The Asian Development Bank has raised Vietnam’s GDP growth forecast for this year and next year by 0.2 percent to 6.7 percent and 7 percent due to the country’s efforts to maintain economic stability.
Vietnam has successfully shifted from the strong fiscal and monetary stimulus to tackle the global recession last year to a more balanced policy to stabilize financial and economic conditions, it says in its annual flagship publication, the Asian Development Outlook Update, which was released in Hanoi Tuesday.
The steps taken by the government to stabilize the economy have contributed to an improvement in the economic growth: GDP grew by 6.2 percent in the first half of this year compared to 3.9 percent in the same period last year.
Policy tightening and a good rice harvest have helped pull back inflation from 9.5 percent year on year in March to 8.2 percent in July and August.
The trade deficit has narrowed from $8.1 billion in July-December 2009 to an estimated $3.8 billion in the first half and the current account deficit from $8 billion to $2.7 billion.
The current account deficit, as a ratio to GDP, is forecast to narrow from 7.5 percent in 2010 to 5.4 percent in 2011 due to the shrinking trade deficit and increasing remittances and tourist arrivals.
The balance of payments situation has been improving due to higher foreign direct investment.
The bank is optimistic about the inflation situation since the country’s economy and world oil and commodities prices have been stable. It has cut down its earlier estimation of 10 percent inflation this year to 8.5 percent and from 8 percent to 7.5 percent next year.
However, it foresees a risk to the economy if there is a premature easing of monetary or fiscal policies or a perception of looser policy by financial markets and domestic investors.
“An early easing, or the perception of a relaxation, could derail the macroeconomic stabilization efforts, putting inflation on an upward trajectory and pressure on external accounts.”
So the authorities should maintain a firm and consistent policy stance, and communicate such a position effectively to the market until inflation is clearly on a downward track and foreign reserves increase, the bank warns. The other major challenge is to raise the efficiency of the economy and reduce supply-side constraints through structural reforms.
Ayumi Konishi, ADB’s country managing director for Vietnam, said at the release that the government should be very cautious about maintaining macroeconomic stability and effectively inform the people about the policies while promoting further reform.
The most important factor is providing quality and up-to-date information to businesses and potential investors, he added.
Last year, it ratified a total credit of $16.1 billion for the country’s loans, non-refundable and technical assistance projects.
The Asian Development Outlook and other ADB reports analyze the economic conditions and prospects in Asia and the Pacific and are issued every April and September.
Vietnam will host the ADB’s 44th annual summit in Hanoi next May.
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