Viet Nam News
HÀ NỘI — Việt Nam’s economic growth could reach 6.9 per cent in 2019, an increase of 0.1 per cent compared to the 2019 socio-economic development plan adopted by the National Assembly, in the context that Việt Nam is benefiting from the US-China trade war.
The statement was made by Nguyễn Đức Thành, director of the Việt Nam Institute for Economic and Policy Research (VEPR) at a conference held in Hà Nội on Thursday.
However, Thành noted, the use of foreign exchange reserves to stabilise the value of the Vietnamese đồng (VNĐ), as the State Bank of Việt Nam (SBV) has done in recent years, is not a long-term solution when Việt Nam’s foreign exchange reserves are in fact small in scale.
The pressure of exchange rates and inflation along with the regulation of restricting the use of short-term capital for medium- and long-term loans has caused the interest rate of VNĐ to increase significantly at the end of 2018. However, the solution of raising interest rates will lead to implications for businesses when pushing up the cost of capital due to the modest size of the corporate bond market, so the burden on bank credit has not been reduced.
Therefore, the proactive reduction of VNĐ between the depreciation of the yuan (CNY) against the US dollar (USD) is necessary for Việt Nam to adapt in the trade war. Such adjustment of exchange rates helps Việt Nam take advantage of two large markets to improve production as well as the trade balance, VEPR’s director suggested.
“If there is an appropriate exchange rate policy, Việt Nam can benefit from this war, besides receiving many orders shifted from China,” Thành told Việt Nam News.
In terms of long-term impact when the production supply chain shifts from China to neighboring countries, Việt Nam needs to improve the institutional, business and labour quality environments to grasp this opportunity. The challenge for Việt Nam is also not small when the infrastructure is not yet ready to receive waves of production, with no economies of scale like China and India.
Such findings from a macroeconomic report released on Wednesday by VEPR showed that Việt Nam’s economy in 2018 saw the highest growth in 10 years, at 7.08 per cent year-on-year.
Growth came from the solid recovery of the agriculture, forestry, fishery and service sectors, along with the breakthrough of the manufacturing industry. The foreign direct investment (FDI) sector continued to be the main contributor to growth through exports. This sector in 2018 saw an export surplus of US$32.81 billion (equal to nearly 14 per cent of GDP).
As regards business activities, while the number of newly established enterprises and new jobs did not differ much from that of 2017, the number of temporarily ceased enterprises in 2018 was unusually high, which yield questions whether that is because of the economic structural shift or the fundamental risk of the economy.
According to the report, Vietnamese inflation in the fourth quarter of 2018 showed signs of decline thanks to the sudden drop in energy prices. Average inflation (3.54 per cent) reached the National Assembly’s target. In the context of erratic global commodity prices, along with the increase of the environmental protection tax on petroleum to maximum level since January 1, 2019, the SBV still needs to evaluate inflation risks in the future to take appropriate measures.
VEPR forecast Việt Nam’s economic growth prospects in the long term will continue to depend on foreign direct investment (FDI), resulting in the removal of institutional barriers, improved business environment and equitisation of State-owned enterprises (SOEs).
International trade and investment activities are expected to flourish under new-generation trade deals such as CPTPP and the European Union-Việt Nam Free Trade Agreement (EVFTA).
In addition, the US-China trade war is placing Việt Nam in front of a rare opportunity that supply chain production is going to leave China. However, to take advantage of this opportunity, it requires a lot of improvements to the institutional environment, as well as business and domestic labour quality, Thành told Việt Nam News.
Speaking at the conference, economist Phạm Thế Anh also recommended that the Government can continue to respond to risks with a more flexible exchange rate policy. In the context that the price of US dollar can increase even though it is not as strong as in 2018, the VNĐ exchange rate should go between big currencies of major export markets with Việt Nam to reconcile positive and negative impacts.
“The financial system must be reduced based on leverage when credit growth is very strong in risk areas such as real estate, BOT (Build-Operate-Transfer), BT (Build-Transfer) and consumer credit,” Anh added. — VNS