IMF Staff Completes 2024 Article IV Mission to Vietnam

IMF News, June 26, 2024

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Vietnam’s economy is projected to expand by close to 6 percent in 2024, up from 5 percent in the previous year.
Growth drivers: a recovering export sector, robust foreign direct investment, and policy support.
Inflation is expected to hover around the SBV’s target of 4-4.5 percent in 2024.
External current account: posted a large surplus in 2023, 5.8 percent of GDP, mainly reflecting a significant contraction in imports.

Mission dates: June 12-26, 2024.
IMF team lead: Paulo Medas.
Meetings with: Prime Minister Pham Minh Chinh; senior officials of the State Bank of Vietnam (SBV), the Ministry of Finance, the Ministry of Planning and Investment, the Central Economic Commission, the National Assembly; and representatives from the private sector, think tanks, academia, and other stakeholders.
Press officer contact listed: Huong Lan Pinky Vu, Phone: +1 202 623-7100, Email: MEDIA@IMF.org.

2023 performance: economy grew 5 percent despite turbulence in the real estate sector, financial distress, and a significant drop in exports.
Recovery began in late 2023, fueled by a rebound in exports, tourism, and appropriately expansionary fiscal and monetary policy support.
Inflation dynamics: picked up in the first quarter of 2024, driven partly by rising food prices; core inflation remained relatively low and stable.
Domestic demand: expected to remain subdued as corporates navigate high debt levels; the real estate sector will only fully recover over the medium term.

External risks:
- Exports could weaken if global growth disappoints, global geopolitical tensions persist, or trade disputes intensify.
Domestic risks:
- Persistent weakness in the real estate sector and corporate bond market could weigh on banks’ ability to expand credit, hurt economic growth, and undermine financial stability.
- Given easy monetary conditions, prolonged exchange rate pressures could lead to a larger pass-through to domestic inflation.
Policy response conditionality:
- SBV should stand ready to tighten monetary policy if upward price pressures were to intensify.
- Policies may need to adjust in response to significant risks to the outlook despite being highly supportive in 2024.

Maintain readiness to tighten monetary policy if inflation pressures increase.
Over time, increase exchange rate flexibility in tandem with further modernization of monetary policy toward inflation targeting to better manage external shocks while safeguarding foreign exchange reserve buffers.

Fiscal policy is supporting growth in 2024 given the expected large public wage increase and ongoing efforts to accelerate public investment.
Strengthen fiscal management by:
- Improving the composition and quality of public spending and services.
- Strengthening fiscal planning to better reflect the medium-to long-term implications of aging and climate.
- Enhancing safety nets.
- Intensifying revenue mobilization to create resources for social spending, climate action, and infrastructure investment.

New Law on Credit Institutions is an important step forward and should be followed by further measures to strengthen supervision and governance of financial institutions.
Additional efforts needed to restore banking sector health:
- Improve asset quality.
- Phase out forbearance measures.
- Raise bank capital.
- Accelerate resolution of failed banks to limit eventual costs and improve financial and monetary system functioning.
Strengthen insolvency framework and debt enforcement to accelerate corporate restructuring and increase resilience.
Revise land and other real estate laws to address legal bottlenecks; further restructure weak developers and promote a sound corporate bond market.

A new wave of reforms is needed to sustain high economic growth amid less-favorable demographics and climate change challenges.
Key priorities:
- Increase productivity.
- Further invest in human and physical capital.
- Incentivize private investment in renewable energy.
- Improve functioning of capital markets, including developing a market-based sovereign bond market to facilitate broader capital market development and make monetary policy transmission more effective.
Governance and transparency:
- Strengthen preventative anti-corruption institutions, economic governance, and transparency.
- Reduce legal uncertainty and allow for swifter decision making by public officials to foster a more business-friendly environment.
- Urgently strengthen the Anti-Money Laundering / Countering the Financing of Terrorism framework.
- Improve economic data and combine with greater transparency to enhance policy decision making and support economic and capital market development.

The IMF team expressed gratitude to the authorities and stakeholders for candid and insightful discussions.
End-of-mission note: views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

IMF Staff Completes 2024 Article IV Mission to Vietnam — June 26, 2024