Motorcyclists ride down a road in Ho Chi Minh City.
The global economic crisis has affected Vietnam more badly than its neighbors, with the country experiencing its longest spell of slow growth since the late 1980s, the World Bank said July 12.
Vietnam was the only "large developing country" in the East Asia and Pacific region whose growth rate remains lower than before the global economic slump, it said.
Since 2010 its average growth rate had been 5.8 percent, 1 percentage point lower than its pre-crisis level.
The country had been acknowledged to have the ability to recover rapidly after economic shocks like the 1999 East Asian crisis.
"Vietnam has found it harder to take timely and decisive actions to jump-start its economy from the current growth slowdown."
News website Saigon Times quoted Deepak Mishra, the bank's lead economist for Vietnam, as saying it would take very long for the country to catch up with the growth rate and average income of neighbors like Indonesia, Malaysia, Thailand, and the Philippines.
The government targets a 5 percent growth this year after 5.03 percent last year, the slowest growth in 14 years. But the bank said the economy has the potential to grow at around 7 percent.
Good mix in bad
Macroeconomic conditions continue to improve as the economy enters a third year of "relative stability," but in the absence of broad structural reform, this stability is unable to lift the economy from the prolonged low growth, the bank said.
Private consumption and investment, which accounted for over 90 percent of Vietnam's gross domestic product, had seen sharp decline in growth.
Consumption grew by 3.5 percent last year while the number was 5.3 percent in 2009-10.
In the first quarter of 2013 retail sales expanded by 12 percent, much lower than the 17-30 percent in the same period during the previous decade.
Trade was the only area to do well with the trade gap turning positive last year for the first time in two decades.
But the bank dismissed it as a sign of weakening domestic demand and slowdown in manufacturing growth.
While foreign investment remained a key factor in economic growth, the FDI to GDP ratio fell last year to 7 percent from 12 percent in 2008. But the country was still a popular destination for foreign investors thanks to it low wages and political stability.
The bank forecast prices to rise 8.2 percent this year. The steep deceleration in year-on-year inflation from 18 percent in December 2011 to 6.7 last June was largely a result of the government's measures to control prices.
But it feared continuing loose monetary policies to boost the economy would bring about high inflation again. The State Bank of Vietnam has made eight cuts to key policy rates and lowered the deposit rate cap on the dong by 6.5 percentage points since March 2012, but lending has yet to pick up.
Debt under stress
Last year the fiscal deficit as a ratio of GDP increased to 4.8 percent from 3.5 percent a year earlier.
As a result of higher deficits, the government's debt increased to 52 percent of GDP from 48 percent in 2011, the bank said.
The country has announced plans to slash corporate tax by 3 percentage points to 22 percent starting next year.
With the government set to borrow VND208 trillion ($9.8 billion) this year, public debt is expected to "hit a new high," the bank said.
It expected the economy to grow by 5.3 percent this year following 4.9 percent growth in the first half.
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