VN needs continued fiscal and structural reforms amid strong growth: AMRO

As the Vietnamese economy has recorded outstanding growth, continued structural reforms will help the Vietnamese economy address medium- to long-term challenges while enhanced financial transparency would be greatly beneficial in expediting the progress of state-owned enterprise equitization and divestment of state assets, according to conclusions of the ASEAN+3 Macroeconomic Research Office (AMRO).

Improving tertiary education and vocational training are needed to upskill the workforce and improve productivity, which will help facilitate the country’s ascent along the path of economic development, AMRO said in its latest Annual Consultation Report on Vietnam.

The national economy is expected to grow at 6.6% in 2019 after strong growth of 7.1% in 2018 with inflation contained below the authorities’ target of 4%, according to the report, which was prepared based on AMRO’s Annual Consultation Visit to Vietnam in January 2019 and data available up to February 28, 2019.

Vietnam’s GDP growth in 2019 is expected to be sustained by continued strong growth in manufacturing and services after robust growth in 2018 which exceeded the authorities’ target growth rate of 6.7%, the report stated.

Manufacturing growth was driven by the electronics sector, while the services sector was propelled by the wholesale and retail industry and boosted by tourism. Management of administered prices helped dampen inflationary pressure in 2018.

Vietnam’s external position continued to strengthen, benefiting from robust export performance and higher foreign investment. Greater flexibility in exchange rate management also improved the economy’s resilience to external shocks, while allowing the State Bank of Vietnam to build up its reserves buffer.

Downside risks are mainly external, stemming from the ongoing US-China trade conflict and policy uncertainties in several advanced economies, which could lead to greater volatility in the financial markets and capital outflows.

The fiscal deficit was kept at 3.5% of GDP in 2018 and is expected to remain stable in 2019, in line with the government’s fiscal consolidation plan. The authorities’ continued efforts and reform initiatives, in line with the medium-term fiscal plan, are commendable.

Continuing policy efforts to enhance revenue potential will be critical in the longer term, particularly to finance growing spending needs on development and social security in a sustainable way.

Greater efforts are needed to improve spending efficiency while prioritizing expenditures to enhance long-term growth potential.