Vietnam should refrain from drastic measures: WB

TN News

Email Print

Given Vietnam's history of loosening policies prematurely, the country should exercise caution after consecutive interest rate reductions over the past three months, the World Bank said.

It said the State Bank of Vietnam has reduced policy rates by 3 percentage points in a period of eight weeks and the government is also trying to support enterprises by deferring tax payments and lowering land lease fees. The effects of these policy changes are expected to be felt by the end of the third quarter

"With gains from macroeconomic stabilization still recent and fragile, the government needs to be careful not to shift to an expansionary stance prematurely," the Washington-based lender said in a note on its website Monday.

The remarks came as Vietnamese policymakers and international experts gathered in the central town of Dong Ha to discuss economic issues.

The International Monetary Fund also said Vietnam's central bank should prioritize containing inflation and be wary about further lowering interest rates.

The government should focus on economic stability even if it means accepting "somewhat slower growth," said Sanjay Kalra, the IMF's resident representative for the country.

"Risks to the outlook for 2012 include a loss of market confidence in the government's policy orientation," Kalra said at the conference in Dong Ha. "Government policies need to credibly prioritize stability."

Vietnam's GDP growth has decelerated from 6.8 percent in 2010 to 5.9 percent in 2011, and to 4 percent in the first quarter of 2012.

Vietnam has entered "a phase of sluggish growth," said the World Bank, which noted that inefficiencies in state-owned enterprises, banks and public investments have hindered the country's long-term growth potential.

"This is a country that for many years just lived on delivering growth" and didn't have to worry too much about economic stability, World Bank Vietnam country director Victoria Kwakwa said in an interview with Bloomberg Tuesday. "They're really having to make their choices."

The pace of expansion for the full year may be in a range of 5.2 to 5.5 percent, with second-quarter growth likely to reach about 4.5 percent, Deputy Minister of Planning and Investment Cao Viet Sinh, said in an interview at the conference.

"Looking at slowing industrial indicators and the difficulties that businesses are facing, we can see that it will be very difficult in the second half," said Sinh. "But the government still wants to stick with the 6 percent target for now and wait to see what growth in the third quarter will be, before making any changes in the target."

S&P on Wednesday maintained its BB- rating for Vietnam, three levels below investment grade, with a stable outlook.

More Business News