Briefing Notes for the Launch in Hanoi, 12 May 2010
Economic growth and prospects
- In the face of the worst global economic downturn to hit the region, Vietnamís economy showed relative resilience compared to the economies of neighbouring Southeast Asia. However, GDP growth sharply slowed in the first quarter of 2009 to 3.1% and for 2009 as a whole recorded a growth rate of 5.3% down from 6.2% in 2008.
- After recording double digit growth in exports over 2003-2007, the rate of growth of exports dropped to 6.5% in the fourth quarter of 2008 and to -3.7% over January-February 2009. Towards the end of 2009, exports started to show positive year-on-year growth but for 2009 as a whole, exports declined by 9.7%.
- The government swiftly intervened to contain the fallout from the global financial crisis, announcing a series of fiscal stimulus packages designed to bolster economic growth. This included a 4% subsidy on the interest rates enterprises pay for their loans and credit for small businesses. The government has extended the interest-rate subsidy programme until the end of 2010 (now reduced to 2%).
- Despite the upward trend of economic recovery, GDP growth showed slowing during the first quarter of 2010, falling from 6.9% in the fourth quarter of 2009 to 5.8% in the first quarter of 2010. GDP growth in 2010 is forecast to remain sluggish at 5.8%, much lower than the pre-crisis levels of more than 8%.
Inflation, monetary policy and exchange rate developments
- One of the most pressing challenges for the economy is rising inflationary pressures. Although quickly depressed by the global economic crisis, in October 2008 during the peak of the commodity price hike, inflation reached 29%. Inflation is forecast to rise to 10.3% in 2010 from an estimated 7.0% in 2009.
- The central bank lowered the prime rate from 14% to 7% during the course of the financial crisis. However, on December 2009, amid concerns of rising inflation, the central bank started to tighten monetary policy, raising the prime rate by 1 percentage point to 8% and removed the cap on commercial bank lending rates in March 2010.
- The governmentís loose monetary policy, together with rising inflationary pressures and increasing demand for US dollars has put downward pressure on the dong. In response, the central bank devalued the dong in November 2009 and again in February 2010 by a cumulative drop of 6.4% against the US dollar.
Fiscal situation and perspectives
- Due to increased government spending and reduced tax revenue, the governmentís budget deficit greatly increased from 4.5% of GDP in 2008 to 8.2% in 2009.
- The fiscal deficit is expected to narrow slightly in 2010 as government revenue rises in line with global economic recovery and higher commodity prices.