## Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Vietnam

_IMF News, July 6, 2012_

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## Bibliographic details
- Published: July 6, 2012

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### 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*

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