Vietnam’s economy at a crossroads in 2015

04:42 PM @ Monday - 26 January, 2015
VietNamNet Bridge – The government has set its sights for the nation’s economy to expand at a quicker 6.2% GDP rate for 2015 as strong exports continue to drive growth and it tries to invigorate them to offset weak domestic demand.

However, policy makers readily acknowledge the country is facing numerous difficulties and challenges in 2015, so the targets set for next year are very challenging.

Most leading economists are in general agreement that the economic growth target of 6.2% appears to be very demanding given the difficulties the economy is facing and in particular they are sceptical about the foreign investment targets.

Vietnam achieved an economic growth rate of 5.98% in 2014, a seventh consecutive year of expansion, surpassing the set target of 5.8% and the government now aims for overall domestic investment to reach 30 percent of gross domestic product (GDP) in 2015, about the same level as 2014.

They are in general agreement that the country won’t meet the growth target unless foreign direct investment (FDI) levels are maintained at the same level as those achieved in 2014 and that to accomplish this task necessitates jumping through a lot of hoops.

Le Dang Doanh is one of the leading economists suggesting that the Government should exert greater efforts to achieve the economic growth target in 2015 by speeding up administrative reforms and simplifying cumbersome formalities for foreign businesses.

Notably keeping investment at this high level also necessitates the government being proactive in taking steps to resolve macroeconomic problems such as bad debt at banks and privatizing state firms, Doanh adds.

Exports – the key to economic growth

Calendar year 2014 was a successful year for Vietnam’s exports with a remarkable export turnover reaching US$150 billion, up 13.6% when compared against the previous year.

A few economists have forecast that despite economic difficulties globally and in the country, the total export volume in 2015 might jump by as much as 10% over 2014 thereby remain the dominant force pushing economic growth.

The main catalyst for the expansive exports through 2014 has been the nation’s movement to a more open market economy in line with World Trade Organization (WTO) commitments and the interrelated regional and global integration brought about by free trade agreements (FTAs).

Dr Pham Tat Thang, a senior expert from the Trade Research Institute under the Ministry of Industry and Trade says in 2015 Vietnam’s export activities under these FTAs are destined to become more hectic over the next year as compared to last year.

The signing of some FTAs, especially the Trans Pacific Partnership (TPP) in the first quarter of the year would help boost Vietnam’s exports tremendously. However, Thang adds the nation’s economic growth depends on policy making, macro-economic stability, favourable business climate and efforts from the business community.

Inflation within control and increased investors’ trust

Another important factor promoting the country’s growth in 2015 is inflation and the government aims to keep inflation constrained below 5.0%. Most economists are forecasting inflation to be in the 4-5% range for the year.

Dr Nguyen Ngoc Tuyen, head of the economics, finance institute under the Academy of Finance says a below 5% inflation rate would create macro-economic stability and a favourable investment climate and help attract greater FDI inflows.

He forecasts that FDI would likely be the key source for Vietnam’s economic growth for the next five years.

Economist Vu Dinh Anh emphasizes that if Vietnam wants to achieve an economic growth rate of 6.2% this year, it should ease monetary policies in the context of low inflation. This would greatly help support businesses enlarge production and investment as well as contribute to accelerating economic growth.

Last but not least, several laws such as Law on Customs, Law on Taxation, Investment and Enterprise are set to be implemented in 2015. These should make a huge impact on the business environment and open up more opportunities to attract FDI, Anh says.

Though the high economic growth rate has been a bright spot of the national economy, a few economists caution that factually the economy is overly dependent on foreign investment and a much too low cost labour force plagued by low productivity and over exploitation of natural resources.

They suggest that the national economy is at a crossroads in 2015 and would be better off transforming to a new growth model that is fundamentally aimed at higher labour productivity and increased added value for goods and services to best achieve sustainable economic growth.
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