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Vietnam may miss GDP target but should retain debt ceiling: expert

Tuesday, July 26, 2016, 14:20 GMT+7

Vietnam’s economic performance in the first half of 2016 forecasts a gloomy outlook for the rest of the year, with the government likely to miss its GDP growth target, and possibly breach the inflation and public debt ceilings.

The Southeast Asian country’s economy is expected to grow 6.2 percent this year, behind the target of 6.7 percent, according to the latest outlook.

Vietnam’s inflation is also likely to surpass the 5 percent target set by the lawmaking National Assembly, while public debt may breach the 65 percent of GDP limit by this year-end.

Tran Hoang Ngan, a seasoned economic expert, has talked with Tuoi Tre (Youth) newspaper as to what key measures the government should focus on keeping.

“First, do not worry about GDP growth, which is slowing down compared to last year,” Ngan, who is also a member of the National Assembly Economic Committee, said. “It is time we stopped running after numbers.”

The economic pundit said Vietnam may fail to meet its GDP growth goal, but what is more important is “the economy is on the right track,” with less haphazard but more effective investment.

Citing the International Monetary Fund, Ngan said even the global economy is expected to expand slower this year, at 3.4 percent instead of 3.6 percent as previously forecast. “So Vietnam should be in no hurry of becoming a ‘star of GDP growth’,” Ngan pressed.

Tran Hoang Ngan

The National Assembly Economic Committee member, however, is much more concerned about Vietnam’s rising inflation, which rose more than 2 percent year-on-year in the first half of this year.

“Inflation, driven by increases in school and hospital fees and by fuel prices, may breach the 5 percent limit set by the legislature,” he warned.

“We may not achieve our GDP target at any price, but the inflation limit should never be exceeded -- it should be kept at all cost.”

Ngan said inflation must be controlled within a limit, otherwise it will ruin all of the recent macro-economic achievements Vietnam has made.

The good news is that there are positive signs that inflation will cool down, he added.

“Fuel costs have declined and food supply still exceeds demand, so price increases are unlikely,” he elaborated.

“What needs to be done from the government side is tighten monetary policies and avoid increasing the price of commodities controlled by the government.”

As for the country’s public debt, Ngan said the ceiling for sovereign debt should not be raised, even though it is likely to be breached this year.

Vietnam’s public debt has soared by an average of 18 percent every year since 2011, according to the pundit.

“As of the end of 2011, the national debt had equaled 50 percent of GDP, but it rose to 62.2 percent four years later,” he said.

“By the end of this year, the figure will surpass the 65 percent limit, with a state budget deficit ratio of 4.95 percent and a GDP growth rate lower than 6.7 percent.”

Ngan said the government should balance its spending, instead of asking to have the debt ceiling raised.

“This may be a hard and painful process, but we should try by all means,” he underlined.

Vietnam's public debt to GDP ratio

With a small budget, Vietnam will have to look for foreign investment to have money for its eco-social development. Even so, Ngan suggested that the government be cautious in selecting foreign investors.

“We should avoid repeating the mistakes with Formosa or Lee & Man Paper,” he said.

The steelmaking facility of Taiwan’s Formosa Plastics Group in the north-central province of Ha Tinh caused mass fish deaths in four coastal provinces, while Hong Kong’s Lee & Man Paper is raising environmental concerns with its US$628.7 million paper complex in the southern province of Hau Giang.

“Of course we will receive less investment once the bar is raised,” Ngan said.

“But we should not be worried, and instead try to attract resources from the private sector.”

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