VN economy still facing risks, IMF warns
Play
Vietnam has regained macro-economic stability over the past year, yet the economy faces potential risks in the coming months, an International Monetary Fund (IMF) report released late last week showed.
The export sector is performing well, especially foreign-invested enterprises, but domestic companies, though improving, have yet to find a solid footing.
Problems facing the domestic sector include low productivity, improper structure of resource allocation, impaired bank balance sheets and inefficiency in some state-owned enterprises (SOEs).
Credit growth has picked up modestly, mostly concentrated in the export-oriented and agricultural sectors.
Inflation has dropped significantly but underlying pressures persist, with domestic and import-related fiscal revenue weakening during recent months.
The current account surplus surged to US$9.1 billion (Bt284 billion) in 2012 from $0.2 billion in 2011, given a slowdown in imports and the strong export performance.
The exchange rate has been stable and gross international reserves more than doubled in February from the end of 2011, although they are still inadequate, covering just two and a half months of prospective imports.
In the next two years, the current account surplus is expected to remain sizeable and foreign direct investment (FDI) inflows will remain strong, supporting international reserves.
Economic growth is projected to be over 5 per cent this year, fuelled by exports.
“This outlook depends on an improvement in the global economy, broadly unchanged monetary and exchange rate policies, plus a measured withdrawal of fiscal stimuli,” the IMF executive board said.
The board said Vietnamese authorities had made significant progress on macro-economic stabilisation, as they were containing vulnerabilities in the banking sector and advancing reforms in the SOE area.
“Calm has returned to financial markets after the State Bank of Vietnam provided liquidity and facilitated the merger of several small and weak banks over the past two years,” it said.
“Banking system liquidity has eased, as evidenced by higher deposit growth and significantly lower funding costs.”
But the board said there was little scope for further interest cuts in the near term and this could put the State Bank’s inflation-fighting credibility at risk.
The government has outlined a restructuring plan that requires SOEs to divest non-core assets and improve internal controls. About 1,200 SOEs are due to be reorganised, of which, some are making losses or just breaking even.
The reform strategy until 2015 focuses on retaining full ownership of roughly 50 per cent of SOEs, which mostly operate in public service areas or are of strategic interest. Around 43 per cent of SOEs will be equitised and the rest will be restructured, sold or liquidated.
“The financial and SOE sectors, however, remain key sources of vulnerability,” the board said. “As a result of past policies, part of the banking system is under-capitalised, under-provisioned and has low profitability.”
