macroeconomic monitoring and on PRSC triggers/benchmarks; IMF provided Letters of Assessment for PRSC operations; collaboration continues with EMCC. - Joint efforts: - Public financial management: World Bank investment credit supporting modern Treasury and Budget Management Information System; coordination on a multi-donor trust fund for PFM reform; Tax Administration Modernization investment loan. - Programmatic Public Finance Review (PPFR): World Bank leading, collaborating closely with the IMF, including on a review of Budget Transparency. - Central bank development: IMF TA on monetary policy and operations; both institutions provided TA on banking supervision; World Bank investment credits for SBV advanced business processes and IT (including Deposit Insurance Agency and Credit Information Center). - Financial Sector Assessment Program (FSAP): joint work toward fielding an FSAP at authorities’ request; joint FSAP information seminar in September 2010; IMF stress testing mission in second half of 2011. - Debt Sustainability Assessments: jointly prepared annually since 2005; ADB joined since 2009. - Planned joint training on debt management. - Statistics: collaboration on improving balance of payments, national accounts, price statistics (IMF) and household/enterprise surveys (World Bank). - SBV information timeliness/availability: PRSC10 and specific TA supported formulation of a regulation to improve timeliness and availability of monetary and banking sector information. - Consultation coordination: IMF and World Bank consult during Article IV consultations to share information and help coordinate policies. *Source: ANNEX I. FUND RELATIONS and ANNEX II. RELATIONS WITH THE WORLD BANK GROUP (As of March 2012).* ### ANNEX III. RELATIONS WITH THE ASIAN ### ANNEX III. RELATIONS WITH THE ASIAN DEVELOPMENT BANK (As of March 2012) ### AsDB Strategy and Country Partnership Strategy - The Asian Development Bank (AsDB) resumed operations in Vietnam in October 1993. - Country Strategy and Program (CSP) 2007–10: - Endorsed in October 2006. - Fully aligned with and designed to support implementation of the Government’s Socio-Economic Development Plan (SEDP) 2006–10. - Goals: help the Government reduce poverty, achieve the Millennium Development Goals/Vietnam Development Goals, and exit from low-income country status. - Growth-oriented focus areas: - (i) business-led, pro-poor economic growth: support to develop foundations for increased private sector investment and employment; - (ii) social equity and balanced development: support for education, health, targeted poverty reduction, rural infrastructure; addressed communicable diseases such as avian influenza and HIV/AIDS; gender and other equity issues mainstreamed in projects; - (iii) environment: support for natural resources management, biodiversity, water, coastal resources management, and livelihood improvement. - Governance addressed through all operations; regional cooperation supported through multiple projects. - Country Partnership Strategy (CPS) 2011–15 (being prepared in line with AsDB’s Strategy 2020): - Important features: - (i) fully aligned with SEDP 2011–15; - (ii) consistent with the AsDB’s Strategy 2020 for strategic directions and operational priorities; - (iii) Results-based with monitorable and time-bound performance (outcome and output) indicators; - (iv) formulated on the basis of sector assessment, strategy, and roadmap; - (v) more selective approach to maximize development effectiveness and minimize trans-action costs. - The new CPS is expected to be approved by the AsDB Board in the second half of 2012. ### Operations, Approvals, Disbursements, and Financial Support - From October 1993 until December 31, 2011: - The AsDB approved 114 sovereign loans totaling US10.443 billion, comprising: - US$5.449 billion from highly concessional Asian Development Fund (ADF); - US$4.994 billion from less concessional Ordinary Capital Resources (OCR). - Contract awards achievement: - 2011: US$1,353.45 million - 2010: US$610.21 million - 2009: US$1,781.77 million - Disbursements: - 2011: US$791.84 million - 2010: US$406.69 million - 2009: US$1,093.4 million - Technical assistance and grants: - Technical assistance grants amounting to US$242.2 million for 261 projects; - Other 26 grant projects totaling US$150.1 million. - Non-sovereign and guarantee instruments approved: - Eight nonsovereign loans, two political risk guarantees, and one B-loan totaling US$280.0 million. - Regional support: - Substantial support under the Greater Mekong Subregion initiatives (Cambodia, China, Lao P.D.R., Myanmar, Thailand, Vietnam). ### Policy Dialogue, Reform Support, and Sectors of Engagement - AsDB support emphasizes policy and structural reforms to: - improve public sector efficiency; - encourage development of the private sector. - Program loans and sectoral support (so far): - 26 program loans in agricultural sector, financial sector, SOE reform and corporate governance, public administration reform, SME development, secondary education, health, and support of the multi-donor supported Poverty Reduction Support Credit (PRSC). - Policy dialogue highlights: - Support for increased efficiency of state-owned utilities through rate structure reform and measures to increase cost recovery, strengthen financial management, policy analysis, and planning. - Key supporter of public administration reform, particularly civil service reform. ### Resident Mission, Donor Coordination, and Aid Effectiveness - Following AsDB regional reorganization in May 2006, Vietnam is covered by the Southeast Asia Department. - Resident mission: - Gradually strengthened; - Responsible for country economic monitoring, programming, donor coordination functions, and administration of 31 percent of the ongoing loan portfolio. - Assisted Government in preparing results-based SEDP 2006–10 and continued efforts for SEDP 2011–15 development. - Paris Declaration on Aid Effectiveness: - Resident mission actively participates in the Partnership Group on Aid Effectiveness (reorganized as the Aid Effectiveness Forum in 2010). - Leads harmonization of social safeguard policies and procurement rules and procedures between Government and donors. - Six Banks Initiative participation: - AsDB participates with Agence Française de Développement (AfD), KfW Development Bank, Korea Eximbank, Japan International Cooperation Agency, and the World Bank to harmonize project preparation, implementation, monitoring and evaluation practices, and improve quality and effectiveness of investment projects. ### Cooperation with the IMF and Debt Sustainability Engagement - The AsDB and IMF staff work closely to support economic reforms in Vietnam: - AsDB staff interact with IMF missions, exchange information, and regularly consult on policy matters. - Resident missions of AsDB and IMF cooperate closely. - AsDB participation in debt sustainability analysis: - For the first time in 2008, AsDB took part in the Vietnam debt sustainability analysis with the IMF and the World Bank. - As of 2011, at the invitation of the authorities, the AsDB attended some meetings during IMF Article IV missions. ### Public Sector Lending and Technical Assistance by Sector (1993–2011) — Key Figures Extracted from Tables - Public Sector Lending by Sector, 1993–2011 (Table 1): - Total approved amount and projects: 10,443114 - Sector headings included: Transport and ICT; Water and Other Municipal Infrastructure and Services; Finance; Health and Social Protection; Industry and Trade; Multi-Sector; Public Sector Management; Agriculture and Natural Resources; Education; Energy. - Technical Assistance by Sector, 1993–2011 (Table 2) — Amounts (In millions of U.S. dollars): - Transport and ICT: 45.446 - Water and Other Municipal Infrastructure and Services: 11.918 - Finance: 28.934 - Health and Social Protection: 17.228 - Industry and Trade: 6.914 - Multi-Sector: 12.68 - Public Sector Management: 1.21 - Agriculture and Natural Resources: 37.259 - Education: 58.830 - Energy: 21.223 - Total: 241.2261 - Grants by Sector, 1993–2011 (Table 3) — Amounts (In millions of U.S. dollars): - Transport and ICT: 47.79 - Water and Other Municipal: 2.82 - Health and Social Protection: 1.51 - Multi-Sector: 56.18 - Transport and ICT / Infrastructure and Services (other line): 15.03 - Total (listed): 150.126 - Sovereign Loan Approvals and Disbursement, 1998–2011 (Table 4) — Selected year-by-year figures (In millions of U.S. dollars): - 1998: Approved 28, Lending 4, Disbursement 1281, End of Year Undisbursed 1,2245.9 - 1999: Approved 22, Lending 019, Disbursement 11,253, End of Year Undisbursed 10.3 - 2000: Approved 18, Lending 92, Disbursement 191, End of Year Undisbursed 1,2239.1 - 2001: Approved 24, Lending 317, Disbursement 61, End of Year Undisbursed 1,2898.4 - 2002: Approved 23, Lending 423, Disbursement 21, End of Year Undisbursed 1,2919.3 - 2003: Approved 17, Lending 923, Disbursement 31, End of Year Undisbursed 1,2378.6 - 2004: Approved 29, Lending 618, Disbursement 21, End of Year Undisbursed 1,3517.7 - 2005: Approved 57, Lending 822, Disbursement 41, End of Year Undisbursed 1,70512.3 - 2006: Approved 30, Lending 818, Disbursement 41, End of Year Undisbursed 1,82916.1 - 2007: Approved 1,439, Lending 230, Disbursement 3,038, End of Year Undisbursed 13.1 - 2008: Approved 765, Lending 2653, Disbursement 3,538, End of Year Undisbursed 26.9 - 2009 3/: Approved 1,926, Lending 1,093, Disbursement 4,371, End of Year Undisbursed 10.0 - 2010: Approved 1,090, Lending 407, Disbursement 5,054, End of Year Undisbursed 11.1 - 2011 4/: Approved 1,396, Lending 792, Disbursement 5,658, End of Year Undisbursed 43.4 - Notes from table: - 1/ Includes loan component of regional project in Vietnam. - 2/ Excludes regional technical assistance, but includes conf inancing. - 3/ Lending excludes a guarantee of $325 million for Electricity Vietnam. - 4/ TA amount includes US$26 million conf inancing from AusAID. *Source: Asian Development Bank; as presented in ANNEX III. RELATIONS WITH THE ASIAN DEVELOPMENT BANK (As of March 2012).* ### INTRODUCTION ### INTRODUCTION ### External debt and recent developments - Vietnam’s total external (including private sector) debt is estimated to have risen to about 43¾ percent of GDP at end-2010, about 11½ percentage points higher than in 2008. - Most of Vietnam’s PPG external debt is concessional with long maturities and a fairly diversified currency composition. - Large foreign direct investment (FDI) inflows have provided significant non-debt-creating financing. - GDP growth has recovered somewhat since 2008, but remains below pre-crisis rates. - Despite a significant narrowing of the current account deficit, international reserves remain low due to a large, albeit declining, domestic shift from Vietnamese dong into U.S. dollars and gold. - Negative net foreign assets of commercial banks and negative errors and omissions estimated at 4 percent of GDP in 2010 largely reflect foreign currency and gold hoarding by residents outside the financial system as a hedge against inflation and depreciation. ### Domestic public debt - Public sector debt here refers to debt of the general government and debt guaranteed by the central government; SOE debts not guaranteed by the government are excluded (except Vietnam Development Bank’s nonsecuritized domestic debts, which are included). - Domestic public debt remained around 17–18 percent of GDP during 2006–08, rising to about 21½ percent of GDP in 2010 on account of the 2009 fiscal stimulus. - Domestic financing needs have traditionally been met through borrowing at low or negative real interest rates from captive banks and quasi-government entities. ### Comparison and assessment - Vietnam is assessed to be at a low risk of debt distress, similar to the assessment in the last DSA. - PPG external debt and the PV of PPG external debt in 2010 are slightly higher than projected in the last DSA. - In 2010, PPG domestic debt (21½ percent of GDP) is about 1 percentage point higher than, and the PV of public debt is about ½ percentage point higher than, projected in the last DSA—largely reflecting newly available information on additional government-guaranteed domestic debt. - The noninterest current account deficit, FDI, and aid flows in 2011 were mostly better than projected in the last DSA. - Commercial banks’ acquisition of large net foreign assets and large private capital outflows are reflected in the residual beyond the identified financing gap. ### External DSA — Baseline findings - The PV of the PPG external debt stock at end-2010 was about 28 percent of GDP and is estimated to have declined to 26½ percent of GDP in 2011—much lower than the threshold of 50 percent of GDP. - Other PPG external debt and debt service indicators remain well below the applicable debt thresholds. - Under the baseline scenario, the PV of PPG external debt to GDP is projected to decline over the longer term. - The PV of PPG external debt in percent of exports and revenues is expected to decline steadily between 2011–30. - The debt service-to-exports ratio is projected to remain relatively flat. - The debt service-to-revenue ratio is projected to increase somewhat, reflecting a shift toward more commercial borrowing. - Results broadly hold when remittances are included in the denominator of debt indicator calculations. - Contingent liabilities arising from the SOE sector pose some risk; the Vinashin debt-servicing difficulties suggest possible isolated cases of nongovernment external debt default, and some part of this external debt may need to be assumed by the government. Even so, the external debt outlook is likely to remain manageable given the relatively small size of private external debt and the low PPG external debt. ### External DSA — Stress tests and scenarios - Stress tests indicate the PV of PPG external debt is most sensitive to an export shock. - Under none of the standard stress tests would the PV of PPG external debt to GDP breach the threshold. - Other PPG external debt indicators are also most sensitive to a slowdown in exports, yet remain well below applicable thresholds even under the most extreme stress tests. - Results are similar when remittances are included in the denominator of debt indicator calculations. ### Key Macroeconomic Assumptions for Baseline Scenario (2012–31) - Real GDP growth: projected at about 6 percent for 2012, slowing somewhat from an average of about 7 percent over the past 10 years, and gradually increasing to about 7½ percent by 2017; expected to average about 7½ percent per year during 2017–25, then slow gradually. - Inflation: projected to decline from an average of 18.7 percent in 2011 to 10¾ percent in 2012, and gradually decline to 5 percent by 2017 and remain at that level through 2031. - Current account deficit: narrowed from 4 percent of GDP in 2010 to ½ percent of GDP in 2011; expected to gradually narrow and be slightly above balance by 2028. - Remittances: as high growth continues, remittances as a share of GDP will gradually decline. - Capital and financial account surplus: projected to rise from slightly above 4 percent of GDP in 2012 to about 5 percent in 2017 and thereafter decline gradually. - Non-debt-creating FDI: projected to decrease from about 6 percent of GDP in 2011 to about 2 percent in 2031. - Official development assistance: concessional ODA assumed to decline as Vietnam transitions to IDA Blend around 2020, implying shorter grace periods, shorter maturities, and higher interest rates. - Reserve coverage: expected to remain low at about 1.6 months of prospective imports by end-2012, recover to about 3.2 months by end-2017, and increase to 5 months by end-2031. - Effective interest rates on foreign borrowing: expected to increase gradually from around 2½ percent in 2010 to 6½ percent by 2031. - Net borrowing by the government (including off-budget expenditure and excluding ODA onlending): projected to decline from 3½ percent of GDP in 2012 to below 2 percent of GDP by 2015, and remain at about 2 percent of GDP in the long run. - Revenues and grants: decline gradually to 27¼ percent of GDP by 2014, and in the long run to around 25–26 percent of GDP. - Primary deficit: declines from 2.1 percent of GDP in 2012 to an average of around 1–1½ percent of GDP in 2017–31. - Net domestic financing (NDF): projected to become slightly negative initially but rise to about 1½ to 1¾ percent of GDP in the outer years. - Contingent liabilities or exceptional financing: not assumed in the baseline scenario. ### Public DSA — Baseline findings - The PV of public sector debt at end-2010 is estimated at 49½ percent of GDP while the nominal debt-to-GDP ratio is estimated at 54¼ percent of GDP. - The nominal debt-to-GDP ratio is estimated to have declined to 48½ percent of GDP at end-2011, projected to decline further to 43½ percent of GDP by 2016, and to well below 35 percent of GDP in the longer term. - The debt service-to-revenue ratio declines initially to 12 percent in 2016 before rising again to about 18 percent as concessional financing is expected to decline and maturities and interest on commercial debt are shorter and higher, respectively. - Fiscal consolidation: net incurrence of liabilities is estimated to have declined to 2.8 percent of GDP in 2011 from 8.3 and 7.1 percent of GDP in 2009 and 2010, respectively. - The non-oil primary deficit is projected to decline from about 5½ percent of GDP in 2011 to about 3 percent of GDP by 2017. - Over time, net incurrence of liabilities is projected to decline to around 2¼ percent of GDP. ### Public DSA — Stress tests and contingent liabilities - Standard stress tests highlight the importance of fiscal consolidation; a less ambitious adjustment could leave the country vulnerable to a large exchange rate shock and lower GDP growth would jeopardize public debt reduction. - Raising the capital of state-owned commercial banks (SOCBs) to required minimum levels is estimated at around 2–3 percent of GDP. - Adequate provisioning for nonperforming loans (NPLs), if International Financial Reporting Standards are applied, could amount to some 4½ percent of GDP. - In a stress event, a broad approximation suggests NPL levels in the whole banking sector may rise by about 23½ percent of GDP based on past experience in emerging market banking crises; such a shock could drive the debt-to-GDP ratio to about 78½ percent of GDP which would, under an unchanged fiscal stance, decline only to about 48½ percent of GDP by 2031. - The large presence of SOCBs, the explicit guarantee of deposits extended in 2011, and SBV actions to address weak banks reduce the likelihood of a panic-driven crisis; the calculation is a mechanical illustration of a possible maximum, not a likelihood. ### Debt distress classification and policy implications - Staffs’ view: Vietnam remains at a low risk of external debt distress based on external debt burden indicators; projected PPG external debt ratios and projected path remain well below applicable thresholds. - Public DSA suggests overall public sector debt dynamics are not at immediate risk, but continued fiscal consolidation is necessary to reduce the public debt-to-GDP ratio and build cushions. - Potential contingent liabilities arising from the financial sector and SOEs pose sizable risks to public debt sustainability. - Staffs’ estimates of contingent liabilities are based on limited information and general experience from other countries; they should be considered indicative only. - Recommendations: SBV and Ministry of Finance should strengthen their capacity to assess and monitor contingent liabilities arising from both the financial and SOE sectors. *Source: INTRODUCTION (IMF staff summary).* ### 16. The authorities broadly agree with the ### _cr12165 - 16. The authorities broadly agree with the ### Authorities' position on debt sustainability - The authorities broadly agree with the staffs on the external debt sustainability analysis. - They agree that the public debt-to-GDP ratio should decline over the medium and long term. - They share the staffs’ concern on risks arising from contingent liabilities of SOEs and the banking sector. - The authorities indicated that budgetary resources would not be used to restructure SOE debt. - In their view, this policy limited the need to create fiscal cushions in anticipation of such contingencies, though they broadly agreed with the need to reduce public debt over the medium term. ### Debt sustainability indicators and projections (selected) - Public sector debt (percent of GDP): 42.9 (2008); 51.2 (2009); 54.2 (2010); 48.5 (2011); projections: 48.4 (2012), 46.6 (2013), 45.5 (2014), 44.6 (2015), 43.4 (2016), 38.5 (2021), 30.2 (2031). - Foreign-currency denominated share of public sector debt (percent of GDP): 25.7 (2008); 31.7 (2009); 32.9 (2010); 30.4 (2011); projections: 30.2 (2012), 29.5 (2013), 29.5 (2014), 29.7 (2015), 30.0 (2016), 26.9 (2021), 13.9 (2031). - Change in public sector debt (percent of GDP): -1.7 (2008); 8.3 (2009); 3.0 (2010); -5.7 (2011); projections: -0.1 (2012), -1.8 (2013), -1.2 (2014), -0.9 (2015), -1.2 (2016), -1.1 (2021), -0.8 (2031). - Identified debt-creating flows (percent of GDP): -7.8 (2008); 4.0 (2009); -1.6 (2010); -7.3 (2011); projections: -1.7 (2012), -2.6 (2013), -2.0 (2014), -2.3 (2015), -2.1 (2016), -1.7 (2021), -0.9 (2031). - Primary deficit (percent of GDP): -0.6 (2008); 5.8 (2009); 3.8 (2010); 1.4 (2011); projections: 2.2 (2012), 1.6 (2013), 1.8 (2014), 0.7 (2015), 0.9 (2016), 0.4 (2021), 0.5 (2031). - Revenue and grants (percent of GDP): 28.9 (2008); 27.3 (2009); 27.8 (2010); 27.8 (2011); projections: 27.9 (2012), 27.7 (2013), 27.3 (2014), 27.3 (2015), 27.4 (2016), 26.9 (2021), 25.3 (2031). - Primary (noninterest) expenditure (percent of GDP): 28.3 (2008); 33.1 (2009); 31.6 (2010); 29.4 (2011); projections: 29.7 (2012), 28.4 (2013), 28.2 (2014), 27.8 (2015), 27.9 (2016), 27.5 (2021), 26.1 (2031). - Automatic debt dynamics (percent of GDP): -7.2 (2008); -1.8 (2009); -5.4 (2010); -8.9 (2011); projections: -3.6 (2012), -3.2 (2013), -3.0 (2014), -2.7 (2015), -2.6 (2016), -2.3 (2021), -1.7 (2031). - Contribution from interest rate/growth differential: -5.0 (2008); -1.9 (2009); -4.0 (2010); -6.2 (2011); projections: -2.8 (2012), -2.2 (2013), -2.6 (2014), -2.8 (2015), -2.9 (2016), -2.6 (2021), -1.8 (2031). - Contribution from average real interest rate: -2.4 (2008); 0.2 (2009); -0.8 (2010); -3.2 (2011); projections: -0.1 (2012), 0.7 (2013), 0.4 (2014), 0.3 (2015), 0.3 (2016), 0.2 (2021), 0.3 (2031). - Contribution from real GDP growth: -2.6 (2008); -2.2 (2009); -3.3 (2010); -3.0 (2011); projections: -2.8 (2012), -2.9 (2013), -3.0 (2014), -3.1 (2015), -3.1 (2016), -2.8 (2021), -2.0 (2031). - Contribution from real exchange rate depreciation: -2.2 (2008); 0.2 (2009); -1.4 (2010); -2.7 (2011); projections: -0.7 (2012), -1.0 (2013), -0.3 (2014), 0.0 (2015), 0.2 (2016). - Residual, including asset changes (percent of GDP): 6.1 (2008); 4.2 (2009); 4.7 (2010); 1.6 (2011); projections: 1.6 (2012), 0.8 (2013), 0.9 (2014), 1.4 (2015), 0.9 (2016), 0.6 (2021), 0.0 (2031). - Other sustainability indicators: PV of public sector debt (percent of GDP) series includes 49.4, 44.5, 44.3, 42.0, 40.7, 39.6, 38.4, 34.2, 27.8 (selected years). - Gross financing need (percent of GDP): 4.0 (2008); 11.3 (2009); 8.7 (2010); projections: 6.1 (2011), 6.8 (2012), 6.3 (2013), 5.9 (2014), 5.0 (2015), 4.3 (2016), 4.5 (2021), 6.1 (2031). ### External debt indicators (selected) - External debt (nominal, percent of GDP): 32.4 (2008); 41.6 (2009); 43.8 (2010); 41.1 (2011); projections: 41.2 (2012), 40.4 (2013), 40.5 (2014), 40.9 (2015), 41.5 (2016), 37.2 (2021), 23.3 (2031). - Public and publicly guaranteed (PPG) external debt (percent of GDP): 25.7 (2008); 31.1 (2009); 32.7 (2010); 30.4 (2011); projections: 30.2 (2012), 29.5 (2013), 29.5 (2014), 29.7 (2015), 30.0 (2016), 26.9 (2021), 13.9 (2031). - Change in external debt (percent of GDP): 1.0 (2008); 9.2 (2009); 2.3 (2010); -2.8 (2011); projections: 0.1 (2012), -0.8 (2013), 0.1 (2014), 0.4 (2015), 0.6 (2016), -1.4 (2021), -1.1 (2031). - Identified net debt-creating flows (percent of GDP): -2.9 (2008); -1.2 (2009); -6.5 (2010); -7.2 (2011); projections: -6.5 (2012), -6.2 (2013), -6.0 (2014), -5.4 (2015), -5.2 (2016), -4.8 (2021), -3.1 (2031). - Non-interest current account deficit (percent of GDP): 11.3 (2008); 5.6 (2009); 3.2 (2010); 3.3 (2011); projections include 4.5 (2012), 0.2 (2013), -0.1 (2014), -0.7 (2015), -0.1 (2016), 0.3 (2021), 0.3 (2031). - Exports (index/base): 77.2 (2008); 67.4 (2009); 76.9 (2010); 86.2 (2011); projections: 89.3 (2012), 92.0 (2013), 95.6 (2014), 100.4 (2015), 105.3 (2016), 104.4 (2021), 104.4 (2031). - Imports (index/base): 92.4 (2008); 77.6 (2009); 84.2 (2010); 89.0 (2011); projections: 91.7 (2012), 94.4 (2013), 98.0 (2014), 103.1 (2015), 108.1 (2016), 106.5 (2021), 102.7 (2031). - Net FDI (negative = inflow, percent of GDP): -8.2 (2008); -6.8 (2009); -6.5 (2010); -4.4 (2011); projections: 2.5 (2012), -5.6 (2013), -5.0 (2014), -4.6 (2015), -4.3 (2016), -4.0 (2021), -3.7 (2031). - PV of external debt (percent of GDP, selected): 39.0 (2011), 37.1 (2012–2016 series), 35.7, 35.9, 36.4, 32.9 (2021), 20.9 (2031). - PV of PPG external debt (percent of GDP): 27.9 (2011); 26.4 (2012); 26.2 (2013); 24.8 (2014); 24.7 (2015); 24.8 (2016); 25.0 (2021); 22.5 (2031). - Debt service-to-exports ratio (percent): 2.9 (2008); 4.9 (2009); 3.3 (2010); 2.8 (2011); projections: 3.5 (2012), 3.8 (2013), 3.2 (2014), 3.2 (2015), 2.6 (2016), 3.1 (2021), 2.9 (2031). - Total gross financing need (in billions of U.S. dollars): 5.0 (2008); 4.1 (2009); 4.5 (2010); projections: 2.1 (2011), 3.5 (2012), 4.1 (2013), 5.3 (2014), 7.3 (2015), 7.5 (2016), 12.1 (2021), 24.3 (2031). ### Key macroeconomic and fiscal assumptions (selected) - Real GDP growth (percent): 6.3 (2008); 5.3 (2009); 6.8 (2010); 7.3 (2011); projections include 1.0 (2012), 5.9 (2013), 6.0 (2014), 6.3 (2015), 6.9 (2016), 7.3 (2021), 7.5 (2031). - Average nominal interest rate on forex debt (percent): 2.2 (2008); 2.4 (2009); 2.5 (2010); 2.3 (2011); projections: 0.2 (2012), 0.3 (2013), 2.2 (2014), 4.0 (2015), 2.3 (2016), 2.2 (2021), 2.3 (2031). - Average real interest rate on domestic debt (percent): -14.2 (2008); -0.6 (2009); -6.3 (2010); -3.4 (2011); projections: 5.2 (2012), -13.0 (2013), -2.4 (2014), -1.9 (2015), -0.2 (2016), 0.1 (2021), 0.1 (2031). - Real exchange rate depreciation (percent, + indicates depreciation): -8.6 (2008); 0.7 (2009); -4.6 (2010); -2.7 (2011); projection: 3.6 (2012), -8.8 (2013). - Inflation rate (GDP deflator, percent): 22.1 (2008); 6.0 (2009); 11.9 (2010); 8.4 (2011); projections include 5.5 (2012), 20.9 (2013), 8.9 (2014), 7.2 (2015), 4.9 (2016), 4.1 (2021), 3.6 (2031). - Grant element of new external borrowing (percent): selected projections: 20.1, 21.6, 26.4, 22.6, 21.0, 20.6, 22.0, 13.4, 4.3 (years not explicitly labeled in excerpt). ### Sensitivity analysis and stress tests (selected outcomes) - Baseline PV of Debt-to-GDP Ratio: 45 (2011); projections: 44 (2012), 42 (2013), 41 (2014), 40 (2015), 38 (2016), 34 (2021), 28 (2031). - Alternative scenarios and bound tests show vulnerability to shocks: - One-time 30 percent real depreciation in 2012 raises PV of Debt-to-GDP Ratio to 56 (2012) and 52 (2013) in scenario B4. - A 10 percent of GDP increase in other debt-creating flows in 2012 raises PV of Debt-to-GDP Ratio to 54 (2012) and 52 (2013) in scenario B5. - PV of Debt-to-Revenue Ratio baseline: 160 (2011); under A1 (historical averages) reaches 156–150 in early projection years and remains elevated; under B4 (30 percent depreciation) rises to 200 (2012) and 189 (2013). - Stress tests identify the most extreme shock in 2021 for several indicators as an Exports shock (figures note). ### Policy implications implicit in the analysis - Authorities and staff agree on the need to reduce public debt over the medium term. - Authorities’ stance not to use budgetary resources to restructure SOE debt reduces immediate fiscal contingent-liability exposure but implies less need for fiscal cushions according to authorities’ view. - Staff concern remains regarding contingent liabilities from SOEs and the banking sector that could pose risks to debt sustainability under stress scenarios. *Sources: Vietnamese authorities; and staff estimates and projections. Statement by the Staff Representative on Vietnam, Executive Board Meeting May 25, 2012.* ### 1. This statement provides information that has become available since the staff report ### _cr12165 - 1. This statement provides information that has become available since the staff report ### Update summary - This statement provides information that has become available since the staff report (SM/12/95) was circulated to the Executive Board on April 30, 2012. This information does not alter the thrust of the staff appraisal. - On May 25, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Vietnam. ### Inflation and monetary stance - Inflation slowed to 8.3 percent (y/y) in May, the first time in single digits since October 2010. - After peaking at 23 percent in August 2011, inflation declined to 10.5 percent in April 2012. - The SBV reduced policy interest rates three times over three months since March 2012 in response to a sharper-than-expected slowdown and the rapid fall in inflation. - Directors recommended that monetary policy give priority to reducing inflation and rebuilding reserves further, and to give careful consideration to further cuts in policy rates. - In the medium term, Directors advised moving toward market-based policy instruments and a more flexible exchange rate regime. ### Balance of payments and reserves — revision for 2011 - The authorities revised their estimate of the current account for 2011: instead of a deficit of $0.7 billion (0.5 percent of GDP), the current account now shows a surplus of $0.2 billion (0.2 percent of GDP). - This revision does not change overall gross international reserves accumulation, which remains at $13.5 billion. Summary Balance of Payments, 2011 (Revised / Previous) - Current account balance: 0.2 -0.7 - Of which: Trade balance: -0.4 -0.4 - Capital and financial account balance: 6.4 5.4 - Errors and omissions: -5.5 -3.6 - Memorandum items: - Gross international reserves: 13.5 13.5 - In months of prospective GNFS imports: 1.3 1.3 - Current account balance (in percent of GDP): 0.2 -0.5 - Capital and financial account balance (in percent of GDP): 5.2 4.4 - Sources: Vietnamese authorities. ### Recent economic developments and outlook - Economic activity: - GDP growth for 2011 decelerated to below 6 percent and declined to 4 percent year-on-year (y/y) in the first quarter of 2012. - Credit growth slowed to 14.3 percent y/y in 2011. - Policy actions: - Authorities adopted a stabilization package in February 2011: policy interest rates were raised, a credit growth ceiling was imposed, and investment by the government and state-owned enterprises was contained. - Authorities placed nine banks classified as weak under special inspection and required restructuring and recapitalization plans; adopted a comprehensive medium-term strategy to strengthen the financial sector. - Staff projection (baseline scenario): - GDP is projected to grow at 6 percent for 2012. - Inflation is projected to decline to about 10¾ percent for 2012 (8¼ percent y/y at year-end). - International reserves would increase further from the level reached in March 2012, even as the current account deficit would rise somewhat. - Risks to the scenario are tilted to the downside, including a slowdown in export markets and potential resurgence of pressures on prices and the exchange rate if confidence in policy commitment wanes. ### Executive Board assessment and policy recommendations - Directors commended the tightening of macroeconomic policies in 2011 for contributing to declining inflation, stabilizing the exchange rate, and rebuilding international reserves. - Key policy guidance from Directors: - Resist loosening policies prematurely and accelerate structural reforms. - Fiscal policy should continue to support macroeconomic stability, with emphasis on containing current non-wage spending and improving the quality of public spending. - Implement planned medium-term tax reforms to broaden the tax base and prepare for a decline in oil revenue. - Speed up implementation of bank restructuring: banks should recognize nonperforming loans, enhance the size and quality of their capital, and improve corporate governance. - Strengthen the supervisory and regulatory framework, including bank resolution, and improve transparency in the banking sector. - Intensify reforms of state-owned enterprises and improve the business environment; equitization and privatization plans are welcome but require improved accountability and financial discipline. - Increase the frequency, quality, and transparency of economic statistics. - Strengthen legislation against money laundering and terrorism financing. - Directors looked forward to the forthcoming Financial Sector Assessment Program (FSAP) for providing reform momentum. ### Selected economic indicators, 2008–13 (selected series and projections) - Output - Real GDP (percent change): 2008: 6.3; 2009: 5.3; 2010: 6.8; 2011: 5.9; 2012: 6.0; 2013: 6.2 6.3 - Saving and investment (in percent of GDP) - Gross national saving: 2008: 27.8; 2009: 31.6; 2010: 34.9; 2011: 29.3; 2012: 33.5; 2013: 33.1 - Gross investment: 2008: 39.7; 2009: 38.1; 2010: 39.0; 2011: 29.9; 2012: 34.3; 2013: 33.8 - Prices (percent change) - CPI (period average): 2008: 23.1; 2009: 6.7; 2010: 9.2; 2011: 18.7; 2012: 10.8; 2013: 7.4 - CPI (end of period): 2008: 19.9; 2009: 6.5; 2010: 11.7; 2011: 18.1; 2012: 8.2; 2013: 6.0 - Core inflation (end of period): 2008: 16.3; 2009: 6.1; 2010: 8.8; 2011: 12.7; 2012: ...; 2013: ... - General government finances (in percent of GDP) - Revenue and grants: 2008: 28.9; 2009: 27.3; 2010: 27.8; 2011: 27.8; 2012: 27.9; 2013: 27.7 - Expenditure: 2008: 29.4; 2009: 34.5; 2010: 33.1; 2011: 30.3; 2012: 31.3; 2013: 30.3 - Net lending (+)/borrowing(-): 2008: -0.5; 2009: -7.2; 2010: -5.2; 2011: -2.6; 2012: -3.4; 2013: -2.6 - Public and publicly guaranteed debt (end of period): 2008: 42.9; 2009: 51.2; 2010: 54.2; 2011: 48.3; 2012: 48.2; 2013: 46.6 - Money and credit (percent change, end of period) - Broad money (M2): 2008: 20.3; 2009: 29.0; 2010: 33.3; 2011: 12.1; 2012: 21.6; 2013: 18.1 - Credit to the economy: 2008: 25.4; 2009: 39.6; 2010: 32.4; 2011: 14.3; 2012: 16.8; 2013: 14.4 - Balance of payments (in percent of GDP, unless otherwise indicated) - Current account balance (including official transfers): 2008: -11.9; 2009: -6.6; 2010: -4.1; 2011: 0.2; 2012: -0.8; 2013: -0.7 - Capital and financial account: 2008: 14.0; 2009: 12.2; 2010: 4.4; 2011: 5.2; 2012: 4.1; 2013: 3.5 - Gross international reserves (in billions of U.S. dollars, end of period): 2008: 23.0; 2009: 14.1; 2010: 12.4; 2011: 13.5; 2012: 19.0; 2013: 25.7 - In months of prospective GNFS imports: 2008: 3.8; 2009: 1.9; 2010: 1.4; 2011: 1.3; 2012: 1.6; 2013: 1.9 - Total external debt (end of period): 2008: 32.4; 2009: 41.6; 2010: 43.8; 2011: 40.9; 2012: 41.0; 2013: 40.4 - Exchange rates and GDP - Nominal exchange rate (dong/U.S. dollar, end of period): 2008: 17,483; 2009: 18,479; 2010: 19,498; 2011: 21,034; 2012: ...; 2013: ... - GDP (in trillions of dong at current market prices): 2008: 1,485; 2009: 1,658; 2010: 1,981; 2011: 2,535; 2012: 2,927; 2013: 3,336 - GDP (in billions of U.S. dollars): 2008: 90.3; 2009: 93.2; 2010: 103.6; 2011: 122.7; 2012: 135.8; 2013: 148.8 - Per capita GDP (in U.S. dollars): 2008: 1,048; 2009: 1,068; 2010: 1,174; 2011: 1,374; 2012: 1,502; 2013: 1,627 *Public Information Notice (PIN) No. 12/71, July 6, 2012.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12165.pdf_