People ride on a motorcycle and bicycle past the State Bank of Vietnam in Hanoi. Photo credit: Reuters
Macroeconomic stability in Vietnam is improving but the country’s growth remains moderate and below its potential, according to a World Bank report.
Eased inflation, strengthened external accounts, and a stable foreign exchange market contributed to the stability, the World Bank said in a report released on Tuesday (July 8).
The economic growth is projected to grow at moderate rate of 5.4 percent this year, supported by continued foreign direct investment flows and strong exports, the bank said.
But domestic demand remains weak on account of subdued private sector confidence, overleveraged state-owned companies, and high non-performing loans of commercial banks, according to the report.
Vietnam faces several challenges on competitiveness. Reenergizing medium-term growth will require structural reforms – with emphasis on restructuring state owned enterprises and banking sector and removing barriers to domestic private investment.
“Projected growth of 5.4 percent is higher than for many of the countries in the region and the world, however it is still below Vietnam’s potential,” Victoria Kwakwa, the World Bank’s Country Director for Vietnam, said in the report.
She said longer-term prospects would depend on whether the country could quickly address structural problems.
White the near term outlook seems favorable; risks exist for Vietnam’s economic growth in the longer term, the report indicated.
Slow progress in banking system and SOE reform could prolong sub-par growth and create self-reinforcing adverse feedback, possibly resulting in large contingent liabilities for the public sector, bringing public debt to unsustainable levels.
Prolonged tension of territorial disputes in the region also weight on downside risk.