6 July 2017

IMF completes 2017 Article IV consultation with Vietnam

The Executive Board of the International Monetary Fund (IMF) has concluded the Article IV consultation with Vietnam*. According to the IMF Vietnam’s economy continues to perform well, aided by sound economic fundamentals. Growth moderated to 6.2% in 2016, reflecting the impact of a drought and land salinisation on agriculture and lower oil production. 

Weakness in the oil sector continued in Q117, but the underlying growth momentum remains robust underpinned by strong manufacturing activity and foreign direct investment (FDI), robust domestic demand, and a rebound in agricultural production. Inflation rose to around 5% in early 2017 due to increases in administered prices for health care and education. 

The authorities are developing a broad reform agenda, keenly aware of the limited fiscal space, the need to upgrade the growth model at home, and rising risks of economic fragmentation abroad. Bank reforms have progressed, the IMF notes, but nonperforming loan (NPL) resolution, bank recapitalisation, and legal reforms to strengthen market discipline have been sluggish. Good progress has been made on the legal framework for state owned enterprise (SOE) reforms, but implementation has been slow. The authorities are planning to limit the role of the state in the economy, reduce state ownership in enterprises and encourage private sector-led sustainable growth.

2017 growth is projected at 6.3% and headline inflation is projected to stabilise at around 5% as administered prices continue to be adjusted. The current account surplus is expected to decline somewhat, reflecting stronger imports. While the near-term outlook is positive, there are downside risks including from high public debt, slow NPL resolution, tighter global financial conditions, shocks to external demand, and rising protectionism as well as the failure of the Trans Pacific Partnership. On the upside, successful implementation of the authorities’ ambitious reform agenda could raise growth potential and increase resilience to shocks. Fast implementation of the Vietnam-EU and other bilateral trade agreements would fuel exports and FDI.

Executive Directors commended the Vietnamese authorities for achieving robust growth with low inflation, pushing ahead with important reforms to promote private sector-led growth, strengthening the public finances and tackling legacy issues in the financial sector while making progress on poverty alleviation. Directors noted that risks remain from the slow pace of banking sector reform, continued rapid credit growth and limited fiscal and external buffers. They encouraged the authorities to expand the scope of reforms to safeguard macroeconomic stability, raise growth potential and upgrade the growth model to enhance sustainability and productivity.

Directors welcomed ongoing structural reforms and underscored that Vietnam will need to build a sustainable, modern economy. For this, more extensive policy action is needed to reform institutions and raise potential growth. Reforms of the state-owned enterprise sector and improved outcomes from vocational and tertiary education will also be critical. Directors commended the authorities for ratifying the Paris Agreement and for putting climate change and implementation of the Sustainable Development Goals at the core of their policy agenda.

*Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

At the conclusion of the discussion, the MD, as Chairman of the Board, summarises the views of Executive Directors, and this summary is transmitted to the country's authorities. View explanations of qualifiers used in summings up.