Macro-economic stabilisation ‘on track'

Macro-economic stabilisation ‘on track'

Viet Nam had achieved results in its efforts to control inflation and maintain macro-economic stability in the first five months, a report from the Ministry of Planning and Investment said yesterday.

Speaking at a session of the Mid-year Consultative Group Meeting in Dong Ha City, Deputy Minister Cao Viet Sinh said Viet Nam was on the right track in inflation control and macro-economic stabilisation.

Sinh said the CPI increase had slowed down since July last year to its lowest level in three years, with the month-on-month price index rising 1 per cent in January, 1.37 per cent in February, 0.16 per cent in March, 0.05 per cent in April and 0.18 per cent in May.

"The Government has carefully implemented the monetary and credit policy with flexibility and effectiveness, resulting in better inflation control and macro-economic stability," said Sinh.

After three rounds of reduction, the deposit interest rate has decreased by 1-4 per cent to 11 per cent; lending interest rates for agriculture, rural trade, export and subsidiary trade have gone down to 13.5-15 per cent from 18-19 per cent.

Loan balances had increased to a level comparable with the beginning of the year while the exchange rate of the Vietnamese dong to the US dollar had stabilised.

Foreign currency liquidity in the system had improved; the balance of trade and the balance of payments had developed positively; foreign currency reserves had improved.

By May 21, the total means of payment had increased 4.47 per cent compared to December 31 last year; the total balance of deposits at banks and credit organisations had increased by 5.42 per cent.

Sinh said a strong export growth and trade deficit control had led to an improved trade balance and increased foreign currency reserves.

"Although the growth rate was only 4 per cent in Q1, it was reasonable given the focus was placed on inflation control and economic stabilisation," said Sinh.

He said industrial production, especially processing, faced difficulties but had shown considerable progress during the last three months.

The agriculture sector, which had made efforts to overcome natural disasters and diseases to stabilise production, continued to grow, contributing to food security and improving living standards.

Total retail and services volume reached VND952 trillion ($45.6 billion), up 20.8 per cent year-on-year; tourism grew well with 2.9 million foreign visitors, up by 17.5 per cent.

These results were achieved as Viet Nam's economy still face difficulties and challenges due to the slow recovery of the global economy, the prolonged public debt in Europe, budget deficit in developed countries and instabilities and conflicts in the world in early 2012.

Sinh said Viet Nam had set an overall socio-economic development goal for 2012 focusing on inflation control.

Prospects

In the second half of the year, capital and output market issues would be solved step by step; employment and income as well as purchasing power would improve; price would increase faster then in the first half, but the annual inflation rate would be kept at 10 per cent or lower, around 7-8 per cent.

"However, it is not easy to achieve 6-6.5 per cent economic growth while only 4 per cent was achieved in Q1 and 4.5-4.6 per cent in Q2," Sinh said.

Objectives set for 2012 include proactive control of inflation to keep it around 8 per cent, macroeconomic stabilisation and ensuring social security.

Sinh said inclusive, flexible and aggressive implementation of Government resolutions would be going on focusing on proactive control of inflation and macroeconomic stabilisation; solving problems to facilitate production and business activities, to increase purchase power and sales but at the same time avoiding macroeconomic instability; ensuring social security, sustainable poverty reduction; strengthening defence and security and preventing corruption.

According to resident representative of the International Monetary Fund Sanjay Kalra at the IMF Board meeting on May 25, the executive directors commended the authorities' policies that had contributed to declining inflation, exchange rate stabilisation and rebuilding international reserves, and noted the authorities' determination to continue to pursue stability oriented policies.

They also noted, however, that vulnerability remained and emphasised the need to resist changing policies prematurely and accelerate structural reforms, said Sanjay.

He said the economy had slowed as tighter macroeconomic policies had yielded an effect and that risks to the outlook for 2012 included a loss of market confidence in the Government's policy orientation.

"A possible sharper-than-anticipated slowdown in Asian economies in response to a weakening European economy, or severe financial sector turmoil in Europe with global spillovers, would adversely affect Viet Nam's performance," Sanray said.

Domestically, a rebound of liquidity problems in weak banks could lead to a loss of confidence in the Vietnamese dong and renewed inflation.

"Maintaining public confidence is critical, and to this end government policies need to credibly prioritise stability and address weaknesses in the financial sector," said Sanjay.

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