The Asian Development Bank has raised its economic growth forecast for Vietnam to 6.5 percent this year and 6.6 percent next year amid rising consumption and export-oriented production.
According to the Asian Development Outlook 2015 Update released Tuesday, private consumption is benefitting from low inflation, improved consumer confidence and growth in non-farm wage employment.
Inflation subsided to 0.6 percent year-on-year in August 2015, a steep decline from a peak of 23 percent in August 2011. Moderating inflation allowed the central bank to maintain an accommodative monetary stance, the report said.
Inflation is expected to edge up to 2 percent by December owing to higher domestic demand, strong credit and money supply growth, increases in gasoline prices and electricity tariffs earlier this year, and the impact on import prices of the dong devaluation.
Inflation is seen rising to 4 percent in 2016.
The Manila-based bank said fiscal policy will remain supportive of growth, though it could tighten next year. Public debt, including loans guaranteed by the government, is expected to rise to about 62 percent of GDP by the end of 2015.
Debt and budget deficit
Concerns about public debt and debt servicing are expected to prompt the government to rein in expenditure growth to narrow the budget deficit, starting in 2016, said Eric Sidgwick, country director of ADB Vietnam.
The challenge will be to manage this tightening in a gradual, predictable manner that avoids disrupting the economy’s upward momentum, he added.
Growth in credit this year looks likely to exceed the government’s initial target of 13-15 percent and is projected to quicken into 2016. The central bank is also encouraging consolidation to reduce the number of banks by almost half by 2017.
Vietnam is facing many challenges, including the economic slowdown in China, a big trade partner, which would affect its trade prospect, according to the bank.
Lower prices of many export items, including crude oil and agricultural products, in the international market would cut Vietnam’s export revenues, it said.
To reduce the impacts of the challenges, Vietnam should continue its economic restructure, accelerate administrative reform, and increase competitiveness of products, said Sidgwick.
In its Asian Development Outlook issued in March, the bank forecast Vietnam's economy would grow 6.1 percent this year and 6.2 percent in 2016, with the foreign investment sector an important driver.