Vietnam’s economy grows robustly but risks intensify

Việt Nam continues to achieve robust growth accompanied by moderate inflation and a relatively stable exchange rate. VIET NAM NEWS PHOTO

HANOI — Economic growth in Vietnam had proven resilient despite weakening external conditions, driven mainly by strong domestic demand and a dynamic export-oriented manufacturing sector, according to the World Bank (WB)’s update on recent economic developments in Vietnam.

According to Taking Stock, the WB’s bi-annual economic report on Vietnam which was released yesterday, the pace of expansion was forecast to remain at 6.8 per cent this year, higher than the projected figure of 6.3 percent for emerging markets in the East Asia and Pacific regions.

Over the medium term, in line with global trends, Vietnam would see a slower pace of 6.6 and 6.5 percent in 2019 and 2020, respectively. Inflation would remain muted at 4 percent as the result of tightening monetary policies.

“Despite a challenging global context, Vietnam continues to achieve robust growth accompanied by moderate inflation and a relatively stable exchange rate” said Ousmane Dione, the WB Country Director for Vietnam.

“Policy makers should take advantage of the still favorable growth dynamics to advance structural reforms to enhance private sector driven investment and growth, along with improving efficiency in public sector investment,” he said.

The report highlighted that risks to the outlook had intensified and were tilted to the downside. Given its high trade openness and limited fiscal and monetary policy buffers, Vietnam remained susceptible to external volatilities. Escalating global trade tensions could cause a falloff in export demands while tightening global liquidity could reduce capital inflows and foreign investment. Domestically, a slowdown in reforming the State-owned enterprise and banking sectors could undermine growth prospects and create public sector liabilities.

“Slower global growth, ongoing trade tensions and heightened financial volatility cloud on the global outlook,” said Sebastian Eckardt, the WB Lead Economist for Vietnam. “As an open economy, Vietnam needs to maintain a responsive monetary policy, exchange rate flexibility and low fiscal deficits to enhance its resilience against potential shocks.”

He recommended alleviating constraints to domestic investment, including boosting reforms of State-owned enterprises and deepening and accelerating equitization; enhancing the business climate and regulatory reforms; capital market development to ensure efficient financial intermediation; and enabling private investment in infrastructure and improving public investment efficiency.

Investment in human capital or people and innovation capacity to improve labour productivity was also needed, he said.

In light of the recently ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), the special section of this Taking Stock edition focused on streamlining non-tariff measures to help boost Vietnam’s export competitiveness.

The report observed that while tariffs were rapidly declining, the number of non-tariff measures (NTM) was increasing. Vietnam’s average preferential tariffs fell from 13.1 percent in 2003 to 6.3 percent in 2015. In contrast, the number of NTMs increased by more than 20-fold during the same period. International experiences show that poorly designed and implemented NTM could restrict trade, distort prices and erode national competitiveness.

According to the report’s assessment, the NTM system in Vietnam remained complicated, opaque and costly, resulting in a high cost of compliance. One study estimated that the equivalent tariff rate that sanitary and phytosanitary measures Vietnam was imposing on imported goods was 16.6 percent compared to the average level of 8.3 percent for Asean countries.

WB’s Senior Economist Pham Minh Duc gave recommendations including defining and classifying NTMs in line with international standards, official use and regular updates of the Vietnam Trade Information Portal and establishing a standard procedure for reviewing NTMs.

He also suggested simplifying related procedures, applying risk management and strengthening interagency coordination.