World Bank ups Vietnam GDP forecast

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Workers at a garment factory in Hanoi. Photo: Ngoc Thang Workers at a garment factory in Hanoi. Photo: Ngoc Thang

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Vietnam’s economic growth could reach 6-6.2 percent this year underpinned by further recovery in domestic demand, in turn reflecting robust private consumption and investment growth, according to the World Bank’s latest Taking Stock report.
The medium-term outlook for Vietnam is positive on balance in the context that growth in developing East Asia and Pacific (EAP) is expected to further ease mainly due to the continued, gradual slowdown in China, the report issued Monday said.
In April the bank had forecast 6 percent GDP growth for Vietnam in 2015.
Growth in the first half of the year is estimated at 6.28 percent, the fastest in the past five years the semi-annual review said.
However, going forward, achieving a higher and sustainable rate of economic growth depends on Vietnam’s ability to sustain macroeconomic stability and accelerate structural reforms, the bank said.
The nation’s debt has risen rapidly in recent years, and debt servicing costs could pose an increasing burden on the budget.
Public debt services obligation, which includes the sum of payment of government, government- guaranteed and local government debts, had risen from 22 percent of total budget revenues in 2010 to 26 percent in 2014. Interest payments alone now account for an estimated 7.2 percent of total budget spending, crowding out other more essential spending.
Meanwhile, a drop in exports and increased imports resulted in a current account deficit in the first quarter of 2015.
Progress on structural reforms has been less strong, especially regarding state owned enterprises (SOEs) and the banking sector.
Progress on SOE reform continues, but at gradual pace, with only 29 SOEs equitized in the first quarter of 2015 out of the year’s target of 289.
“Banking sector reforms continued during the first half of 2015, with a number of acquisitions of smaller banks by major state-owned commercial banks,” Sandeep Mahajan, Lead Economist for the World Bank in Vietnam, said. “However, the lack of an appropriate legal framework and the Vietnam Asset Management Co’s own limited capital base and operational capacity remain constraining factors for resolving bad debts.”

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