IMF Staff Completes 2020 Article IV Mission to Vietnam

IMF News, November 17, 2020

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Published: November 17, 2020

Mission and engagement

IMF team led by Era Dabla-Norris conducted a virtual mission during October 15 - Nov 13, 2020, to conduct discussions for the 2020 Article IV consultation with Vietnam.
The team exchanged views with senior officials of the State Bank of Vietnam (SBV), the Ministry of Finance (MOF), the Central Economic Commission (CEC), the Ministry of Planning and Investment (MPI) and other government agencies.
The team also met with representatives from the private sector, think tanks, academia and financial institutions.
The SBV and IMF co-hosted a high-level seminar on “Securing Growth and Resilience in the ASEAN: Policies for the Post-COVID-19 World”, at the margins of the ASEAN Summit in Hanoi on November 10, 2020.
Press officer contact: Keiko Utsunomiya. Phone: +1 202 623-7100. Email: MEDIA@IMF.org.

Economic outlook and projections

Growth in 2020 is expected to be 2.4 percent, among the highest in the world.
A strong recovery is expected in 2021, with growth projected to strengthen to 6.5 percent as normalization of domestic and foreign economic activity continues.
Inflation is expected to remain close to the authorities’ target at 4 percent.

Risks and uncertainties

The outlook is subject to substantial uncertainties stemming from:
- possible renewed outbreaks,
- a protracted global recovery,
- ongoing trade tensions,
- corporate distress that could translate into firm closures and bankruptcies, labor market and banking system strains.

Policy guidance — overall

Macroeconomic policies should remain accommodative, especially fiscal policy, until the recovery is firmly underway.
Given considerable uncertainty, proactively adjusting the size and composition of the policy support will be important.
Fiscal policy should play a larger role in the policy mix.

Policy guidance — fiscal

This year, the fiscal deficit is expected to widen due to a decline in revenues and higher cash transfers and capital spending.
Fiscal support should be maintained in 2021, with improving efficiency in execution as a priority.
Over the medium-term, emphasis should be on:
- mobilizing revenue for financing green and productive infrastructure,
- strengthening social protection systems,
- safeguarding debt sustainability.

Policy guidance — monetary and exchange rate

Monetary policy should remain supportive in the near term.
Greater two-way exchange rate flexibility within the current framework would:
- reduce the need to build reserve buffers,
- facilitate the adjustment to a potentially more challenging external environment.
The mission welcomes the authorities’ commitment to gradually modernize its policy frameworks.

Financial sector resilience

The SBV has struck an appropriate balance between supporting the recovery and banking system resilience.
Close monitoring of risks in the banking sector remains crucial given that capital buffers are weaker than regional peers and uncertainties associated with the outlook.
NPL recognition and loan classification rules should be gradually normalized to support balance sheet transparency and confidence in the banking system.
Banks’ capital positions need to be further strengthened and capital markets developed to improve financial resilience and promote long-term financing.

Structural reforms and inclusiveness

Reforms to reduce economic dualism between the domestic and FDI sectors and lift productivity are crucial to support robust and inclusive growth.
Continued efforts to remove structural distortions and improve the business climate are welcome.
Priority reforms include:
- reducing the regulatory burden faced by domestic private firms,
- improving access to land and financial resources, particularly for SMEs,
- reducing corruption,
- establishing an expedited SME-specific insolvency regime to help unlock capital and prevent unnecessary liquidations,
- reducing labor skill mismatches, increasing human capital and technology access to boost labor productivity.

IMF Staff Completes 2020 Article IV Mission to Vietnam — Press Release No. 20/342 (November 17, 2020), IMF Communications Department.

References

Growth and Resilience in the ASEAN: Policies for the Post-COVID-19 World”](https://www.imf.org/en/news/seminars/conferences/2020/11/10/111020-sbv-joint-conference)

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