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Five Charts Explain Vietnam's Economic Outlook

Man wearing hat, carrying fruit for sale on his bicycle in the old quarter of Hanoi (photo: istock/gionnixxx)

Man wearing hat, carrying fruit for sale on his bicycle in the old quarter of Hanoi (photo: istock/gionnixxx)

July 16, 2019

Despite rising trade tensions and volatility in emerging economies throughout 2018, Vietnam’s economy saw broad-based growth and low inflation. Government spending and debt remained in check and bank capital rules were strengthened. Current economic risks relate to geopolitics, trade policy uncertainty, and domestic reform implementation. Looking ahead to the longer term, Vietnam will face risks related to aging, climate change, and digitalization.

Extensive market-oriented and outward-looking economic policies have helped Vietnam achieve sustained and inclusive economic growth. To maintain growth and raise its quality, Vietnam needs to modernize economic institutions, especially in terms of fiscal and monetary management, and continue with market-oriented and outward-looking reforms. In practice, continued tightening of credit policies, developing capital markets, and building a modern market infrastructure with adequate tools for financial system supervisors and regulators, would help enhance the financial sector’s ability to support sustainable growth.

In recent years, Vietnam has managed to halt the increase in public debt and create some fiscal space. The more favorable fiscal position provides the authorities with the means to step in should downside risks materialize. Conversely, if growth surprises on the upside, existing debt could be paid down at a faster pace. Recapitalization of Vietnam’s state-owned commercial banks should also be a priority, and the country’s ongoing efforts to tackle corruption provide an opportunity to strengthen the rule of law.

Five charts tell the story: