IMF Executive Board Concludes 2016 Article IV Consultation with Vietnam
IMF News, June 27, 2016
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- Published: June 27, 2016
Economic performance and near-term outlook
- Vietnam’s economy experienced solid growth with low inflation; robust performance through most of 2015 driven by rapid export growth, foreign direct investment (FDI), and strong domestic demand.
- Manufacturing and exports moderated near year-end 2015 due to slowing external demand.
- Agriculture production fell sharply in the beginning of 2016 owing to a severe drought and arable land salinization.
- Inflation:
- Declined below one percent in 2015 before ticking upward in early 2016 due to higher food and administered prices.
- Balance of payments and reserves:
- The current account narrowed sharply from rising imports.
- Gross international reserves declined in the second half of 2015 before recovering in early 2016.
- 2016 outlook:
- Growth is projected to moderate to around 6 percent, reflecting the adverse agriculture shock, lower external demand and spillovers of tighter global financial conditions.
- Headline inflation is projected to rise modestly.
- Reserves are expected to increase to around 2 months of imports.
- Public debt is expected to reach around 62 percent of GDP.
- Risks and opportunities:
- Downside risks: high and rising public debt, slow NPL resolution progress, prolonged drought, tighter or more volatile global financial conditions, weak growth in key advanced and emerging economies.
- Upside opportunities: rapid implementation of recently signed trade agreements, which would usher in productivity gains, fuel exports and incentivize reforms.
Fiscal policy, public debt, and recommendations
- Recent fiscal stance:
- Fiscal policy has been loose in recent years; the deficit was 5.9 percent of GDP last year.
- Revenues rose strongly, reflecting tax and non-tax collection.
- Expenditure was higher than planned due to carry-forward spending by local governments, and higher capital, social and interest spending.
- Public debt has risen sharply.
- Executive Directors' guidance:
- Growth-friendly fiscal consolidation is key to reversing the rise in public debt and creating space for critical social and development expenditures.
- Authorities were urged to begin taking measures this year to reduce the fiscal deficit to 3 percent of GDP by 2020.
- Importance of structural revenue-enhancing measures: rationalizing exemptions and incentives, broadening the tax base, and further strengthening revenue administration.
- Encourage civil service reform to rationalize the public wage bill, improve spending efficiency, and use equitization receipts to finance the deficit.
Monetary policy, reserves, and financial sector stability
- Monetary stance and exchange rate:
- Monetary policy was accommodative over most of last year amid falling inflation, and credit growth was robust.
- Liquidity conditions were tightened around year-end as global financial volatility increased, and the exchange-rate regime was made more flexible.
- Directors supported the current monetary policy stance and welcomed the shift to a more flexible exchange rate regime.
- Authorities were encouraged to remain vigilant should price pressures emerge.
- Reserves and monetary framework:
- Directors called on the authorities to continue to build international reserves, further strengthen the monetary policy framework, and undertake institutional and operational reforms to support a gradual shift toward using inflation as the nominal anchor.
- Financial stability and banking sector reforms:
- Recent rise in credit growth could pose risks to financial stability.
- Directors welcomed the authorities’ proposals to tighten macroprudential policy and recommended further tightening if needed.
- Need for further efforts on banking sector reforms, including:
- Measures to resolve nonperforming loans (NPLs).
- Recapitalize banks by existing shareholders.
- Enhance governance, risk management, and supervision.
- Adopt international financial reporting standards.
Structural reforms and growth-enhancing measures
- Directors encouraged intensifying the pace of structural reforms to boost productivity and long-term growth potential.
- State-owned enterprise (SOE) reforms:
- Progress made on the legal framework for SOE reforms was welcomed.
- Continued efforts urged, including greater transparency and a level-playing field with the private sector.
- Human capital and business climate:
- Recommended improvements in education to strengthen human capital and address skills mismatches.
- Complementary measures to foster a conducive business climate.
Selected economic indicators (as reported)
- Population: 91.7 million
- Per capita GDP 2015 (US$): 2,088
- Quota (current): SDR 1,153.10 millions/ 100 percent of quota
- Poverty rate (as of 2014): 13.5
- Main products and exports: electronics, garment, crude oil, rice, coffee, and rubber
- Key export markets: United States, Euro Area, Japan, Developing Asia
- Output
- Real GDP growth (%): 2012: 5.2; 2013: 5.4; 2014: 6.0; 2015: 6.7; 2016 Est. Proj.: 6.1
- Employment
- Unemployment (%): 2012: 2.7; 2013: 2.8; 2014: 2.1; 2015: 2.4; 2016 Est. Proj.: (blank)
- Prices
- Inflation (%, end of period): 2012: 6.8; 2013: 1.8; 2014: 0.6; 2015: 3.5; 2016 Est. Proj.: (blank)
- General government finances
- Revenue and grants (% GDP): 2012: 22.6; 2013: 23.1; 2014: 21.9; 2015: 23.7; 2016 Est. Proj.: 22.9
- Expenditure (% GDP): 2012: 29.4; 2013: 30.5; 2014: 28.0; 2015: 29.6; 2016 Est. Proj.: 29.5
- Net lending (+)/borrowing(-) (% GDP): 2012: -6.8; 2013: -7.4; 2014: -6.1; 2015: -5.9; 2016 Est. Proj.: -6.5
- Public debt (% GDP): 2012: 47.9; 2013: 51.8; 2014: 55.1; 2015: 58.3; 2016 Est. Proj.: 62.1
- Money and credit
- Broad money (% change): 2012: 18.5; 2013: 18.8; 2014: 17.7; 2015: 16.2; 2016 Est. Proj.: 19.7
- Credit to the private sector (% change): 2012: 8.7; 2013: 12.7; 2014: 13.8; 2015: 17.4; 2016 Est. Proj.: (blank)
- Nominal short-term lending rate (% less than one year): 2012: 12.4; 2013: 9.7; 2014: 8.5; 2015: ...; 2016 Est. Proj.: (blank)
- Balance of payments
- Current account (% GDP): 2012: 4.5; 2013: 5.1; 2014: 0.5; 2015: 0.3; 2016 Est. Proj.: (blank)
- FDI (% GDP): 2012: 4.6; 2013: 4.1; 2014: 4.3; 2015: 5.6; 2016 Est. Proj.: 6.5
- Reserves (months imports): 2012: 2.2; 2013: 2.0; 2014: 1.9; 2015: (blank); 2016 Est. Proj.: (blank)
- External debt (% GDP): 2012: 37.4; 2013: 37.3; 2014: 38.3; 2015: 43.1; 2016 Est. Proj.: 45.2
- Exchange rate
- REER (% change): 2012: 6.2; 2013: 3.4
Press Release No. 16/307, June 27, 2016 — IMF Communications Department