IMF Executive Board Completes the 2019 Article IV Consultation with Vietnam
IMF News, July 16, 2019
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- Published: July 16, 2019
Macroeconomic performance and outlook
- Real GDP growth reached a 10-year high of 7.1 percent in 2018.
- Growth is expected to soften to 6.5 percent in 2019 and to remain around 6.5 percent over the medium term, reflecting weak external conditions.
- Inflation averaged 3.5 percent in 2018; CPI (period average) projections: 3.6 percent for 2018 (est.), 3.8 percent for 2019 (proj.).
- CPI (end of period) values shown: 3.7 percent for 2018 (est.).
- Core inflation (end of period) values shown: 2.2 percent for 2018 (est.).
- Drivers of growth cited: healthy income and consumption growth of a growing and urbanizing middle class, a strong harvest, and a surging manufacturing sector.
- External conditions noted: competitive labor costs, diversified trade structure, recently signed free trade agreements; but external weakness expected to moderate growth.
Fiscal and public debt developments
- Public debt reduced to 55.5 percent of GDP at end-2018, down from 60 percent at end-2016.
- State budget finance indicators (in percent of GDP):
- Revenue and grants: 23.4 percent (2018 est.), 23.3 percent (2019 proj.).
- Oil revenue: 0.7 percent (2018 est.).
- Expenditure: 28.8 percent (2018 est.), 27.6 percent (2019 proj.).
- Expense: 20.1 percent (2018 est.), 20.0 percent (2019 proj.).
- Net acquisition of nonfinancial assets: 7.6 percent (2018 est.).
- Net lending (+)/borrowing (-): -4.4 percent (2018 est.), -4.2 percent (2019 proj.).
- Directors welcomed fiscal consolidation efforts, including:
- Improvements in tax policy and administration, including higher environmental taxes.
- Tightening of government guarantees and lower current spending.
- Policy guidance: further consolidation should focus on quality of adjustment to keep public debt on a declining path and create room for priority infrastructure and social spending, prepare for rapid prospective population aging, and address climate change and digitalization.
- Revenue-enhancing measures recommended: broadening bases, including unifying VAT rates, a property tax, reducing exemptions, and improving tax administration.
- Need to continue rationalizing the public sector wage bill and improving public financial and investment management.
Monetary, financial sector, and external policies
- The State Bank of Vietnam (SBV) has continued to reduce credit growth; liquidity remained ample in 2018 aided by external inflows and the growing capital market.
- SBV guidance and plans:
- Guiding banks to adopt Basel II standards in 2020.
- Developing plans to recapitalize systemic state-owned commercial banks.
- External position in 2018 described as substantially stronger than warranted by fundamentals; authorities intervened in both directions to keep the Dong within a narrow band and reserve accumulation continued.
- Gross international reserves (in billions of U.S. dollars): 55.3 (2018 est.), 66.2 (2019 proj.), 77.7 (2020 proj.).
- Money and credit (percent change, end of period):
- Broad money (M2): 15.5 (2018 est.), 14.9 (2019 proj.).
- Credit to the economy: 13.7 (2018 est.), 13.1 (2019 proj.).
- Balance of payments (in percent of GDP):
- Exports f.o.b.: 101.2 (2018 est.), 104.8 (2019 proj.), 108.8 (2020 proj.).
- Imports f.o.b.: 94.6 (2018 est.), 98.7 (2019 proj.), 103.0 (2020 proj.).
- Current account balance (including official transfers): 2.4 (2016), (other years as table).
- Directors encouraged:
- Limiting interventions to maintaining orderly market conditions.
- Greater exchange rate flexibility while gradually building reserves.
- Well-sequenced modernization of the monetary framework with IMF technical assistance.
- Financial sector reforms noted:
- Shift of bank models toward lending to households and private firms.
- More prudent aggregate credit growth limits.
- Deepening of bond and equity markets.
- Adoption of Basel II standards and need for swift recapitalization of systemic state-owned banks.
- Construction of a modern macroprudential framework to replace quantitative credit limits.
Structural reforms, governance, and capacity development
- Reforms underway: gradual modernization of monetary and fiscal systems; blocks of shares in large state enterprises being offered for sale.
- Anti-corruption and governance:
- Fight against grand corruption since 2016 has resulted in significant sentences.
- A new anti-corruption law has been approved.
- Other institutional work:
- A PIMA has been completed and the AML/CFT system is about to be reviewed.
- IMF staff engaged in a wide-ranging capacity development program with Vietnam.
- Directors' priorities for reform:
- Strengthen anti-corruption legislation further.
- Reform and improve oversight of state-owned enterprises.
- Implement Public Investment Management Assessment recommendations.
- Improve statistical systems, data provision, and transparency.
- Strengthen the AML/CFT regime and address any issues identified by the forthcoming peer review by the Financial Action Task Force’s Asia Pacific Group.
- Recommendations to boost private investment and productivity:
- Reduce remaining barriers to investment, including improving access to land and credit.
- Reduce administrative and licensing procedures and trade barriers to level the playing field for the domestic private sector.
Executive Board assessment and policy priorities
- Directors commended Vietnamese authorities for prudent policies contributing to resilience and impressive growth amid rising trade tensions and external uncertainties.
- Agreed policy priorities should continue to focus on:
- Building buffers.
- Strengthening governance.
- Boosting productivity and private sector‑led growth.
Key quantitative indicators (selected)
- Real GDP (percent change): 7.1 (2018 est.), 6.5 (2019 proj.), 6.5 (2020 proj.).
- CPI (period average): 3.5 (2018 est.), 3.8 (2019 proj.).
- Public and publicly guaranteed debt (end of period): 55.6 (2018 est.), 54.4 (2019 proj.), 53.3 (2020 proj.).
- Gross international reserves (in billions of U.S. dollars): 55.3 (2018 est.), 66.2 (2019 proj.), 77.7 (2020 proj.).
- GDP (in billions of U.S. dollars): 241.3 (2018 est.), 260.5 (2019 proj.), 282.4 (2020 proj.).
- Per capita GDP (in U.S. dollars): 2551.1 (2018 est.), 2728.4 (2019 proj.), 2929.2 (2020 proj.).
IMF Press Release No. 19/283, July 16, 2019.
