Press Release No. 22/127

IMF Staff Completes 2022 Article IV Mission to Vietnam

April 21, 2022

• Policy support and an impressive vaccination rollout prompting a strategic shift towards living-with-COVID will help Vietnam achieve growth of 6.0 percent in 2022. Inflation is expected to edge up to 3.9 percent by end-2022. Growth risks are tilted to the downside while inflation risks are tilted to the upside.
• Policy priorities should be to entrench the recovery, preserve macroeconomic stability, and promote inclusive growth. The size and composition of policy support should be proactively adjusted to the pace of recovery and clearly communicated and implemented to reduce uncertainty.
• Decisive structural reforms are needed to address longstanding challenges related to the business environment, especially for SMEs, labor quality and skill mismatches, and governance.

Washington, DC: An International Monetary Fund (IMF) team led by Era Dabla-Norris conducted discussions for the 2022 Article IV consultation with Vietnam during April 4-20. ^[1] The team exchanged views with senior officials of the State Bank of Vietnam (SBV), the Ministry of Finance (MOF), the Ministry of Planning and Investment (MPI), the Central Economic Commission (CEC), the National Assembly, and other government agencies. It also met with representatives from the private sector, think tanks, academia, and other stakeholders.

At the end of the visit, Ms. Dabla-Norris issued the following statement:

“Spurred by an impressive vaccination drive and accommodative policies, the economy is rebounding from a severe pandemic wave in 2021. Nonetheless, the recovery has been uneven so far, with the service sector still lagging, while financial risks and inequality have likely risen.

“The recovery is projected to strengthen, supported by the recently-approved Program for Recovery and Development (PRD). Growth is projected at 6.0 percent in 2022 and 7.2 percent in 2023. The conflict in Ukraine is expected to have a moderate impact on the pace of the recovery and inflation. Despite rising commodity prices, inflation has been contained and is expected to remain below the authorities’ 4 percent target partly reflecting the remaining economic slack.

“The outlook is subject to significant risks. Growth risks are tilted to the downside while inflation risks are tilted to the upside. The most immediate risks include the intensification of geopolitical tensions and a slowdown in China. Other risks include a tightening of global financial conditions and developments in the domestic real estate and corporate bond markets.

“Policymaking should be agile, and the size and composition of policy support proactively adjusted to the pace of recovery. Fiscal policy should take the lead in policy support, especially if downside risks materialize as the scope for further monetary easing is limited in light of rising inflation risks.

“Efficient and steadfast implementation of the PRD will be key to supporting growth. The PRD appropriately prioritizes health, economic recovery, and medium-term growth prospects. Going forward, fiscal policy will need to strike a balance between providing temporary, targeted support and facilitating economic transformation . The headline fiscal deficit is projected to widen moderately in 2022.

“Revenue mobilization should be enhanced to finance a permanent strengthening of social security, build resilience to climate change and address pressures from population aging. The team welcomes Vietnam’s pledge to reach net-zero emission by 2050. It will be essential to transform the authorities’ ambitious climate adaption and mitigation plans into action including via better integration with the budget.

“Monetary policy should remain vigilant to rising inflation pressures. If sustained inflation pressures emerge, the SBV should tighten its monetary policy stance and clearly communicate the underlying drivers to help contain inflation. Going forward, credit growth policy must strike a reasonable balance between promoting the recovery and safeguarding financial stability. The team welcomes recent steps towards greater exchange rate flexibility and modernization of the monetary policy framework.

“Strengthening the resilience of the banking sector is essential for sustainably supporting medium-term growth. Relaxation of loan classification and provisioning rules should be unwound as the recovery is firming up. Regulatory forbearance on loan classification should not be extended beyond June 2022, as it would delay the recognition of problem assets and could exacerbate credit misallocation and excessive risk taking.

“Financial regulation and supervision should be strengthened to address emerging risks and build a more resilient banking sector. The macroprudential framework can play an important role in helping safeguard financial stability. The insolvency and institutional framework should be strengthened to facilitate bad debt resolution.

“Decisive structural reforms are needed to meet the authorities’ aspirations of sustained, inclusive growth. The business climate should be improved by creating a level playing field for finance and land access, and reducing the regulatory burden, especially on SMEs and young firms. Further efforts are needed to improve the quality of the labor force and reduce skill mismatches. Polices should be mindful of their implications on income and wealth inequality, as cross-country experience suggests that rising inequality lowers growth. Efforts to improve governance and reduce data gaps must continue as Vietnam looks to advance to emerging economy standards.

“The team would like to thank officials of the SBV, MOF, MPI, CEC, the National Assembly, and other government agencies, as well as representatives from think tanks, the private sector and academia for the productive discussions. We look forward to maintaining the close, and constructive relationship with Vietnam.”