Also available in Tiếng Việt

SINGAPORE, April 06, 2018 – Vietnam’s economy rebounded strongly in 2017 with positive short-term outlook, aided by improved global prospects and strengthened domestic demand, according to the 2017 Annual Consultation Report on Vietnam published by the ASEAN+3 Macroeconomic Research Office (AMRO) today. The report was prepared based on AMRO’s Annual Consultation Visit to Vietnam in September-October 2017 and data available up to December 31, 2017.

The external position has continued to improve, benefiting from strong export performance and increased foreign investment. A surge in Information Technology and Communication (ITC) exports has boosted  overall exports while foreign investment inflows have also increased. The Vietnamese dong has been stable and foreign exchange reserves have increased significantly.

Credit growth has been buoyant and supportive of economic activity. Domestic credit grew at about 19.1 percent, as of November 2017, compared to the target of 18 percent. A number of institutional changes have been initiated to speed up banking sector reform, including the endorsement of a pilot non-performing loan (NPL) resolution scheme (Resolution 42) and a restructuring plan for credit institutions for 2016-2020.

Fiscal developments in 2017 suggest continued improvements from consolidation efforts. Revenue collection exceeded the budget plan, aided by buoyant tax collection and strong land-based revenue. Budget expenditure, meanwhile, moderated as current spending normalized from a high base in 2016, while capital expenditure picked up. As a result, the overall fiscal deficit moderated from 5.6 percent of GDP in 2016 to about 3.5 percent in 2017, in line with the authorities’ target. Public debt moderated to 61.4 percent of GDP in 2017 on the back of improved fiscal position.

Downside risks stem from both adverse external shocks and domestic weaknesses. Policy surprises from advanced economies could lead to greater volatility in asset prices and capital outflows from emerging and frontier markets, including Vietnam. Imposition of protectionist measures in the U.S. and other trading partners leading to weaker-than-expected global demand may adversely affect Vietnam. On the domestic front, faster credit growth may undermine the progress made in improving the still-fragile banking system. Medium to long-term challenges could arise from climate and demographic changes, and relatively inefficient state-owned enterprises.

Policy focus on financial soundness and fiscal sustainability should be strengthened. With credit growth exceeding 18 percent for the last three years and the credit to GDP ratio rising to above 120 percent of GDP – a relatively high level compared to regional peers – a further boost to domestic credit may lead to imprudent lending with adverse effects on financial soundness. Recent efforts to expedite NPL resolution and bank recapitalization should be pursued vigorously. The medium-term fiscal consolidation plans are commendable and should be supported by continued efforts to enhance revenue while giving priority to expenditure adjustments, which are growth promoting and efficiency enhancing. Policy adjustments to tackle medium- to long-term challenges should be well designed and implemented with concerted efforts.

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About AMRO and AMRO Annual Consultation Report:

The ASEAN+3 Macroeconomic Research Office (AMRO) was established to contribute to securing the economic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations and China, Hong Kong, China, Japan, and Korea. As an international organization, AMRO fulfils its mandate by conducting macroeconomic surveillance, supporting the implementation of the regional financial arrangements, the Chiang Mai Initiative Multilateralisation (CMIM), and providing technical assistance to the members.

The Annual Consultation Report was prepared in accordance with AMRO’s macroeconomic surveillance function. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.