Press Release: IMF Staff Completes 2016 Article IV Mission to Vietnam

IMF News, April 22, 2016

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Canonical URL: Press Release: IMF Staff Completes 2016 Article IV Mission to Vietnam

IMF mission led by Mr. John Nelmes visited Hanoi and Ho Chi Minh City April 6-22 to conduct the 2016 Article IV consultation discussions with Vietnam.
Press Release: April 22, 2016; Press Release No. 16/183.

"Vietnam has achieved commendable macroeconomic outcomes. Last year growth was strong, inflation fell to low levels, foreign direct investment was robust, and important new trade agreements were successfully negotiated."
For 2016, growth is expected to ease to around 6 percent, mainly reflecting weaker external demand and severe drought and salination of arable land that have adversely affected agriculture.
Underlying inflation should remain low; headline inflation is expected to rise modestly due to a pick-up in food prices and planned increases in administered prices for education and health services.
The current account surplus is projected to ease in the near term with slowing external demand although foreign direct investment is expected to remain strong.

Downside risks identified:
- the drought,
- slower global growth,
- spillovers from global financial market volatility.
Rapidly rising public debt is a concern: it is reducing fiscal room for maneuver and could pressure domestic interest rates, which could adversely impact corporate and bank performance.
Progress has been made in banking-sector and state-owned enterprise (SOE) reforms, but implementation of a number of key measures is now needed.
On the upside, rapid implementation of new free-trade agreements could help propel domestic structural reform.

Fiscal performance: fiscal policy has registered deficits averaging around 6.5 percent of GDP since 2012, driving a sharp increase in public and publicly guaranteed debt.
Public debt outlook: public and publicly guaranteed debt is estimated to reach around 62 percent of GDP this year.
Mission recommendation: a growth-friendly fiscal consolidation—beginning this year—to reduce the fiscal deficit to around 3 percent of GDP by 2020 and put public debt on a sustainable and downward path.
Consolidation priorities:
- broaden the revenue base,
- safeguard spending on high-quality public investment in education, health, and infrastructure,
- make resources available to resolve non-performing loans and strengthen capital in state-owned banks.

Monetary policy stance: the mission considered that monetary policy should remain on hold as recent domestic shocks feed through the economy so long as underlying inflation pressure remains muted.
Conditional tightening: "Should evidence of second-round effects on inflation emerge, some tightening of monetary policy would be warranted."
Exchange-rate policy: the recently-introduced flexible exchange-rate mechanism is a commendable development.
Recommended monetary framework actions:
- permit greater exchange-rate flexibility,
- strengthen monetary policy instruments,
- move gradually towards using inflation as the nominal anchor for monetary policy to safeguard macroeconomic stability while buffering external shocks.

Banking-sector actions needed:
- accelerate resolution of non-performing loans in banks and in the Vietnam Asset Management Company,
- strengthen banks’ capital through increased private-sector participation and budget resources for state-owned banks,
- improve operational management,
- adopt international financial reporting standards as part of time-bound bank restructuring plans.
SOE reforms:
- accelerate more rapid and comprehensive equitization and divestment of non-core assets,
- ensure transparency of equitization proceeds and their use.
Additional structural measures to support productivity:
- create a level playing field in access to resources for the private sector,
- support research and development,
- improve the efficiency of public investment,
- expand vocational training to address skills mismatches.

The mission met Deputy Prime Minister Vuong Dinh Hue, Central Economic Commission Chairman Nguyen Van Binh, State Bank of Vietnam Governor Le Minh Hung, Vice Finance Minister Truong Chi Trung, Vice Minister of Planning and Investment Nguyen The Phuong, members of the National Assembly, other senior government officials, private sector representatives, academics, and development partners.

Press Release No. 16/183, April 22, 2016. IMF Communications Department.