Vietnam remains one of the most popular destinations for expansion within the ASEAN region according to ASEAN Business Outlook Survey by AmCham and Singapore Business Federation.
29th July , 2013
ACHIEVEMENTS
Relatively stable macroeconomic conditions
- – Moderate inflation: 6.7% in June 2013.
– Stable exchange rate—Dong depreciated by 1.6% percent in the past 12 months (average exchange rate by commercial banks)
– Significant increase in foreign reserves— from 2.2 months of import cover at the end of first quarter of 2012 to 2.8 months at the end of first quarter of 2013
– Reduced sovereign risks—Vietnam’s credit default swap (CDS) is about 250 basis points in June 2013 compared to about 350 in June 2012.
Strong external balances
– Solid export growth thanks to strong performance of foreign-invested sector:
Total export value rose by 16% in the first half of 2013 compared to the same period last year.
Foreign invested sector accounts for 66% of Vietnam total exports and grew by 25%.
– Diversified export composition: more hi-tech items
Exports of cell phones and parts become the largest export item ($9.9 billion) in the first 6 months of 2013, surpassing Vietnam traditional exports such as crude oil, garment or footwear.
Cell phones, electronics and computer together now account for nearly a fifth of Vietnam total exports§
– Surplus in trade balance in 2012 – the first ever since 1992.
– Largest current account surplus in country’s history: changed from a current account deficit of 11% of GDP in 2009 to a surplus of 5.9% in 2012; it is projected to remain in surplus in 2013, though will be a lower amount than previous year.
Mixed signs from foreign investors
– FDI (implemented)/GDP ratio declined from a record 11.8% in 2008 to about 7.7% in the first half of 2013
– Existing competitors are performing better (e.g., Indonesia and Thailand) and new competitors have come up (e.g., Myanmar).
BUT
– Foreign investors still rank Vietnam as an attractive destination for future investments: Vietnam remains one of the most popular destinations for expansion within the ASEAN region according to ASEAN Business Outlook Survey by AmCham and Singapore Business Federation.
CHALLENGES
Longest spell of slow growth since the onset of economic reforms in the late-1980s Real GDP grew by 5.25 percent (new series) in 2012, the lowest level since 1998
– During 2010-13 period Vietnam will grow at a slower pace than Indonesia and Philippines—first time in two decades.
Declining investment rate, low PMI and slumping retail sales§
– Across the board decline in investment rates: Total investment has fallen from 29.6 percent of GDP in the first quarter of 2013 from 38.5 percent in 2010.
– Purchasing Managers Index has remained below 50 marks for most of 2012 and 2013 (PMI below 50 signals contraction in the production)
– Growth in retail sales and services (in nominal terms) has falling from 24% in 2011 to 16% in 2012 and to 11.9% in the first half 2013.
Imports Slowdown
– Imports by domestic sector fell by 7% in 2012, indicating a low demand for capital investment and intermediate goods, as well as weaker private consumption.
Fiscal situation seems to be deteriorating
– State finances are under stress on account of slower growth, lower revenue buoyancy and increased stimulus spending
– Total revenue has fallen from 30 percent of GDP in mid-2000s to an all-time low of 22.8 percent of GDP in 2012 Capital spending (including off-budget) is estimated to have fallen from around 12.6 percent of GDP in 2010 to 7.8 percent in 2012
– External debt remains sustainable because of high current account surplus, but domestic debt is rising fast.
Slow structural reform: the process just begun but not yet decisively implemented
An update on banking sector restructuring
– Financial sector remains fragile, but risk of a systemic crisis has receded.
– Restoration of macroeconomic stability and tight credit policy of SBV have prevented the vulnerabilities from growing bigger.
– Establishment of the Vietnam Asset Management Company (VAMC) has so far been the most visible step on the part of the Government to resolve the NPL problems.
– Resolution of NPLs will require a proactive multi-pronged approach.
SOE reforms
– More than two years after the government set out to reform the SOE sector, progress has been limited.
– Work is ongoing to build on the existing legislation to create a comprehensive framework for the management of SOEs.
– Successful restructuring of SOEs will be difficult to achieve without strong inter-agency coordination and improved transparency.
NEAR-TERM OUTLOOK AND RISKS
Economy expected to grow at a moderate rate of around 5.3 percent during 2013 and 5.4 percent in 2014.
Inflation is expected to increase to around 8.2 percent at the end of the year.
There are many downside risks:
– Slower growth may intensify demand for further loosening of monetary and fiscal policies, with the risk of stoking inflationary pressures and reversing the recent gains in macroeconomics stability;
– Delayed implementation of structural reforms could undermine investors’ confidence and worsen growth prospects further.
Source : World Bank