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Healthy growth predicted
Viet Nam has emerged well from the financial crisis and it would not be difficult to achieve a 6.5 per cent GDP growth this year.
This was the message from the launch of the World Bank (WB)‘s East Asia and Pacific Economic Update on Wednesday.
However, keeping inflation under 7 per cent and controlling payment deficits are still big challenges.
WB economists proposed that Viet Nam needed a tightened credit policy with a higher interest rate for the Vietnamese dong to correspond with the acceleration of inflation.
"The most appropriate thing to deal with this is to start raising rates," Vikram Nehru, WB chief economist for the East Asia Pacific region, said in a video briefing on Wednesday.
Raising interest is considered a "killing two birds with one stone" measure, that will cool inflation and balance foreign reserve.
Martin Rama, a Ha Noi based WB economist said that increasing interest rates reasonably would help pull money flow back into banks, trimming inflation pressure and encouraging people to hold the dong instead of the US dollar, thus lifting pressure on the exchange rate.
"Unless interest rates in dong are increased (And become roughly comparable to the rate of inflation), investors and exporters will be reluctant to drawdown their foreign currency holdings," the World Bank said in a regional report.
The Government's policy direction has been indicated in the credit growth target of 25 per cent this year from a real growth of 37.7 per cent last year, coupled with the end of interest subsidy for short term loans and a slight depreciation of the domestic currency against the US dollar at the end of last year and in February this year.
On the other hand, Viet Nam is expected to gradually reduce its budget deficit. The Government targets to hold budget deficit at 6.2 per cent of GDP, which would require remarkable spending cuts.The WB believed that Viet Nam's debt would remain at a substantial level if the country managed to retain the current speed of recovery and State agencies could keep budget deficit at 3-4 per cent.The Government is expected to compensate for the deficit by speeding up ODA capital disbursement and issuing bonds.
More widely, the WB predicted that the developing countries of the East Asia Pacific region – the first to recover from the global economic crisis – could grow rapidly in the next decade even in a weakened world, but only if they implement structural reforms with renewed vigour and co-operate further on regional economic integration and climate change.
For commodity exporters, it would mean implementing sound fiscal rules to ensure macroeconomic stability and sustainable long-term growth while for small Pacific Island countries, greater integration with each other and with neighbouring markets remains the key.
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