Difficulty is forecast to stalk in 2014, arising from unsettled issues in 2013, from SOE restructuring, banking system restructuring, fiscal issues, public debt or bad debts among others. But, with conviction, problems will be less severe. The economy is showing more signs of recovery.
Export: Lifebuoy
The Vietnamese economy was still in difficulty in 2013 but it is undeniable that export was a success. Securing a 15.4 percent growth to top US$132.17 billion in 2013, Vietnam enjoyed a trade surplus for a second consecutive year. Growth was seen in most key exports. As many as 22 items brought home over US$1 billion, and fruit and vegetable exports earned more than US$1 billion a year for the first time.
The export success in 2013 was impressed by domestic business sector. With export turnover rising 3.5 percent and import turnover climbing 5.6 per cent, domestic companies had signs of recovery.
Since Vietnam entered the World Trade Organisation (WTO) in 2007, Vietnam’s trade deficit was always at a high rate. The figure was 29.1 percent in 2007, 28.8 percent in 2008, 22.5 percent in 2009, 17.5 percent in 2010 and 10.1 percent in 2011. In 2012, Vietnam unexpectedly enjoyed a trade surplus of US$749 million and this trend continued in 2013 with US$863 million surplus
In its latest economic report, HSBC called 2014 the “Year of Exporters”, implying high prospects for exports of Vietnam this year. Specifically, HSBC said Vietnam may become one of the countries who benefit most after demand in European countries improved as the country’s economy totally relies on exports with exports accounting for 81 percent of gross domestic product (GDP) in 2012.
Vietnam will have many favourable factors for this year’s exportation. New manufacturing investments plus growing demand from European countries and the US will help boost export growth in 2014. Exporters will initially tap opportunities and preferences in countries signing free trade agreements (FTAs) with Vietnam. In 2013, exporters utilised CO incentives with the ASEAN region (increasing 56 per cent), AK forms applicable to ASEAN and South Korea (up 35 per cent), AJ forms applicable to ASEAN and Japan (up 25 per cent), and especially with India (169 per cent), according to the Ministry of Industry and Trade.
According to HSBC, Vietnam’s export will grow to 20 percent this year from 15.4 percent in 2013, helping the country’s economic growth to reach 5.6 percent in in 2014 from 5.4 percent in 2013. Thus, exports are still an important backbone for economic growth.
Signing of easing?
Apart from export, Vietnam will also have more advantages for economic development in 2014 while it has many policies in support of long-term solutions such as growth model, economic restructuring and institutional system improvement. Dr Cao Sy Kiem, chairman of Vietnam Association of Small and Medium Enterprises, said the resolute reallocation of capital for effective projects and the elimination of inefficient projects has initially decreased Incremental capital-output ratio (ICOR), which proves higher investment efficiency and less unfocused investment.
2014 is also seen as an important year for SOE (State-owned enterprise) restructuring and banking system restructuring. In an explanatory report and at a question-answer session at the 6th plenary meeting of the 13th National Assembly, Prime Minister Nguyen Tan Dung affirmed that the Government would centrally direct solutions and policies to overcome limitations and weaknesses and improve SOE performance, especially economic groups and corporations. Privatisation and divestment from non-core business operations will be based on market principles and approved roadmaps. The State will reduce stockholding or sell out stake in enterprises where it does not need to keep controlling power.
The banking system has completed restructuring the nine weakest banks, but the task for it in 2014 is still very heavy because of banking system rearrangement. Bad debts need to be recalculated more thoroughly to make the economy clearer.
Right from the start of 2014, the Government urged banks to speed up disbursement of the real estate support package worth VND30 trillion (US$1.4 billion) while reducing interest rates to 5 percent per annum from 6 per cent. If this package is successfully disbursed, it will become an igniting catalyst for the revival of the real estate market which is being weighed down by huge inventory.
Commercial interest rates declined quite fast in 2013. In addition to four groups that were given preferential lending rates, market lending interest rates were brought to only 11-13 percent per annum. Some banks even imposed lending rates of less than 10 percent per annum for some maturity periods. This helped boost credit growth towards the end of 2013. Lower rates will stimulate borrowing demand.
Together with bad debt restructuring, rate cut and credit growth easing, monetary policy is becoming more “relaxed”, signalling a probability of loosening credit policy to support economic development. The objectives of boosting overall liquidity and credit, increasing bonds and raising the overspending ceiling limit aim to achieve the economic growth of 5.8 percent, which is considered a very conservative calculation for the time being.
However, to restore the economic recovery and raise economic growth, according to Dr Vo Tri Thanh, deputy director of the Central Institute for Economic Management (CIEM), Vietnam’s economy can return to that potential growth rate but it requires a few more years, maybe 3-4 years.
Inflation is not in a deep slumber
Inflation is expected to climb 7 percent in 2014 but Vietnam has to overcome heavy pressures to achieve this goal. Many experts still frown at inflation target this year.
Low inflation is resulted from weak purchasing power and economic decline. If it lacks good macroeconomic management policies and right-tracked fiscal and monetary policies, Vietnam may face a high inflation growth, according to experts.
At a seminar on market prices in Vietnam in 2013 and forecasts for 2014 held by the Academy of Finance and the Price Management Department under the Ministry of Finance, Dr Ngo Tri Long said although CPI is kept under control and the purchasing power is weak, there is still potential for consumer price hikes. The low inflation is driven by overall weak demand, not by the increased quality and productivity of manufacturing and business operations.
Because of these reasons, the spectre of inflation has been repeatedly mentioned at the beginning of this year with a lot of serious caveats. He added that inflation in 2014 will face more pressure if there are more changes in macroeconomic policies, especially in public investment, credit growth, wage, electricity, coal and public service prices.
According to the Standing Committee of the National Assembly, controlling inflation in 2014 will face more pressure when Vietnam modifies macroeconomic policies, especially the increase in public investment, credit debt, electricity, coal and public service prices. Importantly, in 2014, Vietnam adjusted budget deficit to 5.3 percent of GDP and issue more than VND170 trillion (US$8 billion) of government bonds.
Inflation in 2014 will largely depend on the easing of monetary policy by the State Bank of Vietnam (SBV). Easing monetary policy will add inflationary pressure. For that reason, monetary policy regulation will be a much more difficult task in 2014 for the SBV Governor.
Le Minh
Đăng ký: VietNam News