Vietnam competitiveness in steady decline

SaigonTimesDaily

The World Bank (WB) announced in its East Asia Pacific Economic Update on April 7 that Vietnam is facing a steady decline in competitiveness compared to similar regional economies.

The result was demonstrated in the WB surveys that compared the competitiveness of regional countries.

The Vietnamese economy is expected to grow a modest 5.5 percent this year, lower than the Philippines with 6.6 percent, Cambodia with 7.2 percent, Laos with 7.2 percent, Myanmar with 7.8 percent, and Timor Leste with 8 percent.

However, Vietnam’s growth rate was higher than Indonesia’s with 5.3 percent, Malaysia’s with 4.9 percent and Thailand’s with 3 percent, the report said.

The nation’s inflation, meanwhile, is predicted to stay within this year’s target at 7 percent.

While macroeconomic achievements remain fragile, Vietnam is facing three disadvantages such as the weak aggregate demand of the private sector. Authorities have been forced to loosen fiscal and monetary policies to stimulate demand while structural reforms may continue to move on slowly, dragging down economic growth and fiscal sustainability.

Although there have been macroeconomic improvements, the gross domestic product (GDP) growth is still obstructed by slow structural reforms. Structural problems with state-owned enterprises (SOEs) and banking sector and policy impediments to industrial competition and private investment have lowered its potential growth.

To fuel economic growth in the medium term, Vietnam must pay more attention to structural reforms, focusing on banks and SOEs, while removing barriers against domestic private investments, the report said.

Speaking at a meeting held in Hanoi City on April 7 to announce the report, WB country director for Vietnam Victoria Kwakwa said the government adopted many new laws and regulations last year, including a regulatory requirement for information transparency and SOEs’ capital divestment from non-core businesses, and another for 432 SOEs to go public from now to 2015.

This is an important step, creating a legal framework for SOE reform. However, the most important thing was implementation of those policies in reality, she said.

Credit has slowed down as banks worrying about high bad debt ratios are weighing lowering financial leverage. Credit demand remains low, suggesting business confidence in the private sector is ebbing.

Shortcomings of the financial sector still exist. Bad debts remain a great threat for the banking system.

The government is mulling fiscal policy options as it has to balance the dual targets of economic growth and macroeconomic stabilisation.

The WB in the report recommended that the government continue cautious policies in managing the macro economy, speeding up structural reforms including reform of SOEs and banks, and speeding up investment of the domestic private sector.

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