In the Asian Development Outlook (ADO) 2015 report released yesterday, the bank said annual inflation is projected at 2.5% in 2015, quickening to 4% in 2016 as domestic demand and global oil prices pick up.
Tomoyuki Kimura, ADB country director for Vietnam, said better economic performance in the major industrial economies – particularly the U.S., Vietnam’s biggest export market – will help spur export growth. Vietnam is also expected to be a net beneficiary of lower global oil prices which will increase disposable incomes and lower business costs.
Kimura however said this positive effect will be partly offset by slowing growth in China.
The ADO report highlights that while Vietnam’s economic performance slowly improves, a number of structural factors continue to limit its ability to reach its full growth potential.
In the short term, priority should be placed on strengthening the banking system and outlining a clear strategy to settle non-performing loans. Growth will also be supported by new laws to guide divestment of State-owned enterprises and accelerate their commercialization.
Lifting economic growth over the longer term, however, will rely on the nation’s ability to undertake deeper structural reform, in particular to support local firms’ integration into global value chains.
According to the report, only 36% of all Vietnamese firms are integrated into export-oriented production networks, compared with nearly 60% in Malaysia and Thailand. Just 21% of Vietnamese small and medium enterprises (SMEs) participate in global supply chains.
To strengthen SMEs’ capacity to participate in global supply chains, efforts will be needed to strengthen inter-agency coordination, particularly in the formulation and implementation of SME policies, Kimura noted.
Greater consultation with the private sector would also help to identify constraints that inhibit links with production networks.
The report also said the drop in global oil prices from last year is a positive development for this economy.
Though Vietnam produces about 350,000 barrels of oil per day and is a net exporter of crude oil, it is a net importer of refined petroleum products. Lower fuel prices boost household disposable income, stimulate consumption, and reduce costs for many businesses, supporting profits and investment.
The National Financial Supervisory Commission estimates that savings on domestic production costs could reach 3% this year. The fall in oil prices dents government revenue, but fiscal policy is still likely to promote economic growth.
Fiscal policy looks set to remain expansionary in light of a planned budget deficit of 5% of GDP in 2015 and a similar deficit likely in 2016. Budget priorities include greater emphasis on capital expenditure, which is slated to rise by nearly 20% after two years of absolute decline.
Current expenditure is expected to rise at a more modest rate of 10%, including increases of 11% for healthcare and 5% for education.
Besides, the Government will maintain expansionary monetary policies in a low-inflation environment. The central bank wants banks to trim deposit and lending interest rates by 1-1.5 percentage points this year, after cuts of around two percentage points last year.
The banking system and SOEs nevertheless continue to pose risks to the economy. Undercapitalized banks with deficient financial transparency remain exposed to shocks. Finding sufficient investors to participate in share sales of SOEs is hampered by their complex ownership structures and opaque financial accounts.
Đăng ký: VietNam News