VINACHEM

HSBC Bank expected that Vietnam’s public debt this year would not exceed the limit imposed by the National Assembly as the strong economic growth in the third quarter helped reduce the burden on the Government.

In a report released on Wednesday, HSBC said Vietnam’s economy has soared above its expectations. The economy grew at a staggering 7.5% year-on-year in the third quarter from 6.4% in the previous three-month period.

The annualized growth this year has reached 6.4% from just 5.7% in the first half of the year, putting the Government closer to reaching its 6.7% target for 2017.

A continued rise in exports and industrial manufacturing were some of the primary drivers of growth, as the strong tech cycle in the second quarter persisted throughout the third quarter. Exports grew 22% year-on-year in the third quarter (the same as the previous quarter), led by higher shipments of phones and electronic components, while industrial manufacturing grew by an average of 10% year-on-year from 8% in the second quarter.

Moreover, agricultural production and foreign direct investment (FDI) have picked up handsomely since the first half of the year, further lifting growth. Higher tourist arrivals and agricultural production also provided an additional lift to growth.

Importantly, the strong print in the third quarter eases the load on the Government and the State Bank of Vietnam (SBV) to enact further stimulus measures that might exacerbate risks in the economy.

In July, the SBV cut its policy rate by 25 basis points to 6.25%, alongside simultaneous cuts to various other rates, in a bid to boost growth. Moreover, Prime Minister Nguyen Xuan Phuc in August called for an increase in the credit growth target from 18% to 21% to further incentivize private consumption and investment.

While credit-driven growth is not necessarily a problem given the rising role of private consumption and non-state investments, it may also create new risks for the banking sector if new credit is placed in less productive industries. In addition, reaching (or at least getting close to) the government’s 6.7% growth target this year makes it less likely that the country would exceed the National Assembly’s mandated debt-to-gross domestic product (GDP) limit of 65%, HSBC commented.

According to the Finance Ministry, public debt will reach a record high of 64.8% of GDP in 2017-2018 before gradually falling in subsequent years, assuming growth remains around 6.7%. Of course, there remain risks that growth in 2018 would be subpar, especially if global trade drastically cools off, but at least the risks for this year have been tempered.

With the most recent reading, HSBC also revised up its GDP forecast to 6.6% in 2017 and continue to expect growth of 6.4% in 2018.

- VNN -