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World Bank estimates Vietnam’s GDP growth to hit 6.8% this year

Wednesday, December 18, 2019, 16:24 GMT+7
World Bank estimates Vietnam’s GDP growth to hit 6.8% this year
Workers make a car at a factory in Vietnam. Photo: Le Trung / Tuoi Tre

Vietnam’s economy has performed well in 2019, with GDP expanding by an estimated 6.8 percent, public debt reduced by almost eight percentage points of GDP since 2016, and a trade balance surplus for the fourth year in a row, the World Bank said in a press release on Tuesday.

“These results are remarkable in the context of a slowing global economy,” the World Bank remarked.

But reforms are still needed to unleash the potential of capital markets, according to the bank.

Vietnam’s GDP growth reached 7.08 percent last year, the highest since 2008, the General Statistics Office said on its website.

The latest Taking Stock, which is the World Bank’s bi-annual economic report on Vietnam released on Tuesday, emphasizes the resilience of the Vietnamese economy.

GDP growth has continued to be driven by a strong external sector with exports expanding by about eight percent in 2019 – nearly four times the world average. 

The Southeast Asian country has remained an attractive destination for foreign investors, with foreign direct investment (FDI) inflows averaging US$3 billion per month.

Private consumption has emerged as an important contributor to GDP growth as the result of an expanding middle-income class and rising wages.

Privately-owned firms also increased investment by 17 percent during the same period.

Prospects for the short to medium term are good as the World Bank forecasts an annual GDP growth rate of around 6.5 percent over the next few years.

Vietnam’s economic fundamentals appear robust, and the government has built some fiscal space through its prudent fiscal policy.

However, the country is not completely immune to external shocks as demonstrated by the gradual decline in export growth from 21 percent to eight percent between 2017 and 2019.

This decline has been even more pronounced in non-U.S. markets, up by only 3.6 percent during the first 11 months of 2019.

Greenfield FDI has slowed by about 30 percent over the past two years, even if it has been compensated by a rise in mergers and acquisitions.

The report recommends making the development of a strong and dynamic private sector a priority in order to account for these external risks and to bring an additional engine of growth to the national economy.

However, many firms operating in the domestic market face severe obstacles preventing their expansion, with the most pertinent being access to credit, the World Bank said.

“Addressing the financing constraint of firms should receive the greatest attention from policymakers if Vietnam wants to continue on its trajectory of rapid and inclusive growth and reach high-income status in the coming decades,” said Ousmane Dione, World Bank country director for Vietnam.

The report advocates for the development of well-functioning capital markets as a foundation for Vietnam’s future prosperity.

As experienced by many countries in the world, including in East Asia, well-functioning debt and equity markets can help finance the domestic productive sector, complement lending from the banking system, and diversify sources of financing.

They also contribute to the resilience of the financial system as a whole by ensuring deeper liquidity and diversifying risks.

While capital markets have expanded rapidly in Vietnam over the past few years, they remain 1.5 to two times smaller than in Thailand and Malaysia respectively, and are largely dominated by a few big players, including the government.

The report suggests five areas policymakers should focus on to advance the development of the capital markets: modernizing the legal and regulatory foundation of the capital markets; improving governance and information disclosure; broadening the investor base; developing innovative products; and strengthening the government’s role in the development of long-term finance.

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