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VietNamNews

Credibility critical for VN's economic future

Update: July, 10/2014 - 09:00
Viet Nam's economy has been stable for the first half of the year with a GDP growth rate of 5.18 per cent and inflation at 1.38 per cent. As there remain difficulties in the year ahead, it is important to continue to confidence-building measures in Viet Nam's economy. Dr Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management talks about the issue.

Can you highlight the country's economic picture in the first six months of the year?

Vo Tri Thanh, deputy director of CIEM

As for macro-economics, the country's inflation was relatively low; balance of international payments were stable and became surplus; and the fluctuation of the domestic currency was insignificant. Besides, Viet Nam's foreign reserves increased sharply from a relatively low level to US$35 billion.

With regard to production, two signals showed a clear recovery. Purchasing Manager Index (PMI) has remained high at more than 50 points since September 2013, while the State budget collections were higher than last year and also higher than the estimate.

n Inflation in the first half of this year increased only 1.38 per cent against December last year - the lowest rise in the past 13 years. The rise was also equal to only one-fifth of the inflation target for the whole year. Is this a good sign for the economy?

The relatively low inflation is one of the important indicators to evaluate the stability of the macro economy, alongside a series of other indicators. In a sense, it is also considered a success to pull the annual inflation down from 18.58 per cent in 2011 to the current rate (around 5 per cent).

In this regard, we need to pay attention to two issues while making a closer analysis of this index. First, in normal conditions, maintaining inflation at 5 to 6 per cent in the long run is very good. However, in terms of handling the inflation's instability and pulling it up to a stable threshold, it requires authorities to make the economy gradually stable while still having to ensure that the cost of production and economic growth does not decline too fast. The second thing I want to mention is that inflation is still expected at roughly 5 to 6 per cent yearly, but not deflation.

What measures should the Government take in the current context?

Currently, we have to handle a lot of problems to simultaneously achieve targets of macro-economic stability and economic growth recovery. This requires that Viet Nam spend a significant resource for further integration and restructuring the economy.

Monetary and fiscal space is not enough to build a strong recovery. For a monetary policy, we set a goal that this year's credit growth is at 12-14 per cent, associated with continued recovery and stability. However, after the first six months of the year, credit growth is very low.

For a fiscal policy, the Government has proposed to the National Assembly, an increase in the budget deficit plan from 4.8 per cent to 5.3 per cent for 2014 and 2015. Besides, it has also suggested an additional issuance of VND170 trillion ($8 billion) of Government bonds for infrastructure investment this year and in the next two years. This is a Government's great effort.

In addition, the Government had to spend a significant amount of money to support fishermen for the past few months.

In this difficult context, along with the public debt problem, fiscal space is not much. I had hoped that Viet Nam's economy will continue to be stable and try to recover at a certain level, but cannot be too hasty. It is important for the Government to take reforms synchronically, more strongly and more drastically. This will help Viet Nam's economy get back its confidence. If we can restore credibility, it will help boost consumption and investment to create more added value, economic growth and employment.

What is your forecast on the economic outlook in the remaining months of the year?

The Government has decided to keep the annual basic economic indicators approved early this year unchanged with the economic growth of 5.8 per cent and inflation of below 7 per cent.

Until now, it can be clearly seen that we will achieve the inflation target, with inflation expected to be 5 to 6 per cent.

For economic growth, the latest forecast from the World Bank showed that Viet Nam's economic growth will be around 5.5 per cent this year.

Meanwhile, according to the latest forecast from the National Financial Supervisory Committee, growth will be around 5.6 per cent taking into account possible impacts from the Viet Nam-China economic relations.

However, I think, the economic growth is not as important as the need to continuously rebuild the trust in Viet Nam's economy through continuously stabilising the macro-economy and drastically accelerating the economic restructuring.

We expect a lot from major agreements such as the Trans-Pacific Partnership, Viet Nam-EU Free Trade Agreement and ASEAN +6 that are expected to be signed this year and the next year. I believe this will give a ‘push' in creating confidence in Viet Nam's economy, and that is the most important and deciding factor for the country's economic development this year and in the years to come. — VNS

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