Vietnam's economy bounces back from bottom: report

By Bao Van, Thanh Nien News

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The economy has rebounded in recent months, said Dang Ngoc Tu, vice head of the commission’s policy research and coordination department following the recent release of an annual report.
“The trend will continue this year, and this year's annual economic growth goal of 5.8 percent remains within grasp,” Tu said.

The economy hit its nadir in the third quarter of last year following continuous slowdowns in the preceding quarters, according to the 2014 macroeconomic prospect report released by the National Supervision Commission.

The growth is supported by the expected increase in aggregate demand, private investment, FDI, and exports, government efforts to relieve business difficulties, the possible launch of the Trans-Pacific Partnership Agreement, and the Free Trade Agreement with EU, and the improvement of global trade, he said. 

However, the country is expected to face a lot of challenges this year, as aggregate demand continues its slow rise, agricultural products (especially rice) see lower sales and prices, and economic development continues to depend on the FDI sector, he said.

Vietnam's first quarter GDP rose 4.96 percent year-on-year, according to the General Statistics Office. That compares with fourth quarter growth of 6.04 percent in 2013.

The World Bank estimates the economy will grow 5.4 percent this year, slower than a government target of 5.8 percent, and a seventh straight year of growth below 7 percent.

To improve the economy in the coming time, it is important to raise aggregate demand, Tu said.

Disagreeing with the commission on the issue, Acting President of the Central Institute for Economic Management Nguyen Dinh Cung said it won't be easy to increase demand, which remains weak in spite of the government's loosening of fiscal policy.

“In a country with low growth like Vietnam, increases in supply are more important to boosting economic growth,” he said.

Echoing Cung, Nguyen Duc Kien, deputy head of the National Assembly's Economic Committee, said inflation is too high in Vietnam, compared to other ASEAN countries, reducing economic competitiveness.

Singapore, Malaysia and Thailand have seen inflationary hikes of 2-3 percent every year.

The commission’s chairman Vu Viet Ngoan said the country’s economy will see long term improvement only when supply, labor productivity and product competitiveness rise.

However, it takes a lot of time to increase supply. 
While waiting for supply to improve, Vietnam needs to increase demand, he said.

To ensure economic improvement, it is necessary to maintain stable, low inflation in the near future, Cung said. This year's estimated 5 percent inflation is high. In 2005, the country saw inflation a little over 3 percent, he added.

Ngoan said: “Five percent inflation is reasonable given our priority of macroeconomic stability. In newly emerging economies, annual inflation of 4-5 percent is acceptable. In the coming years, we should keep it at 2-3 percent.”

Economists at the meeting expressed concerns about Vietnam's slow credit flows, which could hinder development. They also raised objections about the fact that most of the loans have been allocated to inefficient state-owned firms.

“If most of loans keep going to state-owned enterprises, private ones will have less and less access to credit, shrinking Vietnam's potential for economic development,” Cung said.

Interest rates fell some 12 percent in 2013 from 20 percent in 2011. Meanwhile, credit grew 12.5 percent in last year, compared to 9.8 percent the previous year, according to the commission.

Bad debts

The commission said bad debt accounts for about 9 percent of Vietnam's total loans. “The bad debt is still high, but under control,” said the commission’s vice chairman Truong Van Phuoc.

Actual bad debt remains well below the 15 percent estimate published by Moody's Investors Service, he noted. 
Banks in Vietnam have managed to cut bad debt to 3.63 percent of loans at the end of 2013, from 4.73 percent last October, said the central bank after a Moody's report on February 18.

Economists at the meeting disagreed with Phuoc. Former Governor of the Central Bank Le Duc Thuy said: “It is too early to say bad debt has been under control.”

“Banks’ efforts and some existing measures are not enough to effectively deal with bad debts,” he said. “We need more drastic measures to solve the debts.”

In an effort to deal with nonperforming loans in the banking sector, the government has established the Vietnam Asset Management Company (VAMC), which is responsible for the purchase, recovery, and restructuring of bad debt.

Kien said he does not see how banks can reduce their non-performing loans.

Banks could use their reserves to eliminate bad debts from their balance sheets, he said.

“But actual bad debt will not decrease. We need to take comprehensive measures to deal with this issue,” he said.

Other economist said Vietnam, in addition to cutting interest rates, needs to accelerate the restructuring of its banking system and reduce stockpiles of goods.

“Bad debts won't go away unless these issues are addressed,” he stressed.

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