Viet Nam's economy is forecast to grow by 5.7 per cent this year, before picking up to 6.2 per cent next year, according to the Asian Development Outlook Update launched by the Asian Development Bank (ADB) in Ha Noi yesterday.
ADB's country director for Viet Nam Tomoyuki Kimura said average inflation could ease to just under 10 per cent this year, providing policy settings were kept sufficiently firm. Inflation was also expected to quicken to 11.5 per cent next year, in tandem with economic growth and expectations of higher global food prices.
The bank forecast the current account to record a deficit equivalent to 1.5 per cent of GDP this year and 2.2 per cent next year, largely due to subdued exports.
Growth in exports would slow from last year, owing to weaker world trade, although Viet Nam should benefit from the expected gradual pickup in the US, its biggest export market.
"We fully support the Government's efforts in undertaking structural reforms this year. We strongly emphasise that increased transparency should be at the heart of the reform process, particularly in relation to the State-owned enterprises (SOEs) sector," Kimura said.
He added that the bank valued the Government's plans to restructure the financial sector.
"From our point of view, safeguarding the banking sector should be the immediate priority. The longer-term requirement is to develop a diversified and efficient financial system that can mobilise the funding to meet a 7-8 per cent economic growth target. These complex reforms which will take years to complete would benefit from co-ordination with the proposed restructuring of SOEs," the director said.
Dominic Mellor, the bank's country economist, said the Government adopted a package of monetary and fiscal measures that were sustained throughout the year.
Mellor said the resolution has helped reduce the fiscal deficit and slowed credit growth as the State Bank of Viet Nam (SBV) tightened monetary policy.
He said growth decelerated as investment declined to the lowest level in four years, making the stock market decline further while the exchange rate has broadly stabilised.
The report showed that Viet Nam's foreign exchange reserve has been partially replenished as the balance of payments has improved.
By the end of last year, the reserve was equal to the level before the global economic downturn in 2008. In the first quarter of this year, ADB estimated that the reserve was US$17 billion, representing an increase of $3.5 billion over last year.
However, he said the reserve was equal to two months of imports, which was an amount that could cause difficulties when the world market saw changes.
The economist said ADB was also concerned over key risks including lowering interest rates too quickly, vulnerabilities to external shocks, fiscal and public fiscal management, food market rigidities and vulnerabilities in the banking sector.
"Viet Nam experienced highest credit growth among comparators at a similar stage of development with high levels of credit relative to the economy, resulting in an increase in non-performing loans and a downturn in property prices," he said, adding that this raised questions about capital adequacy.
He said the near-term outlook would be at risk if the Government lowered interest rates too quickly and at a pace that unsettled the foreign exchange market.
He also emphasised difficulties for small and medium-sized enterprises due to tightened credit policies after a period of rapid growth.
ADB's report showed that foreign investment flows in the country's production sector have not been increased.
The bank recommended the SBV loosen the credit growth ceiling from 14 to 18 per cent to create resources for the economy while carefully lowering interest rates. /.