IMF Executive Board Completes the 2017 Article IV Consultation with Vietnam
IMF News, July 5, 2017
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- Published: July 5, 2017
Economic performance and outlook
- Growth moderated to 6.2 percent in 2016, reflecting the impact of a drought and land salinization on agriculture and lower oil production.
- Weakness in the oil sector continued in the first quarter of 2017, but underlying growth momentum remains robust, underpinned by strong manufacturing activity and foreign direct investment (FDI), robust domestic demand, and a rebound in agricultural production.
- Inflation rose to around 5 percent in early 2017 due to increases in administered prices for health care and education.
- The current account surplus rebounded in 2016 to 4.1 percent of GDP, and gross international reserves rose substantially.
- For 2017, growth is projected at 6.3 percent and headline inflation is projected to stabilize at around 5 percent as administered prices continue to be adjusted.
- The current account surplus is expected to decline somewhat in 2017, reflecting stronger imports.
Fiscal policy, public debt, and revenue measures
- Authorities are planning an appropriate amount of fiscal consolidation starting this year, although concrete measures have not yet been fully identified.
- Directors concur with the intention to reduce the deficit to 3½ percent of GDP by 2020 and to maintain public debt below the legal limit of 65 percent of GDP.
- Directors stressed the importance of revenue-enhancing measures, including:
- unifying VAT rates,
- higher excise and environmental protection taxes,
- a property tax.
- Directors also stressed the need to reduce exemptions and incentives and improve tax administration.
- Reforms to raise cost recovery in public services are welcome but need to ensure equity, protect the poor, and raise service quality.
- Directors encouraged civil service reforms to reduce the public sector wage bill and improvements in public spending efficiency to create room for priority infrastructure and social spending.
Monetary, exchange rate, and macroprudential stance
- Monetary policy was accommodative over most of last year against the backdrop of low core inflation.
- The exchange rate has depreciated slightly since the fall of 2016.
- Macroprudential policies were tightened, while credit growth was robust.
- Directors noted that monetary policy should remain on hold but be alert for signs of rising core inflation.
- Directors stressed vigilance to contain rapid credit growth and to make credit allocation more market-based.
- Directors underscored that modernization of monetary policy management, including greater exchange rate flexibility and a gradual shift to using inflation as the nominal anchor, will enhance resilience to external shocks.
Financial sector reforms and banking system risks
- Bank reforms have progressed, but nonperforming loan (NPL) resolution, bank recapitalization, and legal reforms to strengthen market discipline have been sluggish.
- Directors welcomed progress made in banking sector reforms to address impaired assets and increase provisioning.
- Directors stressed that the pace of reforms should be accelerated and their scope broadened to include:
- development of a legal framework for bank resolution,
- strengthening of the Vietnam Asset Management Company,
- implementation of further reforms to strengthen debt enforcement and market discipline.
- Enhancing the AML/CFT framework and its effective implementation will also support financial stability.
- Downside risks include slow NPL resolution and high public debt.
Structural reforms, trade, and climate
- The authorities are developing a broad reform agenda to upgrade the growth model, limit the role of the state in the economy, reduce state ownership in enterprises, and encourage private sector-led sustainable growth.
- Good progress has been made on the legal framework for SOE reforms, but implementation has been slow.
- Directors welcomed ongoing structural reforms and underscored the need for more extensive policy action to reform institutions and raise potential growth.
- Reforms of the state-owned enterprise sector and improved outcomes from vocational and tertiary education were identified as critical.
- Directors commended the authorities for ratifying the Paris Agreement and for putting climate change and implementation of the Sustainable Development Goals at the core of their policy agenda.
- Directors stressed that higher environmental taxes and better pricing of externalities in the energy sector can help promote a green, more resilient economy.
- Fast implementation of the Vietnam-EU and other bilateral trade agreements would fuel exports and FDI.
- Downside external risks include tighter global financial conditions, shocks to external demand, rising protectionism and the failure of the Trans Pacific Partnership.
Executive Directors' assessment
- Directors commended the Vietnamese authorities for achieving robust growth with low inflation, pushing ahead with important reforms to promote private sector-led growth, strengthening the public finances and tackling legacy issues in the financial sector while making progress on poverty alleviation.
- Directors noted risks from the slow pace of banking sector reform, continued rapid credit growth and limited fiscal and external buffers.
- They encouraged the authorities to expand the scope of reforms to safeguard macroeconomic stability, raise growth potential and upgrade the growth model to enhance sustainability and productivity.
Key statistics (selected, as reported)
- Real GDP (percent change): 2012: 5.2; 2013: 5.4; 2014: 6.0; 2015: 6.7; 2016: 6.2; 2017 (proj): 6.3; 2018 (proj): 6.3
- CPI (period average): 2012: 9.1; 2013: 6.6; 2014: 4.1; 2015: 0.6; 2016: 2.7; 2017 (proj): 4.9; 2018 (proj): 4.8
- CPI (end of period): 2012: 6.8; 2013: 1.8; 2014: 4.7; 2015: 5.0; 2016: 4.5
- Core inflation (end of period): 2012: 5.8; 2013: 4.6; 2014: 1.7; 2015: 1.9
- Revenue and grants (in percent of GDP): 2012: 22.6; 2013: 23.1; 2014: 22.2; 2015: 23.7; 2016: 23.2; 2017 (proj): 23.2
- Of which: Oil revenue (in percent of GDP): 2012: 3.8; 2013: 3.4; 2014: 2.5; 2015: 1.6; 2016: 0.9; 2017 (proj): 0.8
- Expenditure (in percent of GDP): 2012: 29.5; 2013: 30.5; 2014: 28.5; 2015: 30.0; 2016: 29.8; 2017 (proj): 29.0; 2018 (proj): 28.9
- Net lending (+)/borrowing(-) (in percent of GDP): 2012: -6.9; 2013: -7.4; 2014: -6.3; 2015: -6.2; 2016: -6.6; 2017 (proj): -5.8
- Public and publicly guaranteed debt (end of period, in percent of GDP): 2012: 47.9; 2013: 51.8; 2014: 55.1; 2015: 58.3; 2016: 62.4; 2017 (proj): 63.3; 2018 (proj): 64.3
- Broad money (M2, percent change, end of period): 2012: 18.5; 2013: 18.8; 2014: 17.7; 2015: 16.2; 2016: 18.4; 2017 (proj): 18.1; 2018 (proj): 17.4
- Credit to the economy (percent change, end of period): 2012: 8.7; 2013: 12.7; 2014: 13.8; 2015: 17.1; 2016: 16.9
- Current account balance (including official transfers, in percent of GDP): 2012: -0.1; 2013: 2.0
- Exports f.o.b. (in percent of GDP): 2012: 73.6; 2013: 77.4; 2014: 80.8; 2015: 84.6; 2016: 87.7; 2017 (proj): 90.0; 2018 (proj): 91.8
- Imports f.o.b. (in percent of GDP): 2012: 68.0; 2013: 72.3; 2014: 74.3; 2015: 83.5; 2016: 85.6
- Capital and financial account (in percent of GDP): 2012: 5.6; 2013: 0.2; 2014: 2.9; 2015: 0.5; 2016: -0.2
- Gross international reserves (in billions of U.S. dollars): 2012: 25.4; 2013: 26.0; 2014: 34.3; 2015: 28.4; 2016: 36.7; 2017 (proj): 42.2; 2018 (proj): 48.6
- Total external debt (end of period, in percent of GDP): 2012: 37.4; 2013: 37.3; 2014: 38.3; 2015: 43.1; 2016: 47.8; 2017 (proj): 49.5; 2018 (proj): 51.0
- Nominal exchange rate (dong/U.S. dollar, end of period): 2012: 20,825; 2013: 21,105; 2014: 21,385; 2015: 22,485; 2016: 22,770
- Nominal effective exchange rate (end of period): 2012: 86.4; 2013: 88.3; 2014: 94.0; 2015: 97.6; 2016: 98.2
- Real effective exchange rate (end of period): 2012: 108.9; 2013: 116.1; 2014: 123.6; 2015: 128.7; 2016: 132.8
- GDP (in trillions of dong at current market prices): 2012: 3,245; 2013: 3,584; 2014: 3,938; 2015: 4,193; 2016: 4,503; 2017 (proj): 4,965; 2018 (proj): 5,486
- GDP (in billions of U.S. dollars): 2012: 155.6; 2013: 170.6; 2014: 185.9; 2015: 191.5; 2016: 201.3; 2017 (proj): 215.4; 2018 (proj): 232.7
- Per capita GDP (in U.S. dollars): 2012: 1,753; 2013: 1,902; 2014: 2,049; 2015: 2,088; 2016: 2,173; 2017 (proj): 2,301; 2018 (proj): 2,460
IMF Executive Board press release, July 5, 2017.