Vietnam economy to become more stable, but risks remain: World Bank

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Workers process tra and basa catfish for export at a factory in the southern province of Dong Thap. Photo courtesy of Saigon Giai Phong

Vietnam's economic growth will rise to 5.5 percent by 2015, with macroeconomic stability largely restored, the World Bank has said.

In its biannual Taking Stock report released Monday, it said the medium-term macroeconomic outlook remains favorable on balance.

"Vietnam has done well in ensuring macroeconomic stability over the past year, which has been underpinned by moderating inflation and strengthening external accounts," Victoria Kwakwa, the World Bank's Country Director for Vietnam, said. "Focus should now be made on the slow moving structural reforms to reposition Vietnam on a higher growth trajectory."

The bank expects the country's economy to grow at 5.3 percent this year, or 0.1 percentage point below government forecasts.

The report identifies several critical risks to macroeconomic stability, including low foreign exchange reserves, fragile private sector demand, possibility of departure from fiscal and monetary discipline, slow progress on structural reforms, and loss of confidence in a fragile banking sector.

"With rising pressures on the budget, the government is faced with some crucial policy choices, as it seeks to balance the twin objectives of faster growth and macroeconomic stability," Sandeep Mahajan, the bank's Lead Economist for Vietnam, said.

The report said progress on SOE restructuring has been slower than expected and non-performing loans (and the uncertainty around their true extent) in the banking sector remain a major concern, and due attention is needed to issues like bankruptcy, insolvency, and creditor rights, which would facilitate restructuring of corporate debts.

The report also looked at trade facilitation, competitiveness and growth; corruption and economic growth; and poverty and inequality.

While exports have remained strong in recent years, they remain dominated by low-value products, the report said, suggesting an enhanced emphasis on value-added products, which requires the strengthening of transport infrastructure and logistics, regulatory procedures for trade, and supply chain organization.

With regard to corruption, the report said this has long been recognized as a serious problem, which possibly undermines Vietnam's long-term growth.

According to recent studies, in a majority of instances bribes were initiated not by government officials but by firms.

The report found that the welfare of most people improved substantially in 2010-12, causing a drop in the poverty rate and a likely decrease in inequality.

Ethnic minority welfare has improved greatly over time, but poverty remains concentrated among these groups, it said, because they started much poorer and have lagged behind the spectacular progress made by the country overall.

The report suggested that the observed pathways out of poverty for ethnic minorities are similar to those of the majority group -- the process involves moving to growing cash crops, intensifying agricultural production, moving to agricultural diversification and/or trading and services, and investing in education for children.

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