The Asian Development Bank has lowered Vietnam's forecast economic growth rate for 2013 from 5.7 percent to 5.2 percent in its latest flagship report.
The Asian Development Outlook 2013 (ADO), launched Tuesday, also forecast GDP growth at 5.6 percent in 2014 if the country achieves progress in strengthening the banking sector and the recovery of large industrial economies would create motivation in the year.
Last October, ADB forecast Vietnam's economic growth rate at 5.7 percent.
According to the report, average annual inflation is expected to be about 7.5 percent in 2013, lower than its previous forecast due to lower than expected domestic demand. The figure is forecast to hit 8.2 percent in 2014.
The forecast was given on an assumption that the weather conditions are favorable for food production, the foreign exchange rate is relatively stable and stimulation policies are controlled.
The trade surplus is expected to climb to a record US$12.5 billion in 2013 and the current account surplus to increase further this year before easing in 2014 as imports accelerate in parallel with GDP growth.
Addressing at a press conference to announce the ADO 2013, Tomoyuki Kimura, ADB Country Director for Vietnam, said Vietnam's GDP growth in 2012 was the slowest in 13 years.
While subdued economic growth prompted the authorities to ease monetary policy, credit growth was constrained by uncertainty in the health of the banking system, he noted.
"Economic recovery depends on banking and SOE (state-owned enterprise) reforms being accelerated.
"ADB suggests the government take a more strategic and selective approach towards structural reforms, particularly SOE restructuring, as it is not possible to do everything at once.
"Some initial success and progress can spur further reform momentum."
Despite these concerns, Kimura said Vietnam remains an attractive destination for foreign investment because of its large and growing working-age population and low labor costs, and it is illustrated by the general increasing trend in FDI in the past 10 years.
Nevertheless, as ASEAN integration in 2015 approaches, the country faces increased competition for FDI in Southeast Asia, he said.
Vietnam's ability to remain competitive and drive economic growth back to 7-8 percent will depend on successful implementation of structural reforms and improving the business environment more broadly, according to Kimura.