Vietnam: Staff Report for the 2014 Article IV Consultation

IMF Staff Country Reports, October 16, 2014

Source details

Economic performance has improved over the last year; the recovery is taking hold while domestic activity remains weak, in part constrained by weak banks and inefficient state-owned enterprises (SOEs).
Inflation has declined.
The current account remains in large surplus.
International reserves have increased.
Authorities prioritize: preserving macroeconomic stability; tackling banking sector vulnerabilities; reforming SOEs. Implementation has been gradual in some key areas.

Growth is projected to recover gradually over the coming years.
The current account is projected to return to a deficit while inflation remains contained.
On current policies, public debt is projected to reach 60 percent of GDP.
Risks identified:
- Weaker trading partner growth.
- Geopolitical tensions.
- Slow structural reforms.
- Delayed fiscal consolidation.
Policy note: Early conclusion to key trade negotiations would be growth-positive.

Deficits have been sizable and rising public debt requires attention.
Recommended approach: a medium-term growth-friendly consolidation.
- Emphasize enhancing revenue.
- Rationalize unproductive expenditures.
- Preserve crucial social and capital spending.
Rationale: This would ensure public debt sustainability and create space to address contingent liabilities from banking sector and SOE restructuring.

The current monetary policy stance is appropriate.
Greater exchange rate flexibility is recommended to:
- Help buffer external shocks.
- Facilitate improved reserve adequacy.
- Lay groundwork for shifting toward using inflation as a nominal anchor over the medium term.

Several policy measures have been taken recently, but the overall gradual approach is likely to:
- Continue constraining credit growth.
- Keep the system susceptible to shocks and significant asset deterioration.
Recommended measures:
- More expeditious recognition of nonperforming loans.
- Bank restructuring and orderly resolution.
Expected benefits: Support robust credit creation and macro-financial stability.

Progress is being made on SOE reform.
Recommended actions:
- Implement restructuring plans.
- Accelerate equitization.
- Strengthen corporate governance.
- Ensure a level playing field.
Expected benefits: More efficient resource allocation, strengthened banks, and higher future growth.

International Monetary Fund. Vietnam: Staff Report for the 2014 Article IV Consultation.