Date: 10 May 2012
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:
Vo Tri Thanh
Central Institute for Economic Management
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 moderates amid stabilization measures
Expansionary policies adopted during the crisis helped the economy grow robustly by 5.3% and 6.8% in 2009 and 2010 respectively, but they also led to macroeconomic risks.
In early 2011, strong stabilization measures were introduced to curb double-digit inflation and as a result, economic growth moderated to 5.9% in 2011.
Private consumption increased by 4.4%, but investment decreased by 9.2%, as firms struggled to cope with higher commercial lending rates. Government expenditure grew at a slower pace.
On the supply side, services grew 7% and contributed slightly more to GDP growth than did industry and construction, which grew by 5.5%. Manufacturing posted a strong 9.5% growth, but construction activities experienced a marked slowdown. Agriculture grew by 4%, with rice yields reaching 42.3 million tons, the highest in the past decade.
In addition to immediate price stabilization measures, restructuring of public investment, state-owned enterprises and the banking sector are expected to follow and help enhance the long term stability and balanced growth of the economy.
In 2012, Viet Nam is expected to grow at a similar rate of 5.8%, as declining inflation helps stimulate consumption and improve investor confidence.
Double-digit inflation was the primary concern in 2011
Rapid expansion of credit and money supply in recent years, coupled with a series of currency devaluations, resulted in double-digit inflation in 2011.
Rising from 12.2% in January, inflation peaked at 23% in August, six months after the government announced wide-ranging stabilization measures. Inflation was 18.7% for the year, much higher than the historical average but below the 2008 peak.
Inflation fell to 14.1% by March 2012 and is likely to fall back to single digit by the second half of the year.
Fiscal balances improve, but streamlining and restructuring tasks ahead
Fiscal deficit narrowed to 4% of GDP in 2011, down from 6.6% and 9.3% in 2010 and 2009 respectively, owing to strong revenues particularly from oil exports.
However, government expenditure growth was not in line with the Resolution 11 commitments to cut investment expenditure by 80 trillion dong (about 3.2% of GDP) by canceling inefficient projects and postponing non-urgent ones.
In addition to streamlining expenditure, restructuring of large state owned enterprises will be an important task ahead. Such measures will help improve the quality of investment in the future.
Monetary policy focused on curbing inflation and helping weak banks
Viet Nam introduced strong stabilization measures to curb inflation under “Resolution 11” in February 2011. The central bank's refinancing rate and discount rate were hiked up, from 9% and 7% at the beginning of the year to 15% and 13% respectively by December.
Total credit and money supply growth fell to 10.9% and 9.3% respectively, from 32.4% and 33.3% in 2010.
At the same time, the central bank and state-owned commercial banks stepped in with liquidity support to protect small and weak banks, as vulnerabilities including high non-performing loans emerged in the financial sector.
Partly in response to the weak GDP growth performance in the first quarter of 2012, the central bank reduced the refinancing rate by 200 basis points to 13% from January to April. Any further cuts would have to be carefully considered, however, given the still high inflation and the possible negative effects rate cuts could have on the currency.
Trade deficit was the lowest in ten years
Viet Nam saw a sharp increase in current account deficit in 2007 upon joining the World Trade Organization. The deficit peaked at 11.9% of GDP in 2008, and has since fallen to 3.8% in 2011. Led by strong garments and crude oil exports, the country's trade deficit in 2011 was the lowest in ten years.
Remittances grew by around 10% to reach $8.7 billion in 2011.
Foreign direct investment inflow declined to $11.6 billion in 2011 from $17.2 billion in 2010, according to the General Statistical Office.
Portfolio investment inflows were also lower compared to 2010, at around $1.4 billion.
The Vietnamese dong continued to fall against the US dollar, by 5.7% in 2010 and another 7.3% in 2011.
Although still at relatively low levels, the country's foreign currency reserve increased to cover two months of imports by early 2012.
Poverty and food insecurity impacts of high inflation should be addressed
There is some evidence that poverty increased after the country's last bout of high inflation in 2008. With the return of double-digit inflation in 2011, the poorest being impacted again by the high food prices. According to the Central Institute for Economic Management of Viet Nam, the rural poor spend 70% to 80% of their income on food.
Policy brief: Living with high commodity prices <download pdf file>