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Understanding GDP calculation changes

Update: February, 06/2014 - 09:32

Ha Quang Tuyen, head of the System of National Accounts Department under the General Statistics Office (GSO), spoke to the Saigon Economic Times about adjustments in GDP measurement.

In 2010, Viet Nam reported an income per capita of US$1,000, making it a middle-income country. Last year, the income per capita is estimated to have increased to $1,960.

However, Viet Nam is witnessing its lowest economic growth in the past 20 years. How do you explain this?

While collecting information for the statistical measurement of the gross domestic product (GDP), and while working with experts from international organisations, such as the International Monetary Fund, the World Bank and the Asian Development Bank, we found that the past figures did not reflect the value added by the banking sector and the residential housing segment.

For example, the value added by the banking sector and the residential housing segment were estimated at very low levels earlier. The new GSO calculation revises the value additions by both segments, which increases GDP by 9 per cent.

The adjustments in the GDP calculation have been reported to the Ministry of Planning and Investment and the Prime Minister. The changes have been applied for calculating 2012's economic statistics and will be applied going forward.

In addition, the higher GDP per capita can be partly explained by a stable exchange rate, despite inflationary pressures.

At a recent conference with development partners, the government recently said that the country's poverty rate in 2013 was 7.6 per cent, while international partners estimated the rate at a much higher 21 per cent (19 million of the country's population of 90 million). Why is there such a wide discrepancy in these estimates?

The different methods of calculation used have resulted in different estimates. As far I understand, the poverty rate and poverty standards are not related to GDP adjustments. They are based on reality.

The Vietnamese government earlier announced a poverty rate of 7.6 per cent for 2013, using the poverty lines of VND500,000 (US$24) per person per month and VND400,000 ($19) per person per month for urban and rural areas, respectively. That means the poverty standards do not change even if GDP changes.

In addition, the poverty rate is calculated based on field reports about people's incomes and the government's poverty standards.

Several officials have estimated that around 300,000 new jobs are created for every increase of 1 per cent in GDP. Do you agree with this assessment?

Research by some international organisations suggests that if GDP increases by 1 per cent, 200,000-250,000 additional jobs will be created.

However, the reality is different in Viet Nam. According to the statistics from the Ministry of Labour, Invalids and Social Affairs, Viet Nam will need to generate1.4 to 1.6 million new jobs, a challenging prospect at a time when the economic growth rate has slowed.

According to a government report last year, Viet Nam's GDP grew 5.4 per cent in 2013, higher than the previous prediction of 5.2 per cent in June. What accounts for the better performance of the economy?

I think that last year's growth can be credited to the strong measures implemented by the government. The government ensured a flexible and effective monetary policy, reduced spending to boost investments and attempted to tame inflation.

Despite the fact that enterprises in Viet Nam face a lot of difficulties, companies that received foreign direct investments (FDI) made a strong contribution, accounting for 20 per cent of GDP. Besides, Viet Nam's GDP growth was also partly due to effective policies on education, job generation, finance and banking.

The government also introduced policies that aimed at boosting the country's export performance and non-profit activities. Among industries that showed growth were the accommodation and catering service sectors, which posted a 9.91 per cent increase in 2013, higher from the earlier forecast.

The banking and financial sector experienced growth in the last six months of the year as well, as did the healthcare and education sectors.

These factors contributed to the higher growth rate of the economy last year. — VNS


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