WB: Vietnam’s economy to expand 6.8% this year
WB: Vietnam’s economy to expand 6.8% this year
Vietnam’s economy has performed well in 2019, with gross domestic product (GDP) expanding by an estimated 6.8%, public debt lowered by almost eight percentage points of GDP since 2016 and a trade surplus for the fourth year in a row, according to the World Bank.
These results are remarkable in the context of a slowing global economy, said the global lender in its latest edition of “Taking Stock,” a biannual economic report on Vietnam, released today, December 17, emphasizing the resilience of the Vietnamese economy.
The economic growth of the Southeast Asian nation has continued to be driven by a strong external sector with exports expanding by some 8% in 2019, nearly four times faster than the world average.
The country has also remained an attractive destination for foreign investors, with foreign direct investment (FDI) inflows averaging US$3 billion per month.
In addition, private consumption has emerged as an important contributor to GDP growth as the result of an expanding middle-income class and rising wages. Private firms have also increased investment by 17% during the same period.
Prospects for the short to medium term are good as the World Bank forecasts GDP growth of some 6.5% over the next few years. Vietnam’s economic fundamentals appear robust, and the Government has built some fiscal space through its prudent fiscal policy.
However, the country is not completely immune to external shocks, as demonstrated by the gradual decline in export growth from 21% to 8% between 2017 and 2019, according to the World Bank.
The bank points out that this decline in export growth has been even more pronounced in non-U.S. markets, up by only 3.6% during the first 11 months of 2019.
Greenfield FDI has also slowed by some 30% over the past two years even if it has been compensated by an increase in mergers and acquisitions.
To account for these external risks, and to bring an additional engine of growth to the economy, the report recommends making the development of a strong and dynamic private sector a priority.
However, many firms operating in the domestic market face severe obstacles preventing their expansion, with the most pertinent being access to credit.
“Addressing the financing constraints of firms should receive the greatest attention from policymakers if Vietnam wants to continue on its trajectory of rapid and inclusive growth and reach high-income status in the coming decades,” noted Ousmane Dione, World Bank country director for Vietnam, in a statement.
The report advocates for the development of well-functioning capital markets as a foundation for Vietnam’s future prosperity.
As experienced by many countries in the world, including in East Asia, well-functioning debt and equity markets can help finance the domestic productive sector and complement lending from the banking system as well as diversify sources of financing.
They also contribute to the resilience of the financial system as a whole by ensuring deeper liquidity and diversifying risks.
While capital markets have expanded rapidly in Vietnam over the past few years, they remain significantly smaller than in Thailand and Malaysia and are largely dominated by a few major players, including the government.
The report suggests five areas policymakers should focus on to advance the development of the capital markets: modernizing the legal and regulatory foundation of the capital markets; improving governance and information disclosure; broadening the investor base; developing innovative products; and strengthening the government’s role in the development of long-term finance.
