Global and Vietnamese economies are currently still volatile. To boost its economic growth, Vietnam must review its capital mobilisation channels to identify restraints, risk and inefficiency-causing factors, to the financial market in particular and the Vietnamese economy in general.FDI, remittances are bright spot for the economy
Vietnam’s growth is largely based on investment, peaked in 2007 (equal to nearly 43 percent of GDP). But, the heavy dependence on investment has declined steadily, especially from 2013 to present. In Vietnam, capital sources for economic development include bank credits and equity issues (shares and bonds). By ownership, capital sources include foreign direct investment (FDI), domestic corporate capital and State investment capital. Official development assistance (ODA) capital also plays a role in economic development, particularly when a part of ODA is sub-lent to State-owned enterprises (SOEs). Overseas remittances also play an important part, while a majority (50-70 percent of the total value) is invested in business. Staked capital of companies and citizens is also significant to growth, especially when fundraising from the credit market and stock market is difficult.
According to Dr Vo Tri Thanh, Deputy Director of the Central Institute of Economic Management (CIEM), credit growth has dropped sharply in recent years, from 53.9 percent increase in 2007 and 39.6 percent in 2009 to 12 percent in 2011, 8.91 percent in 2012 and 12 percent in 2013. The growth in 2014 was forecast to be close to equal that in 2013. Notably, Vietnam’s credit growth was 30 percent a year in the 2006-2010 phase, the highest among developing and transitional economies and twice as high as China (15 percent) in the same period, while its GDP growth was higher than that of Vietnam (9 percent versus 7 percent). And, this led to its higher investment growth than Vietnam (the highest peak was 52 percent of GDP, compared with 43 percent of Vietnam).
He added, to a certain extent, the high credit growth primarily directly funded ‘circuitous’ speculation through such channels as securities, real estate and gold in the same period, creating strong volatilities on these markets. Nevertheless, from 2012 to date, the credit has been channelled from speculative fields to production and business fields. It is noted that the credit growth of 12-13 percent in 2013 and 2014 was perhaps not only for business funding as the credit might have been used to buy bonds which may be due to the commercial banks.
Besides, raising capital on the stock market (both listed and OTC exchanges) has been hard since 2010 because this market experienced a very steep drop, evidenced by the shrinkage of market capitalisation. Conversely, bond sales, both corporate and government, are still on the rise.
The major bright spot for the Vietnamese economy is the strong growth of FDI capital in recent years in the face of domestic and global economic downturns. This sector plays an important role when domestic companies have difficultly struggled to sell and export their products. Currently, barriers to FDI firms are very few while Vietnam is very attractive to FDI projects because its regulations on pollution, tax and technology transfer are weak and restrictions on projects harmful to national security are not many, in fact.
Moreover, inward remittances, an important financial source with little risk for the economy and national sovereignty, have increased dramatically in the past two decades, to a total of about US$80.4 billion. The value surged from US$35 million in 1992 to US$11 billion in 2013. At present, this field has a very few barriers, especially when Vietnam does not impose personal income tax on overseas remittances, does not limit the value of inward remittances, and allows foreigners to buy houses. The matter is a relatively high amount of unofficial overseas remittances, casing difficulty in monetary management and money supply, especially money laundering and financing for drug and human trafficking.
In addition, ODA loans for Vietnam have a good growth pace in recent years, even in the toughest time of the economy. However, absorption of ODA projects, effective corruption control and harmonised disbursement procedures between Vietnam and partner countries are still major concerns.
Seeking to boost credit demand, reducing bad debts
To unfreeze capital flows, Vietnam needs short-term and long-term policies to boost economic growth. This is an important solution to unfreeze credit (increasing credit demand, reducing bad debt) and enliven the stock market (increasing equity issuances). This also helps draw FDI and remittances.
Particularly, Vietnam pays special attention to more balanced, healthy financial system restructuring with the aim of enhancing the healthiness of credit institutions and lifting the role of the stock market to raise long-term capital for businesses. According to international experience, in the long term, the formation of a capital market with a more balanced structure (the amount of long-term capital raised on the stock market and on the credit market is on level pegging) is very important to have a safe and efficient market, mitigate banking system risks and improve corporate management quality.
According to Dr Thanh, Vietnam also needs to widely apply international standards and ensure the authenticity, validity and enforcement of accounting standards, international auditing, international financial reporting, and corporate assessment statistics and valuation systems. Notably, it continues to improve regulations on independent auditing for credit institutions to suit Vietnamese and international practice, perfect organisational structure, internal audit agency and internal control system.
Specially, Vietnam needs to restructure its bank credit market. So far, banking system restructuring projects have quite enough solutions and orientations for restructuring. However, it is necessary to focus attention on the restructuring process (equitisation) of domestic commercial banks, particularly offering shares and listing shares on foreign stock exchanges (especially when the domestic stock market is weak as now).
Dr Thanh also added that Vietnam still needs to continue with its stock market restructuring, with focus given to the healthiness of stock market and the development of bond market, especially for corporate bonds. Directional solutions are also being applied and institutionalised. However, the new focus of upcoming reforms is to promote (perhaps force) the equitisation of big State-owned enterprises (SOEs), especially State-owned commercial banks by offering, depositing and listing securities (especially shares) in foreign exchanges. At the same time, it must renovate modes and methods of monitoring the financial market to ensure that the process of financial restructuring, distribution and unlocking of effective capital channels. In the long term, it needs to reform supervision modes which will require a clear definition of tasks and functions of responsible authorities, particularly the State Bank of Vietnam (SBV) and the State Securities Commission of Vietnam (SSC)/Ministry of Finance (MoF).
Finally, State management agencies need to rationalise FDI attraction policies by encouraging and drawing FDI projects into weak fields of the economy. However, they should not attract FDI capital at any cost, but proactively select ones suitable for Vietnam.
Anh Mai
Đăng ký: VietNam News
