Public Information Notice: IMF Executive Board Concludes 2011 Article IV Consultation with Vietnam
IMF News, June 23, 2011
Source details
- Canonical URL
- Public Information Notice: IMF Executive Board Concludes 2011 Article IV Consultation with Vietnam
Other formats
Bibliographic details
- Published: June 23, 2011
Background and recent macroeconomic developments
- GDP growth for 2010 is estimated at 6¾ percent, higher than the government’s target.
- Macroeconomic risks from expansionary policies have materialized:
- Continued strong credit growth: 35 percent y/y in February.
- Rising inflation: 17.5 percent y/y in April.
- Downward pressures on the exchange rate as residents hoard foreign currency and gold outside the financial system.
- International reserves declined from already low levels.
- Policy responses and measures announced by authorities:
- Key policy interest rates raised in several steps since late 2010 and reached 13 percent by late April; further rise to 14 percent effective May 1.
- Dong devalued by 8.5 percent in February to narrow the gap between the official rate and unofficial rates.
- Comprehensive stabilization package (announced late February) includes:
- Reduction of credit growth in 2011 to below 20 percent, compared to the previous target of 23 percent.
- Proactive use of policy interest rates.
- Reduction of the budget deficit by around ¼ percentage point of GDP from the budget plan approved in November.
- Freezing 10 percent of nonwage recurrent spending until the second half of the year.
- Review, reprioritization, and potential cuts of state and SOE investments.
- Plans to ban trading of gold bars to curb gold hoarding.
- Financial sector measures:
- New prudential regulations introduced.
- Preparation of a limit on the credit-to-deposit ratio.
- Request for an assessment under the IMF-World Bank Financial Sector Assessment Program (FSAP).
Economic outlook and staff projections
- Output and inflation projections:
- Output growth in 2011 is expected to slow to around 6¼ percent.
- Inflation projected to rise to about 13¾ percent y/y by end-2011 (with lower demand and favorable base effects, and assuming no further rise in international commodity prices), then decline to 6¼ percent by end-2012.
- External sector and reserves:
- Current account deficit projected to widen slightly but remains more than covered by continued strong direct investment inflows.
- Reserves are expected to recover somewhat but remain low.
- Fiscal stance:
- Fiscal consolidation is being accelerated.
- A more rapid reduction of the fiscal deficit and build-up of fiscal cushions are feasible if the bulk of the anticipated revenue overperformance is saved.
- Conditionality of outlook:
- The favorable scenario depends on steadfast implementation of stabilization policies and, if necessary, stepped-up measures to restore confidence in the dong.
- Medium-term view:
- Foundations for sustained growth remain solid, provided sound macroeconomic policies are maintained.
Executive Board assessment and policy recommendations
- General appraisal:
- Directors commended authorities for strong growth performance during the global crisis.
- Directors noted that crisis-time stimulus measures are now creating overheating and external stability risks (high credit growth and rising inflation) and supported the shift toward stabilization.
- Monetary and exchange rate policy:
- Welcome tightening of monetary policy and the comprehensive stabilization package.
- Urged rapid implementation to maintain momentum and restore confidence.
- Recommended sustaining stabilization measures until lower inflation expectations are firmly established and reserves rebuilt; be ready to take additional steps if necessary.
- Monetary tightening should be achieved mainly through market-based instruments; administrative measures may play a supportive short-term role but should be compatible with increasing confidence in the dong.
- Strengthening the autonomy of the State Bank of Vietnam would support achieving inflation targets.
- Maintaining stability in the foreign exchange market will require disciplined monetary policy.
- Desirable to simplify the exchange regime over the next few years with steps towards a more market-determined exchange rate.
- Fiscal policy:
- Supported planned fiscal consolidation measures and urged full implementation.
- Given high public and publicly guaranteed debt and sizable contingent liabilities, Directors recommended accelerating fiscal consolidation by saving the bulk of anticipated revenue overperformance in 2011.
- Over the medium term, fiscal deficits need to be reduced further to close to pre-crisis levels.
- Financial sector stability:
- Noted increasing risks in the financial sector and stressed timely action to safeguard financial stability amid rapid credit growth and potential vulnerabilities from connected lending.
- Urged increasing buffers in the financial system and steadfast enforcement of existing regulations.
- Recommended restructuring or merging weak banks with stronger entities while protecting small depositors and avoiding system-wide repercussions.
- Encouraged improving coordination among supervisory agencies, setting up an effective crisis management framework, and preparing contingency plans.
- Encouraged addressing longstanding safeguards assessment issues and AML/CFT deficiencies.
- Welcomed the authorities’ request for an FSAP.
- Data, transparency, and communications:
- Observed that greater efforts to meet international standards for quality, timeliness, and coverage of data collection and publication, and improved communications with markets, will help reduce uncertainty and enhance Vietnam’s economic potential.
Key statistics and selected indicators (highlights from Vietnam: Selected Economic Indicators, 2007–12)
- Output
- Real GDP (percent change): 2007: 8.5; 2008: 6.3; 2009: 5.3; 2010: 6.8; 2011: 6.1; 2012: (projection provided in table).
- Saving and investment (in percent of GDP)
- Gross national saving: 2007: 33.3; 2008: 27.8; 2009: 31.6; 2010: 34.3; 2011: 32.4; 2012: 33.2.
- Private: 2007: 27.0; 2008: 20.2; 2009: 28.6; 2010: 27.2; 2011: 27.7; 2012: (table shows 27.7/—).
- Public: 2007: 7.6; 2008: 4.5; 2009: 5.7; 2010: 5.2; 2011: 5.5; 2012: (table shows 5.5/—).
- Gross investment: 2007: 43.1; 2008: 39.7; 2009: 38.1; 2010: 36.4; 2011: 37.1; 2012: 32.6.
- Prices (percent change)
- CPI (period average): 2007: 8.3; 2008: 23.1; 2009: 6.7; 2010: 9.2; 2011: 16.6; 2012: 7.8.
- CPI (end of period): 2007: 12.6; 2008: 19.9; 2009: 6.5; 2010: 11.8; 2011: 13.8; 2012: 6.2.
- Core inflation (end of period): 2007: 8.0; 2008: 16.3; 2009: 8.8; 2010: ... (ellipsis in table).
- GDP deflator: 2007: 8.2; 2008: 22.1; 2009: 6.0; 2010: 14.5; 2011: 7.1.
- General government finances (in percent of GDP)
- Revenue and grants: 2007: 28.7; 2008: 29.0; 2009: 26.7; 2010: 28.1.
- Expenditure: 2007: 31.2; 2008: 30.2; 2009: 35.7; 2010: 34.6; 2011: 31.7; 2012: 31.9.
- Current: 2007: 20.3; 2008: 19.7; 2009: 20.9; 2010: 21.2; 2011: 21.8; 2012: 22.0.
- Capital: 2007: 10.9; 2008: 10.5; 2009: 14.7; 2010: 13.5; 2011: 9.8.
- Overall balance1: 2007: -2.5; 2008: -1.2; 2009: -9.0; 2010: -6.4; 2011: -3.9; 2012: -3.8.
- Public and publicly guaranteed debt (end of period): 2007: 44.6; 2008: 42.9; 2009: 51.2; 2010: 52.8; 2011: 51.5; 2012: 51.0.
- Money and credit (percent change, end of period)
- Broad money (M2): 2007: 46.1; 2008: 19.8.
- Credit to the economy: 2007: 53.9; 2008: 25.4; 2009: 39.6; 2010: 19.2; 2011: 15.1.
- Interest rates (in percent, end of period)
- Nominal three-month deposit rate (households): 2007: 8.1; 2008: 10.7; 2009: 11.6.
- Nominal short-term lending rate (less than one year): 2007: 11.5; 2008: 12.7; 2009: 14.0.
- Balance of payments (in percent of GDP)
- Current account balance (including official transfers): 2007: -9.8; 2008: -11.9; 2009: -6.6; 2010: -4.0.
- Exports f.o.b.: 2007: 68.3; 2008: 69.4; 2009: 61.3; 2010: 69.7; 2011: 75.4; 2012: 80.6.
- Imports f.o.b.: 2007: 82.9; 2008: 83.6; 2009: 70.2; 2010: 76.6; 2011: 81.8; 2012: 87.0.
- Capital and financial account: 2007: 15.4; 2008: 12.2; 2009: 8.6.
- Gross international reserves (in billions of U.S. dollars, end of period)2: 2007: 21.0; 2008: 23.0; 2009: 14.1; 2010: 12.4.
- In months of prospective GNFS imports: 2007: 3.0; 2008: 3.8; 2009: 1.9; 2010: 1.4.
- Total external debt (end of period)3: 2007: 33.4; 2008: 41.6; 2009: 42.3; 2010: 41.1.
- Nominal exchange rate (dong/U.S. dollar, end of period): 2007: 16,017; 2008: 17,483; 2009: 18,479; 2010: 19,498.
- Nominal effective exchange rate (end of period)4: 2007: 91.1; 2008: 92.0; 2009: 80.8; 2010: 78.8.
- Real effective exchange rate (end of period)4: 2007: 106.0; 2008: 125.8; 2009: 115.9; 2010: 114.0.
- Memorandum items:
- GDP (in trillions of dong at current market prices): 2007: 1,144; 2008: 1,485; 2009: 1,658; 2010: 1,981; 2011: 2,408; 2012: 2,754.
- GDP (in billions of U.S. dollars): 2007: 71.1; 2008: 90.3; 2009: 93.2; 2010: 103.6; 2011: 118.6; 2012: 128.5.
- Per capita GDP (in U.S. dollars): 2007: 835; 2008: 1,048; 2009: 1,068; 2010: 1,174; 2011: 1,327; 2012: 1,422.
Public Information Notice (PIN) No. 11/81 — June 23, 2011. Sources: Vietnamese authorities; and IMF staff estimates and projections.