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ADB praises Vietnam's effectiveness in managing economic turbulence
Vietnam has effectively managed this year’s economic turbulence, but its difficulties are not over and with uncertain global economic prospects, it is important for the country to continue measures to stabilise its economy, the Asian Development Bank (ADB) said in a major new report.
The Asian Development Outlook 2008 Update (ADO Update) says targeting a lower growth rate of 6.0% next year, as compared to the projected 2008 growth of 6.5%, will allow Vietnam to be better prepared to resume strong economic growth in 2010-2011.
“While we congratulate the Government for the improving economic statistics in recent months, in absolute terms, inflation and the trade deficit are still very high and it will still take some more time to firmly stabilise the situation,” says Ayumi Konishi, ADB Country Director for Vietnam.
“It should be clearly realised that there is a trade-off between the growth target for next year and the growth potential for subsequent years. Knowing that there are more challenges ahead for the economy, Vietnam should be patient in shifting its policies towards economic recovery,” Konishi said.
In addition to cutting its growth forecasts from 7.0% in 2008 and 8.1% in 2009, the ADO Update revised up its inflation projections for 2008 and 2009 to 25.0% and 17.5%, respectively, from its previous estimates in April of 18.3% and 10.2%. The current account deficit for this year is now seen at 13.5% of GDP, up from 10.3% previously; and for 2009 at 7%, down from 9.4% earlier.
The Government has been giving priority to curbing inflation over stimulating growth, in order to bring it to single-digit levels, but as price pressures are projected to ease, along with a slowdown in growth and a narrower trade deficit, the Government may be tempted to loosen its fiscal and monetary policies and boost public investment in an effort to spur the economic growth rate again. If this occurs, the GDP growth rate will increase, but so will inflation, and the current account deficit in 2009 will also be larger than in the baseline scenario, says the report.
“At some stage, adjustments in wages, power tariffs and other key prices will be essential. Another surge in global commodity prices cannot be ruled out and there are also concerns about several aspects of the domestic economy,” says Mr. Konishi.
The report notes that the State Bank of Vietnam needs to continue strengthening its prudential supervision of banks and, should any bank become financially distressed, act swiftly to prevent a systemic banking crisis.
Despite near-term risks and challenges, Vietnam’s medium- to long-term economic prospects remain good, with a diligent labor force, moderate external debt burden, rising foreign direct investment inflows, and significant growth potential, the report says.
While economic and institutional reforms have slowed in recent months, they are expected to speed up again once Vietnam’s macroeconomic situation stabilises and market conditions become more favorable.
ND
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