VINACHEM

VietNamNet Bridge – The economy wraps up the grim year 2013 in stability, with many major economic indicators showing robust growth, but stagnation remains a major concern for 2014 and the years that follow. Officials and experts have these days stressed the need to create changes for sustainable development, especially changes to the institutional environment, if the economy is to be back on the growth track.

Budget revenue target realized

A big concern on the severe shortfall of State budget revenue has finally been removed as the target has been beaten, according to a conference convened by the Ministry of Finance in Hanoi on Monday.

Speaking at the meeting, Prime Minister Nguyen Tan Dung said he was joyful as the task of realizing the State revenue target for this year was not as difficult as predicted by the Finance Ministry months ago.

Finance Minister Dinh Tien Dung told the conference that the State budget revenue has exceeded the target by 1%, rising by VND16 trillion over the figure reported to the National Assembly in October.

In September, it is the Finance Minister who warned that the budget shortfall would be as much as VND63 trillion.

The minister explained that over VND20 trillion had been collected from dividends of State stakes in State-owned enterprises plus VND42 trillion from land use fees.

Prime Minister Nguyen Tan Dung noted that despite improvements in the State budget balance, there was still concern relating to the budget spending outgrowing budget revenue, and budget overspending remained high.

In 2014, according to the Finance Ministry, the budget revenue is estimated at VND782.7 trillion, or around US$37.2 billion, while the budget spending will likely hit VND1,006 trillion, leaving a State budget gap of VND224 trillion, or 5.3% of the gross domestic product (GDP) as approved by the National Assembly.

Agreeable indicators

The economy in 2013 has expanded by 5.42%, almost hitting 5.5% as targeted, despite numerous challenges at home.

The 2013 inflation has been contained at 6.04%, lower than the 7% target approved by the National Assembly, making this year’s consumer price index the lowest in the past ten years.

The worst scenario of banks crumpling has been over, as most banks have embraced restructuring, placing focus on settling bad debts.

High export growth, at 15% this year, is another success. Truong Van Phuoc, vice chair of the National Financial Supervision Committee, says in Tuoi Tre that the foreign exchange policy has paid off, reflected in high export growth although the forex rate was revised up by only 1%.

Challenges to be addressed

Experts, however, still pinpoint numerous challenges to be addressed.

Nguyen Bich Lam, head of the General Statistics Office, told a conference in Hanoi last week that despite improved growth for 2013, the quality of growth remained a big issue to be address in 2014.

The factors of capital and labor still accounted for high ratios in GDP, calculated at 55.79% and 17.12% in 2013 compared to 59.16% and 30.86% in 2012.

The total factor productivity (TFP) as a percentage of the GDP in Vietnam’s economy remains low compared to regional economies.

Lam said that TFP accounted for only 19.59% of Vietnam’s GDP compared to 51.32% in South Korea, 36.18% in Malaysia, 36.14% in Thailand, 35.19% in China, and 31.01% in India.

The labor productivity in Vietnam is far lower than other countries in the region, equivalent to only 10% in Indonesia, 5% in Malaysia, and around 3.3% in Thailand.

Even the low interest rate, around 7-10% and often touted as a success, gives way to concern, according to Tran Dinh Thien, head of the Vietnam Economy Institute.

Thien told the Daily that it is not a good sign as there are few borrowers despite the low lending rate. It shows signs “the economy is cooling down,” he said.

Institutional changes needed

Vice State President Nguyen Thi Doan on Monday asked the Central Institute for Economic Management (CIEM) to conduct studies for institutional reform so as to create momentum for the economy to pick up.

“Given the current context, I suggest that CIEM conduct studies for institutional reform in Vietnam. Without institutional reform, the economy will lag further,” Doan said at a function in Hanoi to mark the 35th birthday of CIEM.

The vice president noted that the think-tank CIEM used to propose reforms to the institutional mechanism that helped spur economic development in the past, and such a role must be further enhanced now.

“CIEM should help in studying methods for economic restructuring associated with growth models. Otherwise, the economy will remain a patchy one,” she said.

The vice president also asked CIEM to pinpoint barriers in areas of State management, cross ownership, interest groups and others that are hindering development.