Vietnam’s economy continues to perform well but is being hindered by a number of challenges, the Asian Development Bank (ADB) said in a new flagship report launched on September 27. As a result of contractions in the agriculture and mining sectors in the first half of the year, the Asian Development Outlook Update (ADOU) 2016 forecasts a downward revision in Viet Nam’s economic growth to 6.0 percent in 2016, and 6.3 percent in 2017.
Drought in the Mekong and Central Highlands regions and low global commodity prices eased economic growth in the first half of the year, but other sectors have grown strongly”, said Mr. Eric Sidgwick, ADB Country Director for Vietnam. “Manufacturing expanded by double-digits as new foreign-invested factories ramped up production, while services picked up as a result of rising domestic trade, growing bank lending and a 25% jump in tourism arrivals.”
Vietnam’s economic growth is expected to rise in the second half of the year, buoyed by further increases in foreign direct investment and exports, domestic credit growth, a slight recovery in agriculture and accelerating disbursements of capital expenditure on national infrastructure programs.
The report stressed that while Vietnam’s economy is performing reasonably well against a challenging back-drop, a number of issues will need to be addresses to ensure growth remains sustainable.
A recent surge in bank lending increases the importance of efforts to tighten regulations to prevent a rise in financial sector risks. These efforts will be supported by the gradual introduction of more stringent, Basel II, regulatory standards over the next 12-18 months.
Further, to ease public debt pressures a growth-friending fiscal consolidation is needed, including a rationalization of recurrent expenditure and tightening of the public sector wage bill. Administration costs as a share of total state budget spending have risen from an average of 8 percent between 2007 and 2009 to 11 percent between 2013 and 2016.
The report noted that trade performance remains a bright spot for Vietnam’s economy. In the first 6 months of 2016, the country produced a large merchandise trade surplus equal to estimated 8.2% of GDP. This outcome was a big improvement on 2015 and reflects continued growth in exports while import demand has eased.
“Though the country’s strong trade performance is expected to continue, it may be exposed to further slowdown in major industrial economies or unexpectedly low growth in the People’s Republic of China, an increasingly important trading partner,” added Mr. Sidgwick.