“Low inflation and strengthening consumer confidence supported an uptick in private consumption while investment was lifted by robust foreign direct investment, rising government expenditures marking completion of the current five-year planning cycle, and a recovery of credit growth,” according to the World Bank
’s semiannual “Taking Stock” report.
Credit growth at banks in Vietnam is resuming, supported by low inflation and accommodative monetary policy, the bank says.
Better macroeconomic conditions have helped maintain stability in the banking system, though deep-seated vulnerabilities continue to pose risks. The reported bad debt in the banking system has declined to about 3%, some of the decline is due to transfers of non-performing loans to the Vietnam Asset Management Company (VAMC), which has purchased roughly $10 billion of bad debts as of October 2015.
Rising exchange rate pressures in Vietnam were alleviated by a gradual devaluation and more exchange rate flexibility amid volatility in international currency markets.
Pressures on the currency had been building since early 2015 on account of a rising trade deficit and weakening currencies across Asia.
The report points out that a combination of declining oil revenue and a further corporate income tax (CIT) rate cut dampened revenue performance in the first nine months of 2015.
Expenditure expanded faster than revenue, driven mostly by an increase in recurrent spending, which accounted for 70.5% of total expenditure. The fiscal deficit was estimated at 4.9% of GDP in the first nine months of 2015, financed primarily by domestic debt.
“Growing fiscal imbalances resulting from countercyclical fiscal policy in past years need to be addressed to ensure sustainable public finances,” say WB economists.
Vietnam’s export performance remains resilient despite subdued global trade growth. The country’s export turnover was up 9.2% year-on-year to $120 billion between January and September 2015.
However, the engine of strong export performance generally originated in the foreign-invested sector, which contributed 68.2% of total non-oil exports and grew at 20.8% in the first nine months of 2015.
Overall Vietnam’s trade position weakened during 2015, narrowing the current account surplus as imports grew faster than exports. Despite a weaker current account, external financing risks were mitigated by robust FDI inflows and long-term concessional borrowing, says the WB report.