IMF Executive Board Concludes the 2018 Article IV Consultation with Vietnam
IMF News, July 10, 2018
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- Published: July 10, 2018
2017 performance and recent developments
- Growth accelerated to 6.8 percent in 2017, described as broad-based.
- Inflation remained below the 4 percent target in 2017, reflecting low food prices and a stable exchange rate.
- Drivers of private consumption: rural-to-urban migration, rising incomes, and a growing middle class.
- Financial and business environment improvements cited: accommodative financial conditions, stronger bank balance sheets, reforms in the banking sector, privatizations, and cuts in red tape.
- External flows and reserves:
- Current account surplus increased in 2017 due to exports, tourism, remittances, global recovery, and real effective depreciation from a weaker dollar.
- Record FDI and other capital inflows in 2017.
- The central bank maintained the Dong within a tight range to the dollar and accumulated US$12½ billion of international reserves in 2017, bolstering low reserve buffers.
2018 outlook and medium-term projections
- Growth projections and drivers:
- Growth is projected at 6.6 percent in 2018.
- On current trends and if reforms continue at their current pace, "6½ percent annual growth remains feasible beyond 2018."
- Growth aided by reform drive, higher potential output, global recovery, and commitment to macroeconomic and financial stability.
- Inflation and fiscal stance:
- Inflation is forecast to rise to just under the 4 percent target in 2018, led by higher oil prices and gradual increases in administered prices.
- Fiscal stance described as neutral in 2018, with a mild tightening in credit growth targets.
- External position and reserves:
- The current account surplus is expected to decline over the medium term as structural reforms boost investment and real effective appreciation of the Dong resumes its trend.
- Reserves projected to be at "2½–3 months of imports."
Key risks, constraints, and opportunities
- Remaining vulnerabilities and constraints:
- Economic distortions and capacity constraints persist despite recent strength.
- Financial buffers are still thin.
- Macroeconomic policy frameworks remain inflexible for managing possible shocks.
- The external position is substantially stronger than warranted by fundamentals.
- Longer-term challenges noted, including aging (mid-2030s), capacity needs, and climate change.
- Opportunities:
- Strong economic momentum provides an opportunity for more ambitious reforms to level the playing field, tackle distortions and capacity constraints, increase investment, and reduce the external surplus.
Executive Board assessment (summary)
- The economy "continues to perform well" with solid performance aided by macroeconomic and financial stability, stepped up economic reforms, and FDI inflows enabling structural transformation and raising potential growth.
- The Board reiterated that while momentum should continue, thin buffers and policy inflexibilities complicate shock management and warrant broader, more ambitious reforms.
Policy recommendations
- Fiscal policy:
- Emphasize high-quality consolidation to meet large development needs and ensure fiscal space for longer-term challenges.
- Recommend "a slightly more ambitious consolidation than currently planned, and a lower debt ceiling than the current statutory limit."
- Consolidation should rely on high-quality structural fiscal measures and measures to boost private investment.
- Specific fiscal reform focus:
- Broadening tax bases.
- Reducing administrative and wage-related spending.
- Protecting social spending through well designed social security and civil service reforms.
- Protecting and improving the quality of public investment.
- Improve fiscal reporting: comprehensive and timely fiscal accounts based on GFSM 2014 and improved budget planning and execution.
- Monetary and exchange rate policy:
- Tighten monetary policy by further lowering credit growth to align with financial deepening.
- Allow greater two-way exchange rate flexibility within the current band to reduce speculative inflows, absorb shocks, and help bring down the external surplus.
- Continue reserve accumulation more gradually, with fully sterilized interventions.
- Modernize the monetary framework: gradually ease away from credit targets toward a phased shift to inflation targeting and greater exchange rate flexibility.
- Financial sector:
- Strengthen balance sheets, supervision, and risk management.
- Swiftly capitalize SOCBs with government funds and by raising private sector and foreign ownership limits.
- Develop a macroprudential framework and improve data quality on credit aggregates and balance sheet exposures.
- Ensure robust liquidity and crisis management frameworks with legal and operational clarity for early intervention and communication.
- Structural reforms to boost investment and productivity:
- Priorities: high-quality infrastructure investments; further reductions in regulatory barriers; transition to international standards for regulatory excellence, transparency and data quality; reforms to tertiary education; reduce concentration of land ownership in state hands; and continued reforms in state-owned enterprises.
- Continue to enhance anti-corruption measures and address the threat of climate change.
Selected economic and financial indicators (highlights from Table 1)
- Output and prices:
- Real GDP (percent change): 2013: 5.4, 2014: 6.0, 2015: 6.7, 2016: 6.2, 2017: 6.8, 2018: 6.6 (proj.), 2019: 6.5 (proj.).
- CPI (period average): 2013: 4.1, 2014: 0.6, 2015: 2.7, 2016: 3.5, 2017: 3.8, 2018: 4.0 (proj.).
- CPI (end of period): 2013: 1.8, 2014: 4.7, 2015: 2.6, 2016: (not listed), 2017: (not listed).
- Core inflation (end of period): 2013: 4.2, 2014: 1.7, 2015: 1.9, 2016: 1.3, 2017: 2.0, 2018: 3.1 (proj.).
- Saving and investment (in percent of GDP):
- Gross national saving: 2013: 31.2, 2014: 31.7, 2015: 27.5, 2016: 29.5, 2017: 29.0, 2018: 29.8 (proj.), 2019: 30.2 (proj.).
- Gross investment: 2013: 26.7, 2014: 26.8, 2015: 27.6, 2016: 26.6, 2017: 27.7, 2018: 28.4 (proj.).
- General government finances (in percent of GDP):
- Revenue and grants: 2013: 23.1, 2014: 22.2, 2015: 23.8, 2016: 23.7, 2017: 23.6, 2018: 23.3 (proj.), 2019: 23.0 (proj.).
- Expenditure: 2013: 30.5, 2014: 28.5, 2015: 29.2, 2016: 28.1, 2017: 27.9, 2018: 27.8 (proj.).
- Net lending (+)/borrowing(-): 2013: -7.4, 2014: -6.3, 2015: -5.5, 2016: -4.8, 2017: -4.5, 2018: -4.6 (proj.), 2019: -4.7 (proj.).
- Public and publicly guaranteed debt (end of period): 2013: 52.0, 2014: 55.0, 2015: 57.4, 2016: 59.9, 2017: 58.5, 2018: 57.9 (proj.), 2019: 57.5 (proj.).
- Money, credit, and interest rates:
- Broad money (M2) percent change (end of period): 2013: 18.8, 2014: 16.2, 2015: 18.4, 2016: 15.0, 2017: 16.8, 2018: 18.9 (proj.).
- Credit to the economy (percent change, end of period): 2013: 12.7, 2014: 13.8, 2015: 17.4, 2016: 16.9, 2017: 15.3 (2017 value shown).
- Nominal three-month deposit rate (households) (end of period): 2013: 6.9, 2014: 5.0, 2015: 4.8, 2016: 4.9.
- Nominal short-term lending rate (less than one year): 2013: 9.7, 2014: 8.5, 2015: 7.2.
- External sector:
- Current account balance (including official transfers, percent of GDP): 2013: 4.5, 2014: -0.1.
- Exports f.o.b. (percent of GDP): 2013: 77.4, 2014: 80.8, 2015: 84.6, 2016: 87.7, 2017: 97.1, 2018: 103.7 (proj.), 2019: 109.4 (proj.).
- Imports f.o.b. (percent of GDP): 2013: 72.3, 2014: 74.3, 2015: 82.2, 2016: 91.9, 2017: 99.0, 2018: 105.2 (proj.).
- Gross international reserves (in billions of U.S. dollars): 2013: 26.1, 2014: 34.5, 2015: 36.8, 2016: 49.4, 2017: 59.6, 2018: 72.0 (proj.).
- In months of prospective GNFS imports: 2013: 2.4, 2014: 2.3.
- Total external debt (end of period, percent of GDP): 2013: 37.3, 2014: 38.3, 2015: 42.0, 2016: 45.2, 2017: 49.1, 2018: 50.6 (proj.), 2019: 51.4 (proj.).
- Nominal exchange rate (dong/U.S. dollar, end of period): 2013: 21,105, 2014: 21,385, 2015: 22,485, 2016: 22,761, 2017: 22,698.
- Nominal effective exchange rate (end of period): 2013: 88.3, 2014: 93.9, 2015: 97.6, 2016: 97.7, 2017: 91.2.
- Real effective exchange rate (end of period): 2013: 116.2, 2014: 123.7, 2015: 128.8, 2016: 133.1, 2017: 124.6.
- Memorandum items:
- GDP (in trillions of dong at current market prices): 2013: 3,584, 2014: 3,938, 2015: 4,193, 2016: 4,503, 2017: 5,008, 2018: 5,509 (proj.), 2019: 6,142 (proj.).
- GDP (in billions of U.S. dollars): 2013: 170.6, 2014: 185.9, 2015: 191.5, 2016: 201.3, 2017: 220.4, 2018: 241.0 (proj.), 2019: 264.5 (proj.).
- Per capita GDP (in U.S. dollars): 2013: 1,900, 2014: 2,049, 2015: 2,088, 2016: 2,172, 2017: 2,354, 2018: 2,548 (proj.), 2019: 2,769 (proj.).
IMF Communications Department — Press Release No. 18/284, July 10, 2018. Executive Board concluded the 2018 Article IV Consultation with Vietnam.
Content in this bundle
- 1. Asset Market Developments
- cr18216