IMF Executive Board Completes the 2017 Article IV Consultation with Vietnam
On June 7, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Vietnam.[1]
Vietnam’s dynamic economy continues to perform well, aided by sound economic fundamentals. Growth moderated to 6.2 percent in 2016, reflecting the impact of a drought and land salinization on agriculture and lower oil production. Weakness in the oil sector continued in the first quarter of 2017, but the underlying growth momentum remains robust underpinned by strong manufacturing activity and foreign direct investment (FDI), robust domestic demand, and a rebound in agricultural production. Inflation rose to around 5 percent in early 2017 due to increases in administered prices for health care and education. The current account surplus rebounded in 2016 to 4.1 percent of GDP, and gross international reserves rose substantially.
The authorities are developing a broad reform agenda, keenly aware of the limited fiscal space, the need to upgrade the growth model at home, and rising risks of economic fragmentation abroad. After years of high fiscal deficits and rising public debt, the authorities are planning an appropriate amount of fiscal consolidation starting this year, although concrete measures have not yet been fully identified. Monetary policy was accommodative over most of last year against the backdrop of low core inflation, and the exchange rate has depreciated slightly since the fall of 2016. Macroprudential policies were tightened, while credit growth was robust. Bank reforms have progressed, but nonperforming loan (NPL) resolution, bank recapitalization, and legal reforms to strengthen market discipline have been sluggish. Good progress has been made on the legal framework for SOE reforms, but implementation has been slow. The authorities are planning to limit the role of the state in the economy, reduce state ownership in enterprises and encourage private sector-led sustainable growth.
For 2017, growth is projected at 6.3 percent and headline inflation is projected to stabilize at around 5 percent as administered prices continue to be adjusted. The current account surplus is expected to decline somewhat, reflecting stronger imports. While the near-term outlook is positive, there are downside risks including from high public debt, slow NPL resolution, tighter global financial conditions, shocks to external demand, and rising protectionism and the failure of the Trans Pacific Partnership. On the upside, successful implementation of the authorities’ ambitious reform agenda could raise growth potential and increase resilience to shocks. Fast implementation of the Vietnam-EU and other bilateral trade agreements would fuel exports and FDI.
Press-release at the IMF official web-site