IMF Executive Board Concludes 2020 Article IV Consultation with Vietnam
IMF News, March 1, 2021
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- Published: March 1, 2021
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Vietnam.
- Vietnam entered 2020 after a prolonged period of high growth driven by market-oriented reform and FDI-led manufacturing, lifting it to lower middle-income status.
- In recent years, growth averaged 7 percent and progress was made towards the Sustainable Development Goals, with emphasis on “leaving no one behind.”
Economic performance and external position (2019–2020)
- 2019:
- Economic activity remained strong with stable inflation.
- Rate of new business creation reached a six-year high.
- Public and publicly guaranteed debt contained at 43 percent of GDP, below the 65 percent statutory limit.
- Current account surplus rose to 3.8 percent of GDP due to sharply slowing imports of raw materials and intermediate goods, record tourist arrivals, and large remittance flows.
- External position in 2019 assessed to be substantially stronger than warranted by fundamentals due to structural features.
- 2020:
- Real GDP growth was 2.9 percent.
- Current account surplus projected to narrow to 2.2 percent in 2020 due to collapsing tourism receipts and weaker remittances, partially offset by subdued imports and lower income payments.
- Inflation projected to remain close to authorities’ target at 4 percent.
- Strong recovery expected in 2021 as domestic and foreign activity normalize; fiscal and monetary policies expected to remain supportive, though less so than in 2020.
Policy response to COVID-19 and policy stance
- Health and economic measures:
- Early and concerted measures taken to limit health and economic fallout helped ease lockdown restrictions and contain the associated policy support package relative to other countries.
- Fiscal policy:
- Focused on temporary support to firms and vulnerable households.
- Fiscal consolidation efforts in prior years helped contain public debt.
- Directors recommended fiscal measures geared towards protecting workers and vulnerable households, including through improved budgetary execution and enhanced targeting.
- Once recovery is firmly underway, gradual fiscal adjustment should center on revenue mobilization to create space for priority social and infrastructure spending and support greener and more inclusive growth.
- Need to upgrade fiscal policy frameworks to safeguard fiscal sustainability.
- Monetary and financial sector policy:
- Monetary policy was eased to maintain abundant liquidity in the banking system.
- Directors recommended maintaining an accommodative monetary policy stance while remaining mindful of underlying banking sector vulnerabilities.
- Emphasized that corporate support for viable firms should be gradually phased out and regulatory forbearance normalized.
- Financial risks should be closely monitored and problem loans addressed in a timely manner.
- Medium term objectives include enhancing private debt restructuring frameworks and further strengthening banks’ capital position in the context of adopting Basel II requirements.
- In the context of reserve adequacy, Directors welcomed efforts to allow greater two-way exchange rate flexibility and modernize the monetary policy framework.
Structural reforms and medium-term priorities
- Directors called for steadfast reform efforts to:
- Remove remaining barriers to private investment.
- Enhance social safety nets.
- Improve the business environment, enhance productivity, and boost post-pandemic potential growth.
- Priority areas identified:
- Reducing labor skill-mismatches.
- Promoting digital transformation.
- Ensuring a level playing field, particularly for SMEs.
- Improving economic institutions and strengthening governance.
- Some Directors urged caution in interpreting EBA model results, noting they may not adequately capture Vietnam-specific structural factors and measurement issues.
Executive Board Assessment — key messages
- The COVID-19 pandemic disrupted a prolonged period of high growth and improvements in living standards.
- The authorities’ decisive and comprehensive pandemic response, supported by strong fundamentals and policy buffers, was instrumental in ensuring the economy’s resilience.
- Risks to the outlook are tilted to the downside; measures are needed to limit permanent scarring and promote sustained, inclusive, and greener growth.
Selected economic and financial indicators (2016–21) — key figures
- Output:
- Real GDP (percent change): 2016: 6.7; 2017: 6.9; 2018: 7.1; 2019: 7.0; 2020: 2.9; 2021: 6.5
- Prices (percent change):
- CPI (period average): 2016: 2.7; 2017: 3.5; 2018: 2.8; 2019: 3.2; 2020: 4.0
- CPI (end of period): 2016: 4.7; 2017: 2.6; 2018: 3.0; 2019: 5.2; 2020: 0.2; 2021: 3.7
- Core inflation (end of period): 2016: 1.9; 2017: 1.3; 2018: 1.7; 2019: 1.0; 2020: 2.3
- Saving and investment (in percent of GDP):
- Gross national saving: 2016: 26.6; 2017: 25.7; 2018: 28.2; 2019: 30.4; 2020: 28.6; 2021: 29.3
- Gross investment: 2016: 26.3; 2017: 26.4; 2018: 27.0; 2019: (not listed); Private: 2016: 20.4; 2017: 20.5; 2018: 20.8; 2019: 21.0; 2020: 20.2; 2021: 21.4
- Public: 2016: 5.9; 2017: 5.8; 2018: 5.5; 2019: 5.6; 2020: 6.2
- State budget finances (in percent of GDP):
- Revenue and grants: 2016: 19.1; 2017: 19.6; 2018: 19.5; 2019: 16.2; 2020: 15.8; 2021: (not listed)
- Of which: Oil revenue: 2016: 0.7; 2017: 0.8; 2018: 0.9; 2019: 0.6; 2020: 0.4
- Expenditure: 2016: 22.2; 2017: 21.5; 2018: 22.8; 2019: 21.6; 2020: (not listed)
- Expense: 2016: 16.3; 2017: 15.7; 2018: 15.0; 2019: 17.2; 2020: 15.4; 2021: 14.9
- Net lending (+)/borrowing(-): 2016: -3.2; 2017: -2.0; 2018: -1.0; 2019: -3.3; 2020: -5.4; 2021: -4.7
- Net lending /borrowing including EBFs: 2017: …; 2018: -0.5; 2019: -2.6; 2020: -4.3; 2021: -3.8
- Public and publicly guaranteed debt (end of period): 2016: 47.6; 2017: 46.3; 2018: 43.6; 2019: 43.4; 2020: 46.6; 2021: 47.1
- Money and credit (percent change, end of period):
- Broad money (M2): 2016: 18.4; 2017: 12.4; 2018: 14.8; 2019: 13.8; 2020: (not listed)
- Credit to the economy: 2016: 18.8; 2017: 17.4; 2018: 12.7; 2019: 12.8; 2020: 12.1; 2021: 12.3
- Balance of payments (in percent of GDP, unless otherwise indicated):
- Current account balance (including official transfers): 2016: -0.6; 2017: 3.8; 2018: 2.2; 2019: (not listed); 2020: (projection) 2.2
- Exports f.o.b.: 2016: 70.0; 2017: 77.6; 2018: 80.2; 2019: 82.5; 2020: 85.9
- Imports f.o.b.: 2016: 65.7; 2017: 73.7; 2018: 74.7; 2019: 73.9; 2020: 78.1
- Capital and financial account: 2016: 4.3; 2017: (not listed); 2018: 7.2
- Gross international reserves (in billions of U.S. dollars): 2016: 36.7; 2017: 49.2; 2018: 55.3; 2019: 78.5; 2020: 94.8; 2021: 113.7
- In months of prospective GNFS imports: 2016: 2.0; 2017: 2.4; 2018: 2.5; 2019: 4.1
- Total external debt (end of period): 2016: 35.8; 2017: 38.9; 2018: 36.4; 2019: 37.1; 2020: 38.5; 2021: 38.6
- Nominal exchange rate (dong/U.S. dollar, end of period): 2016: 22,761; 2017: 22,698; 2018: 23,175; 2019: 23,173; 2020: 23,223
- Memorandum items:
- GDP (in trillions of dong at current market prices): 2016: 5,639; 2017: 6,294; 2018: 6,998; 2019: 7,654; 2020: 7,912; 2021: 8,630
- GDP (in billions of U.S. dollars): 2016: 252.1; 2017: 277.1; 2018: 304.0; 2019: 329.5; 2020: 340.8; 2021: 364.1
- Per capita GDP (in U.S. dollars): 2016: 2,693; 2017: 2,929; 2018: 3,182; 2019: 3,416; 2020: 3,500; 2021: 3,704
Source: IMF Executive Board Concluding Statement of the 2020 Article IV Consultation with Vietnam (Press Release No. 21/55).
