Vietnamese legislators fear that the nation will miss its economic growth target for 2012 due to shuttering businesses and slowing growth.
Nguyen Van Giau, head of the National Assembly's Economics Committee, said it would be tough for Vietnam to achieve its 6-6.5 percent annual growth target. The economy expanded only 4 percent in the first quarter and is projected to post a growth of 4.5 percent in the second quarter.
"Difficulties that local businesses have to face, slowed industrial output, falling imports and weakening consumption indicate a decline in the production capacity of the economy," Giau said Monday when the National Assembly began a month-long session in Hanoi.
Legislators are expected to discuss measures to boost the economy, including a tax relief package that the Ministry of Finance estimated to be worth about VND25 trillion (US$1.2 billion).
Giau said the assembly will address the proposed tax breaks in addition to continued credit access difficulties and the impact of rising business closures.
More than 17,000 companies halted production or shut down in the first four months of 2012, up 9.5 percent from the same period last year, according to a report issued by the government to the National Assembly.
Deputy Prime Minister Nguyen Xuan Phuc said the economy is showing signs of a "slowdown" despite easing inflation, a stable exchange rate and an improving balance of payments.
Tighter fiscal policies have tamed inflation and stabilized the economy, but they have also created difficulties for many businesses, especially small- and medium-sized enterprises, Phuc told the legislature.
The economy will continue to face many challenges in the remaining months of the year including high interest rates and rising input costs, he said, noting that the government will take steps to aid companies.
Phuc said inflation will be kept at 8 to 9 percent this year.
Hanoi's consumer price index is estimated to rise 0.16 percent in May from the previous month, according to the Vietnam News Agency. The jump amounts to a year-on-year increase of 7.8 percent.
Analysts said easing inflation will allow the central bank which already cut policy rates twice in March and April to further reduce interest rates.
On Wednesday, the State Bank of Vietnam announced it would consider bringing deposit rates to 10 or 11 percent, compared to the current ceiling of 12 percent, if inflation keeps easing. The bank said lending rates have fallen by around 2 or 3 percentage points since the end of last year to a range of 12-19 percent.
Vietnam's economy is gradually entering a more stable macroeconomic environment, the World Bank said in its latest East Asia and Pacific Economic Update released Wednesday.
The bank credited Vietnam's policy shifts in February 2011 for the improvements, but warned that a significant tightening of macroeconomic policies and the uncertain global economic environment are "beginning to take a toll on [Vietnam's] economic growth." The Washington-based lender pointed out that Vietnam's growth decelerated from 6.8 percent in 2010 to 5.9 percent in 2011, and declined further this year as domestic demand slowed, affecting construction, services and utilities.
Tighter domestic policies last year also dampened private consumption and investment, particularly in infrastructure and real estate, it noted, projecting an economic growth rate of 5.7 percent for the country this year.
"Vietnam's near-term policy challenge is to maintain macroeconomic stability and restore confidence among investors, while also addressing longer-term structural reforms," the World Bank said.
The government is stepping up efforts to restructure state-owned enterprises (SOEs), public investment management, and the financial sector. The World Bank expected more regulations, including new rules governing the supervision of state capital investment in SOEs and performance monitoring of SOEs, to be enacted this year.
SOE reforms are also high on the agenda of the ongoing National Assembly session, following a major scandal involving state-owned shipping company Vinalines, which bears a strong resemblance to Vinashin, the heavily over-extended shipbuilder.
Giau of the Economics Committee said the government needs to create a level playing field for all companies and minimize preferences for state enterprises.
SOEs should be reviewed thoroughly before new plans can be made for them, he added.