Short-term economic problems associated with the uncertainty of the global economic recovery are likely to remain challenging for Vietnam, the International Monetary Fund has said.
Shogo Ishii, Assistant Director of the Asia and Pacific Department at the International Monetary Fund (IMF), made the remarks at the two day Consultative Group Meeting for Vietnam ending December 4.
The global recovery will support the domestic economy, but uncertainty about its strength suggests some risks that Vietnam needs to be on the look out for, especially risks to exports, private remittances, and foreign direct investment (FDI), according to the fund.
Inflation is likely to rise to double digits from around 7 percent in 2009, as the recent sharp increase in credit growth and higher commodity prices feed domestic prices, said Ishii.
According to a World Bank (WB) report, the global recovery is already leading to prices hikes in key commodities, which could even accelerate in 2010.
Ishii said the outlook for the balance of payments will be a big challenge for Vietnam. "Our projections assume that the government is able to narrow the current account deficit to 7.5 percent of GDP from an estimated 8.75 percent in 2009, and to reverse the shift in resident portfolios toward foreign currency assets.ââ‚¬
If FDI and official development assistance flows remain firm, this would allow a modest recovery of gross international reserves in 2010, he said.
The IMF expects a growth of 6 percent for Vietnam in 2010, on the back of gradual recovery in exports and FDI.
However, the greater risk lies with the re-emergence of macroeconomic instability similar to that encountered in 2008, constraining the scope for maintaining stimulus programs, according to Ishii.
Prime Minister Nguyen Tan Dung said the global economy in 2010 would be wrought with difficult and complicated uncertainties and potential risks with weak signs of recovery despite certain positive changes recently.
"This poses new issues related to Vietnam's development. The tasks for Vietnam in 2010 are heavy and will be conducted amid many difficulties and challenges," said the prime minister.
According to the United Nations in Vietnam, the government, in the short term, needs to refine its post-crisis exit strategy.
This might require reducing its stimulus efforts to minimize the risk of fuelling new asset bubbles in the real estate and stock markets, and reducing unnecessary pressure on the balance of payments.