## Consultative Group Meeting for Vietnam

_IMF News, December 4, 2009_

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**Canonical URL:** [Consultative Group Meeting for Vietnam](https://www.imf.org/en/news/articles/2015/09/29/18/04/dm120309)

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## Bibliographic details
- Published: December 4, 2009

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### Recent Economic Developments
- Vietnam is "weathering the global crisis better than many other countries."
- Real GDP growth projection for 2009: 5¼ percent.
- Drivers of resilience:
  - Private sector strength.
  - Government stimulus program (monetary policy easing and a sizable fiscal package) boosting domestic demand, underpinning recovery in industrial production and maintaining robust retail sales.
- Costs and emerging risks from stimulus:
  - Trade deficits: $3½ billion in the third quarter.
  - Residents shifted portfolios toward gold and other foreign currency assets.
  - Dong depreciation pressure, with parallel market exchange rates recently trading up to 10 percent outside of the official band.
  - Gross international reserves fallen to below 2½ months of imports.
  - Difficult access to foreign exchange, imposing costs on enterprises and affecting investor sentiment.

### Economic Outlook for Vietnam (projections and risks)
- Near-term view: likely to remain challenging; global recovery supportive but uncertain, posing risks to exports, private remittances, and FDI.
- IMF projections for 2010:
  - Growth: 6 percent.
  - Inflation: likely to rise to double digits from around 7 percent in 2009.
  - Balance of payments:
    - Assumes government narrows current account deficit to 7½ percent of GDP from an estimated 8¾ percent in 2009.
    - Assumes reversal of resident portfolio shift toward foreign currency assets.
    - If FDI and official development assistance flows remain firm, modest recovery of gross international reserves in 2010 is possible.
- Risks:
  - Downside risk from global recovery uncertainty.
  - Greater risk: re-emergence of macroeconomic instability similar to 2008, which would constrain stimulus scope.

### Addressing Macroeconomic Risks — Policy Recommendations
- Immediate priority: address emerging risks without disrupting economic activity and restore normal business conditions.
- Monetary and exchange rate policy:
  - Tighten monetary policy and restore orderly conditions in the foreign exchange market.
  - Welcomed SBV steps: increase in policy interest rates and exchange rate adjustment.
  - Phase out short-term interest subsidy scheme on schedule at end-December 2009.
  - SBV should remain vigilant, be given greater authority to adjust monetary and exchange rate policy in a timely manner.
  - Remove the cap on lending rates.
  - Combine clear signals with a sound fiscal framework to boost credibility of monetary policy and restore confidence in the dong.
- Fiscal policy:
  - IMF preliminary estimate: overall fiscal deficit (including off-budget expenditures and net lending) could widen from an estimated 4½ percent of GDP in 2008 to about 9 percent of GDP in 2009.
  - 2010 budget plan welcomed; IMF estimates it will reduce the overall fiscal deficit by about 2 percentage points of GDP to around 6½ percent of GDP.
  - Fiscal policy should be implemented flexibly; further tightening may be needed if external pressures intensify.

### Safeguarding the Financial System
- Banks' position:
  - Vietnamese banks have come through the global crisis relatively well so far, due to strong profits, capital-raising efforts, and limited exposure to global financial markets.
- Concerns:
  - Absence of reliable information on the banking system.
  - Capital base of some large banks remains weak.
  - Profit margins squeezed by a lending rate cap and increasing deposit rates.
  - Loan portfolio strength and liquidity positions may be tested if liquidity tightens and conditions weaken.
- Recommendation:
  - Authorities' willingness to participate in a financial sector assessment program (FSAP) is welcomed to provide a clearer picture and guide reforms of the regulatory regime and enhance confidence of rating agencies and other observers.

### Structural Reforms and Data/Communication
- Maintain momentum of structural reforms in the next ten-year strategy and five-year plan to modernize infrastructure and management of the economy.
- Encourage using pending banking and budget legislations to modernize frameworks for monetary and fiscal management and develop institutions for a 21st century economy.
- Information and communication improvements:
  - SBV steps to improve quality and timeliness of monetary and reserve data are encouraging.
  - Significant shortcomings remain in data on fiscal, state-owned enterprise, and banking operations.
  - Improving the government’s communication strategy by regularly presenting clear assessments of the economic situation and policy direction would help manage market expectations and prevent disorderly adjustments.

### Closing
- IMF reiterates continued commitment to providing Vietnam with policy advice and support at this difficult juncture.

*Statement by Mr. Shogo Ishii, Assistant Director, Asia and Pacific Department — Hanoi, December 3–4, 2009*

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## References

- [Vietnam and the IMF](http://www.imf.org/external/country/VNM/index.htm)
- [Statements at Donor Meetings](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/29/18/04/dm120309_