VINACHEM

The Asian Development Bank expects Vietnam's economy to grow at 5.6 percent this year as banking reforms show progress and a recovery in the US and the euro area lift demand for Vietnamese goods.

The Asian Development Outlook 2014 released Tuesday expects growth to pick up further to 5.8 percent in 2015.

Inflation is expected to fall to 6.2 percent this year from 6.6 percent in 2013, assuming reasonably stable food production, moderate policy stimulation, and a slight depreciation of the dong.

Inflation is forecast to be 6.6 percent in 2015 as economic activity picks up.

The report noted progress in financial sector reforms, including the central bank’s efforts to supervise lending, merger and restructure of some weaker banks, and eased restrictions on foreign investment in banks.

The report also hailed the new loan classification and provision standards aimed at narrowing the gap with international norms that will come into effect in June.

“Accelerating progress on resolving non-performing loans is likely to require setting firm targets and timelines for closing the remaining gap between national and international standards, as well as strengthening capacity of enforcing agencies,” Tomoyuki Kimura, ADB's country director for Vietnam, said.

The report praised the government’s efforts to develop a single legal framework for private sector investment in infrastructure.

The quality of infrastructure in Vietnam lags behind that of most other major Southeast Asian economies, including Malaysia, Thailand and Indonesia, according to the World Economic Forum.

The Vietnamese government says the country needs US$170 billion for physical infrastructure such as electricity and water supply, transportation, and sewerage by 2020.

But public funding and official development assistance are expected to meet only half this need.

The government’s spending is constricted by a persistent fiscal deficit, which averaged 5 percent of GDP in the 2010–13 period.