The World Bank’s East Asia and Pacific Economic Report April 2015 paints a favourable picture for Vietnam. According to the report, medium term projections reflect gradual improvement in GDP growth and macroeconomic stability confronting growing pressures from rising public debt.
GDP growth picked up to 7 per cent in 2014 Q4, contributing to growth rate of 6 per cent for the year —the fastest rate since 2011. The reported notes that Vietnam still performs below its potential, due to slow-moving structural reforms, especially in the areas of banking sector and State Owned Enterprises (SOEs).
Inflation is projected to be moderate in 2015 on account of low global energy and food prices, and gradual recovery in domestic private demand.
Strong exports and robust remittances will keep the current account in surplus, albeit of diminishing amount as stronger domestic economic activity stokes import growth. The fiscal deficit would decline to under 4 per cent of GDP by 2017, underscoring the need for fiscal consolidation over the medium term together with a credible plan to strengthen the finances of SOEs and state-owned banking sector to preserve public debt sustainability.
Poverty is expected to continue to decline. Extreme poverty ($1.25 a day) is expected to decline from 2.9 per cent in 2012 to less than 1 per cent in 2017 while the percentage of population living with below $2 a day would fall from 12.1 per cent in 2012 to 5.8 per cent in 2017.
The World Bank report says the risks to the medium-term outlook remain mostly on the downside. Weak global prices of rice and other agricultural products may adversely affect rural household income and consumption and widen the urban-rural gap. Falling oil prices could also put additional pressure on the budget revenues. Domestic private investment is still weighed down by the subdued business confidence, the report notes.
On the external front, sluggish and uncertain global growth could dampen Vietnam’s exports and FDI inflows. On the upside, emerging trade agreements provide opportunity for Vietnamese enterprises to reach out to much bigger and richer markets.
Domestic reforms, including medium-term fiscal consolidation, further improvements in the business climate and more credible and visible SOE and banking sector reforms will send important signals to domestic and international investors and lay the groundwork for stronger future growth, says the report.