Date: 5 May 2011
The event will be held in Hanoi, Viet Nam, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Le Xuan Ba
Central Institue for Economic Managment
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific
Country briefing note <download pdf file>
Economic growth is driven by strong exports and a buoyant domestic market
After a strong 5.3% growth in 2009, the economy continued to expand at a faster pace throughout 2010, amid concerns of overheating.
Manufacturing benefited from the global recovery in demand for exports but also from the growing domestic consumer market. Production of garments, shoes, motorcycles, refrigerators and air conditioners all grew at a rapid pace, while the value of retail sales expanded by 24.5% for the full year.
With high inflation, however, there are clear signs of overheating. The economy grew by 6.8% in 2010 but could benefit more if accompanied by macroeconomic stability, which would further boost business confidence.
In 2011, the economy is expected to slow slightly to 6.2% growth.
Inflation is the key challenge
Driven by a credit expansion boom, inflation was as high as 28% as recently as mid-2008. After moderating to 6.9% in 2009, prices began to climb up again to an average 9% in 2010, with the December figure hitting a 22-month high at 11.9%.
In addition, Viet Nam has been more vulnerable to imported inflation due to its weak currency and wide current account deficit. The currency was devalued twice in 2010 and again in February 2011.
Fiscal balance could improve and public investments made more efficient
Viet Nam has among the highest fiscal deficit in the South-East Asia and a growing public debt, which now exceeds 50% of GDP.
Large public sector led investments, while contributing to economic growth, have also resulted in fiscal deterioration and raised questions over the quality of investments. State-owned enterprises account for some 40% of GDP.
The Government aims to gradually reduce the fiscal deficit from some 6.2% of GDP in 2010 to 4.5% by 2015.
Monetary stance reverses under clear signs of overheating
Despite signs of excessive credit in the economy, policy interest rates were left unchanged through most of 2010. As inflationary pressure mounted, however, strong policy measures were introduced between November 2010 and April 2011, including significant hikes in the refinancing and discount rates.
The refinancing rate was raised from 8% to 13% and the discount rate from 6% to 12%. Commercial banks were also directed to limit the proportion of loans for “non-productive sectors”, notably property and stocks.
Boosted by strong foreign capital inflows, South-East Asian stock exchanges were among the best performers in the Asia-Pacific region in 2010. Viet Nam , however, did not benefit from strong capital inflows due to such risk factors as declining foreign exchange reserves, high inflation and a weak currency.
Current account balance improves, but weak currency remains a concern
Although still at a high level, the current account deficit continued to fall in 2010, benefiting from strong exports, tourist arrivals and remittances.
Broader trends affecting South-East Asian exports are weakening demand in the developed countries, partially offset by rising demand from China and India . Intra-ASEAN trade and trade cooperation among Cambodia , the Lao Peoples Democratic Republic and Viet Nam are also increasing.
In February 2011, the dong was devalued for the fourth time since November 2009, making it the sharpest depreciating Asian currency.
Viet Nam 's foreign currency reserves are relatively at low levels, unlike neighboring countries which are able to cover several months of imports.
Addressing vulnerable employment and poverty issues will also boost growth
While unemployment has fallen to pre-crisis levels in many countries in South-East Asia , the formal sector has seen less improvement, as many of the workers who had been laid off were absorbed by the informal sector during the crisis.
In a number of countries including Viet Nam , this change was often reflected in a decline in employment in the high value added manufacturing jobs and a rise in low value added activities in services and agriculture.
The informal sector, however, suffers from lower productivity, lower wages, poorer working conditions, lower employment protection and minimum levels of social protection. This has serious implications not only for poverty but also for future growth potential.
Therefore, human resources and skills development—including strengthened education, technical and vocational training and lifelong learning—are vital for sustained dynamism in South-East Asia .
Such efforts will also help to tackle high youth unemployment in the subregion.
Moreover, considering that labour is one of the few assets of the poor, creating more and better jobs will help the poor to earn their way out of poverty.