Viet Nam
Briefing Notes for the Launch in Hanoi, March 2008
Viet Nam to lead in economic growth in South East Asia
- A high rate of economic growth, high investment rate and a stable exchange rate amidst difficult circumstances and higher level of foreign reserves were major positive developments in Viet Nam in 2007. On the downside were relatively high inflation rate, a widening trade deficit and a high current account deficit. While the economy is projected to grow by 8.2 per cent, highest for South east Asia, inflationary pressure will be a key concern for Viet Nam in 2008
- Economic growth in Viet Nam grew by 8.4 per cent in 2007, slightly higher than in the previous year. Higher investment growth at 11 per cent underpinned a high rate of economic growth. Private consumption grew less rapidly in 2007. This was in contrast to other South East Asian countries, where private consumption, a major component of aggregate demand, increased more rapidly. Industry and services sectors contributed most to GDP growth with growth rates of 10.6 and 8.7 per cent, respectively.
Better investment climate boosting growth
- Improved investment climate and infrastructure were reflected in higher domestic investments. Domestic investment continued to increase during the year reaching 37 per cent of GDP in 2007. Domestic savings remained more or less at the same level (31 per cent), foreign savings making up for the additional resources required for investment.
- As in other South East Asian countries, the economy of Viet Nam remain chiefly export oriented. Exports/GDP ratio at 96 peer cent was relatively high compared to other developing countries in South East Asia, and it is growing. Exports increased by 21.5 per cent in 2007. But imports grew faster at 35.5 per cent, resulting in a wider trade deficit during the year. As a result, the current account deficit widened considerably from 0.3 per cent of GDP in 2006 to 8 per cent in 2007.
Relatively high but stable inflation
- Inflation remained stable below 8 per cent thanks to a tighter monetary policy, but was relatively higher than most countries in South East Asia. A considerable increase (almost 70 per cent) in foreign capital flows to Viet Nam during the year was a challenge for the monetary authority’s efforts to contain inflation, which continued to hover over and above the targeted rate.
Tight dong despite volatile markets
- Amidst volatile foreign exchange markets around the globe Viet Nam managed to keep its currency tight around its targeted level of 16,000 dong per US dollar. The depreciating dollar and large foreign capital inflows complicated Viet Nam’s successful efforts to prevent the dong from appreciating.
- Despite a growing current account deficit, higher capital flows resulted in accumulating a large stock of foreign exchange reserves. Total foreign reserves increased to a level equivalent to 20 weeks of imports at the end of 2007 from 13.6 weeks in 2006.
High potential for faster growth in agriculture
- Agriculture has made important contributions to poverty reduction in Viet Nam particularly in rural areas. Despite a reduction in the importance of the agricultural sector in employment generation over the years, it still accounted for 55 per cent of employment in 2006. Agricultural labour productivity has increased over the years, but there is still lot of room for an increase in agricultural productivity and thereby reducing poverty at a faster rate. Slow technology adaptation, slow progress in agricultural product processing industries, natural disasters and unfavourable international prices of agricultural products are some of the constraints for the sector’s growth.
