Economists foresee more pain for Vietnam in 2014, urge reform

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Next year is going to be another hard one for the Vietnamese economy, economists warn.

Sandeep Mahajan, chief economist for the World Bank in Vietnam, said the economy may have regained stability and inflation contained within single digits 5.5 percent in November -- but the obstacles to economic growth remain, especially the falling confidence in the private sector.

Private investments have dropped from 15 percent of GDP in 2007-10 period to 11.5 percent this year, he pointed out.

Provincial surveys have found that businesses are either keeping their operations unchanged or scaling down.

The Purchasing Managers' Index's regular dip below the 50.0 no-change mark shows manufacturing is slowing down.

Household spending increased by only 5.1 percent in 2009-12 compared to 8.9 percent the previous four years, and Mahajan said consumption would continue to be low next year, burdening the economy.

Tran Du Lich, an economist who advises the government, agreed that the economic scenario would remain gloomy next year in terms of consumption and investment.

"The goal for 2014, and maybe also 2015, is to maintain stability and start restructuring the economy. Bottlenecks need to be dealt with next year."

He said the bottlenecks -- stockpiles, bad debt, and the [frozen] property market -- have existed for several years and have not been resolved this year as expected.

Some ways out

HSBC suggested that Vietnam's accession to new trade pacts like the 12-nation Trans-Pacific Partnership, which will be signed next year, and the Regional Comprehensive Economic Partnership to be concluded in 2015 between ASEAN member nations and its FTA partners (Australia, China, India, Japan, Korea, and New Zealand), would provide momentum to the economy.

The agreements would open doors but to grasp the chances, businesses would need "breakthrough" support from the government, it said.

Economist Bui Kien Thanh said the basic support the government can provide is by lowering interest rates and taxes.

Last year's monetary policy failed to provide funds at acceptable rates, and the fact that more than 55,000 businesses shut down or halted operations shows how "worrying" the situation is, he said.

He said foreign companies in Vietnam borrow from their countries at no more than 7 percent, some even at zero, while Vietnamese companies pay at least 9 percent interest, and 11 percent in the case of most of them.

"Then how are our businesses going to compete?"

The government needs to halve the value-added tax on most products to 5 percent or even abolish the tax on those that bring high value to the economy, Thanh said.

World Bank experts said the slowdown in economic growth requires Vietnam to loosen monetary policy next year though that would come with the risk of inflation.

They called for restructuring the economy without any more delay, warning investors' confidence would keep dropping otherwise.

Trinh Nguyen, an economist at the Hong Kong-based HSBC, also flagged inflation as a concern.

She said Vietnam could grow at 5.4 percent next year and 5.8 percent in 2015, around the same or higher rate than other ASEAN members, but its prices would rise at much faster rates.

"The three most urgent issues for Vietnam to fix are the banking system, energy, and the business environment."

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