Vietnam's economy to grow by 6 per cent in 2024
Vietnam's economy to grow by 6 per cent in 2024
Vietnam's economic growth is projected to recover to growth of close to 6 per cent in 2024, supported by continued strong external demand, resilient foreign direct investment, and accommodative policies.
This is according to the International Monetary Fund (IMF) delegation, led by Paulo Medas for bilateral discussions, known as an Article IV consultation, from June 12-26.
The IMF pointed out that domestic demand growth is expected to remain subdued as businesses navigate through high debt levels, while the real estate sector will only fully recover over the medium term. Inflation is expected to hover around the State Bank of Vietnam (SBV)’s target of 4-4.5 per cent this year.
In addition, downside risks are high. Exports, a key driver for Vietnam’s economy, could weaken if global growth disappoints, global geopolitical tensions persist, or trade disputes intensify. Domestically, persistent weakness in the real estate sector and corporate bond market could weigh more than expected on banks’ ability to expand credit and hurt economic growth and undermine financial stability. Given easy monetary conditions, if exchange rate pressures were to persist for longer, it could lead to a larger pass-through to domestic inflation.
"Given the uneven economic recovery, policies remain highly supportive in 2024, but may need to adjust in response to significant risks to the outlook," said Medas.
"Inflation remains contained, but the SBV should stand ready to tighten monetary policy if upward price pressures were to intensify. Policies should continue to focus on improving financial stability, which would require strengthening asset quality and avoiding excessive, low quality, credit growth. Over time, increased exchange rate flexibility in tandem with further modernisation of the monetary policy towards inflation targeting would help better manage external shocks while safeguarding foreign exchange reserve buffers," he added.
Fiscal policy is also supporting economic growth this year, given the expected large public wage increase and ongoing efforts to accelerate public investment. Strengthening fiscal management would help tackle the challenges ahead. This includes improving the composition and quality of public spending and services; strengthening fiscal planning to better reflect the medium-to long-term implications of ageing and climate; and enhancing safety nets. Revenue mobilisation efforts would create resources to bolster social spending, tackle climate change and address large investment needs in infrastructure.
Medas also highlighted that the new Law on Credit Institutions is an important step forward and should be followed by further measures to strengthen supervision and governance of financial institutions. Additional efforts to restore the health of the banking system including measures to improve asset quality, phasing out forbearance measures, and raising bank capital would strengthen financial stability.
"Resolution of failed banks should be accelerated to limit the eventual costs and improve the functioning of the financial and monetary system. A stronger insolvency framework and debt enforcement would help to accelerate corporate restructuring and make the financial system more resilient. The revision of land and other real estate laws is welcome to address legal bottlenecks in the sector. Further efforts to restructure weak developers and to promote a sound corporate bond market are warranted," he said.
To sustain high economic growth amid less-favourable demographics and climate change challenges, the IMF suggested Vietnam introduces a new wave of reforms. Increasing productivity, further investment in human and physical capital, and incentivising private investment in renewable energy is key.
Improving the functioning of the capital markets would also help boost productivity. In this regard, developing a market-based sovereign bond market is vital to facilitate broader capital market development and to make monetary policy transmission more effective.
