Vietnam’s growth moderates amidst severe drought, slow industrial growth

Vietnam’s growth moderates amidst severe drought, slow industrial growth

Vietnam’s growth moderates amidst severe drought, slow industrial growth

The FINANCIAL -- After accelerating strongly last year, Vietnam’s economic activity moderated in the first half of 2016, with GDP expanding by 5.5 percent during the first half of 2016, compared to 6.3 percent growth in the same period last year.

A report released today by the World Bank in Vietnam, the biannual Taking Stock, attributes the slower growth to the impact of a severe drought on agricultural production and slower industrial growth, according to The World Bank Group.

“We expect GDP growth of 6% this year. Despite slightly softer growth this year, Vietnam’s medium term outlook remains positive,” says Achim Fock, Acting Country Director for the World Bank in Vietnam. “Achieving sustained high growth will depend on Vietnam’s ability to continue and deepen structural reforms to boost productivity..”

According to the report, price pressures remain contained despite a slight pick-up in inflation over recent months. However, credit growth is elevated, expanding at more than 18 percent since the beginning of the year. Against this backdrop, monetary policy continues to balance growth and stability objectives. To address rising concerns about adverse impacts of rapid credit growth on lending quality, the SBV adopted tighter prudential regulations which are expected to mitigate potential asset-liability mismatches and moderate credit growth.

Accumulated fiscal imbalances remain a cause of concern, with the fiscal deficit estimated to have widened to about 6.5 percent of GDP in 2015. As a result, Vietnam’s total outstanding public debt was estimated at 62.2 percent of GDP, inching quickly toward the ceiling of 65 percent of GDP. Fiscal outturns in the first months of 2016 suggest that budget pressures persist.

“The government has made commitments to ensure public debt sustainability and rebuild fiscal buffers,” says Sebastian Eckardt, Lead Economist for the World Bank in Vietnam. “It is important that this commitment is now followed through with concrete actions to balance the budget over the medium term. Efforts to rein-in fiscal imbalances will have to be balanced with reforms to create fiscal space to maintain investments in critical infrastructure and public services..”

The report’s special focus, “Promoting healthy and productive aging in Vietnam” looks at Vietnam’s rapid aging pace and suggests policy actions required to address aging related challenges. While today there are only around 6.5 million people in Vietnam who are 65 years or older, this number is expected to almost triple to 18.4 million by 2040.

“The speed of aging in Vietnam is among the fastest globally to date and Vietnam is undergoing this demographic transition at a lower income level than most currently old countries,” says Philip O’Keefe, Lead Economist for the World Bank. “Population aging will have wide ranging implications. It will affect labor markets and pose new challenges for policy makers, employers and the population at large. Mitigating these impacts will require policy actions in labor markets, pension system and health care and long term care systems.”