VINACHEM

Former Trade Minister Truong Dinh Tuyen has said it is difficult to achieve this year’s gross domestic product (GDP) growth target of 6.7% as set by the National Assembly (NA).

Speaking at a conference on Vietnam’s economy this year and next held by PTI Education Group on Sunday, the economic expert said the nation is grappling with a number of problems such as soaring budget deficit and public debt.

Despite efforts of the Government, ministries and agencies, the effort to settle bad debt has not produced as good results as expected since the country lacks resources and legal grounds to deal with mortgaged assets and does not have a full-fledged debt trading market. Therefore, most bad debts have been sold to Vietnam Asset Management Company (VAMC).

Deposit interest rates for all tenors are on the rise, making it hard for banks to keep the same lending rates as in 2015. This will hit local enterprises, especially medium and small ones, Tuyen said.

Moreover, drought and saltwater intrusion in the Central Highlands, south-central and Mekong Delta regions have dealt a blow to farming this year and their impact on crops is forecast to linger until next year.

GDP of the agricultural sector in the first quarter fell by 1.23% year-on-year while industrial expansion stood at 6.72% in January-March, well below 8.74% in the same period last year. Vietnam’s GDP expanded by a mere 5.46% in quarter one, down 0.66 percentage point from a year earlier.

Tran Dinh Thien, director of the Vietnam Institute of Economics, told the conference that economic instability in Vietnam has resulted from the nation’s heavy reliance on imports, especially from China. It is risky for Vietnam to buy a large volume of materials from a single nation.

Thien added the industry sector concentrates on assembly and mining rather than manufacturing, which is another major challenge. Many Vietnamese firms have underperformed and foreign direct investment (FDI) businesses have been the major driver for economic growth.

At a cabinet meeting in Hanoi in early May, Prime Minister Nguyen Xuan Phuc urged ministries and agencies to do whatever it takes to obtain GDP growth of 6.7% and control inflation this year despite fresh problems arising.

However, Tuyen said, this year Vietnam should spare no effort to stabilize the macro economy and should not achieve the GDP growth target at any costs, and that even GDP growth of 6.5% for 2016 would be fine.

Tuyen called for the country to continue economic restructuring though it may hurt economic growth in the short term.

GDP growth depends on the business environment. At present, firms’ transaction costs total a hefty US$20 billion per annum, equivalent to 1% of GDP, Tuyen noted.