Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Vietnam
IMF News, July 6, 2012
Source details
- Canonical URL
- Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Vietnam
Other formats
Bibliographic details
- Published: July 6, 2012
Background and recent macroeconomic developments
- Stabilization measures and stronger SBV credibility contributed to an improving macroeconomic picture in early 2012.
- GDP growth and inflation:
- GDP growth for 2011 decelerated to below 6 percent and was 4 percent year-on-year (y/y) in Q1 2012.
- GDP projection for 2012: 6 percent.
- Inflation developments: peaked at 23 percent in August 2011; declined to 10.5 percent in April 2012; projected to decline to about 10¾ percent for 2012 (8¼ percent y/y at year-end).
- Credit, reserves, and exchange rate:
- Credit growth slowed to 14.3 percent y/y in 2011.
- The current account moved to a small surplus of 0.2 percent of GDP in 2011 from a deficit of over 4 percent in 2010.
- Confidence in the Vietnam dong improved; informal interbank rate moved back within the official trading band.
- The SBV was able to increase international reserves significantly in the first three months of 2012, though they remained low.
- Policy response:
- Authorities adopted a stabilization package in February 2011: raised policy interest rates, imposed a credit growth ceiling, and contained investment by government and state-owned enterprises.
- With the sharper-than-expected slowdown and rapid fall in inflation in early 2012, the SBV reduced policy interest rates three times over three months since March 2012.
- Government began encouraging more bank credit to strategic sectors (agriculture, SMEs, etc).
- Authorities addressed vulnerabilities at small weak banks: nine banks classified as weak were placed under special inspection and required to present restructuring and recapitalization plans.
- A comprehensive medium-term strategy to strengthen the financial sector was adopted.
Executive Board assessment — findings and policy recommendations
- Commendations and overarching message:
- Directors commended the tightening of macroeconomic policies in 2011 for contributing to declining inflation, stabilizing the exchange rate, and rebuilding international reserves.
- Key challenge: balance support for the slowing economy against the risk of eroding confidence, while rebuilding policy buffers.
- Risks remain and Directors emphasized resisting premature loosening of policies and accelerating structural reforms.
- Monetary policy recommendations:
- Maintain a cautious monetary policy stance to build on recent gains in stability.
- Monetary policy should give priority to reducing inflation and rebuilding reserves further.
- Directors emphasized careful consideration before further cuts in policy rates.
- In the medium term, move toward market-based policy instruments and a more flexible exchange rate regime.
- Fiscal policy recommendations:
- Fiscal policy should continue to support macroeconomic stability, especially given the recent sizable civil service salary adjustment.
- Further focus on containing current non-wage spending and improving the quality of public spending.
- Implement planned medium-term tax reforms to broaden the tax base and prepare for a decline in oil revenue.
- Financial sector and banking system recommendations:
- Speed up implementation of the bank restructuring plan.
- Banks should recognize nonperforming loans, enhance the size and quality of their capital, and improve corporate governance.
- Strengthen the supervisory and regulatory framework, including on bank resolution, and improve transparency in the banking sector.
- Directors looked forward to the forthcoming Financial Sector Assessment Program (FSAP) for reform momentum.
- Strengthen legislation against money laundering and terrorism financing.
- State-owned enterprises and structural reform recommendations:
- Intensify efforts to reform state-owned enterprises and improve the business environment to enhance growth potential and reduce budgetary and financial sector risks.
- Welcome plans for equitization and privatization of a large number of state-owned enterprises, with emphasis on improving accountability and financial discipline.
- Data and transparency:
- Encourage the authorities to increase the frequency, quality, and transparency of economic statistics.
Scenario and near-term outlook
- Near-term stabilization scenario:
- The recent reduction of policy interest rates and a modest fiscal expansion are expected to cushion adverse effects from slowing domestic and external demand.
- As a result, GDP is projected to grow at 6 percent and inflation to decline to about 10¾ percent for 2012 (8¼ percent y/y at year-end).
- International reserves would increase further from the level reached in March 2012, even as the current account deficit would rise somewhat.
- Risks:
- Risks to the scenario are tilted to the downside, including a slowdown in export markets.
- Risk that pressures on prices and the exchange rate could resurface if the authorities’ commitment to stabilizing the economy and safeguarding the financial sector is perceived as waning.
Selected economic indicators (highlights from table, 2008–13)
- Real GDP (percent change): 2008: 6.3; 2009: 5.3; 2010: 6.8; 2011: 5.9; 2012 (Proj.): 6.0.
- Gross national saving (percent of GDP): 2008: 27.8; 2009: 31.6; 2010: 34.9; 2011: 29.3; 2012 (Proj.): 33.5; 2013 (Proj.): 33.1.
- Gross investment (percent of GDP): 2008: 39.7; 2009: 38.1; 2010: 39.0; 2011: 29.9; 2012 (Proj.): 34.3; 2013 (Proj.): 33.8.
- CPI (period average): 2008: 23.1; 2009: 6.7; 2010: 18.7; 2011: 10.8; 2012 (Proj.): 7.4.
- CPI (end of period): 2008: 19.9; 2009: 6.5; 2010: 11.7; 2011: 18.1; 2012 (Proj.): 8.2.
- Broad money (M2) (percent change, end of period): 2008: 29.0; 2009: 33.3; 2010: 12.1; 2011: 21.6.
- Credit to the economy (percent change, end of period): 2008: 25.4; 2009: 39.6; 2010: 32.4; 2011: 14.3; 2012 (Proj.): 16.8; 2013 (Proj.): 14.4.
- Current account balance (including official transfers, percent of GDP): 2008: -11.9; 2009: -6.6; 2010: -4.1; 2011: 0.2; 2012 (Proj.): -0.8; 2013 (Proj.): -0.7.
- Exports f.o.b. (percent of GDP): 2008: 69.4; 2009: 61.3; 2010: 69.7; 2011: 79.0; 2012 (Proj.): 81.7; 2013 (Proj.): 84.2.
- Imports f.o.b. (percent of GDP): 2008: 83.6; 2009: 70.2; 2010: 74.7; 2011: 79.3; 2012 (Proj.): 83.5; 2013 (Proj.): 86.2.
- Gross international reserves (in billions of U.S. dollars, end of period): 2008: 23.0; 2009: 14.1; 2010: 12.4; 2011: 13.5; 2012 (Proj.): 19.0; 2013 (Proj.): 25.7.
- In months of prospective GNFS imports: 2008: 3.8; 2009: 1.9; 2010: 1.4; 2011: 1.3; 2012 (Proj.): 1.6.
- Public and publicly guaranteed debt (end of period, percent of GDP): 2008: 42.9; 2009: 51.2; 2010: 54.2; 2011: 48.3; 2012 (Proj.): 48.2; 2013 (Proj.): 46.6.
- Nominal exchange rate (dong/U.S. dollar, end of period): 2008: 17,483; 2009: 18,479; 2010: 19,498; 2011: 21,034.
- GDP (in trillions of dong at current market prices): 2008: 1,485; 2009: 1,658; 2010: 1,981; 2011: 2,535; 2012 (Proj.): 2,927; 2013 (Proj.): 3,336.
- GDP (in billions of U.S. dollars): 2008: 90.3; 2009: 93.2; 2010: 103.6; 2011: 122.7; 2012 (Proj.): 135.8; 2013 (Proj.): 148.8.
- Per capita GDP (in U.S. dollars): 2008: 1,048; 2009: 1,068; 2010: 1,174; 2011: 1,374; 2012 (Proj.): 1,502; 2013 (Proj.): 1,627.
Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Vietnam